<PAGE>
Securities and Exchange Commission
Washington, D.C. 20549
Form 10-Q
[X] Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934.
For the quarterly period ended June 30, 1998
OR
[_] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
For the transition period from _______________ to ______________
Commission File Number: 0-19861
Impac Mortgage Holdings, Inc.
(Exact name of registrant as specified in its charter)
Maryland 33-0675505
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
20371 Irvine Avenue
Santa Ana Heights, California 92707
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (714) 556-0122
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
- --------------------------------------- -----------------------------------
Common Stock $0.01 par value American Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [_]
On August 11, 1998, the aggregate market value of the voting stock held by
non-affiliates of the registrant was approximately $373.8 million, based on the
closing sales price of the Common Stock on the American Stock Exchange. For
purposes of the calculation only, in addition to affiliated companies, all
directors and executive officers of the registrant have been deemed affiliates.
The number of shares of Common Stock outstanding as of August 11, 1998 was
24,328,706.
Documents incorporated by reference: None
<PAGE>
<TABLE>
<CAPTION>
IMPAC MORTGAGE HOLDINGS, INC.
1998 FORM 10-Q QUARTERLY REPORT
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
<S> <C>
Item 1. CONSOLIDATED FINANCIAL STATEMENTS - IMPAC MORTGAGE HOLDINGS, INC. Page #
Consolidated Balance Sheets, June 30, 1998 and December 31, 1997 3
Consolidated Statements of Operations, Three and Six Months Ended June 30, 1998 and 1997 4
Consolidated Statements of Cash Flows, Six Months Ended June 30, 1998 and 1997 5
Notes to Consolidated Financial Statements 6
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND 14
RESULTS OF OPERATIONS
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 24
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS 25
Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS 25
Item 3. DEFAULTS UPON SENIOR SECURITIES 25
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 25
Item 5. OTHER INFORMATION 25
Item 6. EXHIBITS AND REPORTS ON FORM 8-K 25
SIGNATURES 26
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
IMPAC MORTGAGE HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except per share data)
June 30, 1998 December 31, 1997
---------------------- ----------------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 7,378 $ 16,214
Investment securities available-for-sale 101,462 67,011
Loan Receivables:
CMO collateral 1,422,920 794,893
Finance receivables 448,422 533,101
Mortgage loans held-for-investment 49,347 257,717
Allowance for loan losses (5,958) (5,129)
---------------------- ----------------------
Net loan receivables 1,914,731 1,580,582
Investment in Impac Funding Corporation 31,071 27,122
Investment in Impac Commercial Holdings, Inc. 18,269 17,985
Accrued interest receivable 12,076 15,012
Other real estate owned 8,035 5,662
Premises and equipment, net 8,051 3,866
Due from affiliates 901 16,679
Other assets 2,767 2,679
---------------------- ----------------------
$ 2,104,741 $ 1,752,812
====================== ======================
LIABILITIES AND STOCKHOLDERS' EQUITY
CMO borrowings $ 1,327,699 $ 741,907
Reverse repurchase agreements 501,062 755,559
Accrued dividends payable 11,789 10,371
Due to affiliates 7,421 12,421
Other liabilities 5,871 3,524
---------------------- ----------------------
Total liabilities 1,853,842 1,523,782
---------------------- ----------------------
Stockholders' Equity:
Preferred Stock; $.01 par value; 10 million shares authorized;
none issued or outstanding at June 30, 1998 and at
December 31, 1997 - -
Common Stock; $.01 par value; 50 million shares authorized;
24,059,151 and 22,545,664 shares issued and outstanding at
June 30, 1998 and at December 31, 1997 241 225
Additional paid-in capital 306,717 283,012
Accumulated other comprehensive loss (6,987) (5,116)
Cumulative dividends declared (67,047) (43,927)
Notes receivable from common stock sales (973) (1,330)
Retained earnings 18,948 (3,834)
---------------------- ----------------------
Total stockholders' equity 250,899 229,030
---------------------- ----------------------
$ 2,104,741 $ 1,752,812
====================== ======================
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
IMPAC MORTGAGE HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except earnings per share data)
For the Three Months For the Six Months
Ended June 30, Ended June 30,
---------------------------------------------------------
1998 1997 1998 1997
--------------------------- -----------------------------
<S> <C> <C> <C> <C>
Revenues:
Interest income $ 43,106 $ 24,071 $ 81,675 $ 47,151
Equity in net earnings of Impac Funding Corporation 1,793 2,151 3,949 3,703
Equity in net earnings (loss) of Impac Commercial
Holdings, Inc. 463 (710) 841 (1,181)
Fee and other income 1,031 292 1,859 411
Gain on sale of securities - - - 648
------------- ------------- ------------- ---------------
46,393 25,804 88,324 50,732
------------- ------------- ------------- ---------------
Expenses:
Interest on CMO borrowings and reverse
repurchase agreements 31,589 17,703 60,392 33,025
Write-down of mortgage securities 1,241 - 1,241 -
Provision for loan losses 487 911 2,391 2,375
General and administrative expense 559 142 919 304
Professional services 513 52 856 547
(Gain) loss on sale of other real estate owned 201 (17) (491) 23
Personnel expense 125 24 234 91
Advisory fees - 1,364 - 2,828
------------- ------------- ------------- ---------------
34,715 20,179 65,542 39,193
------------- ------------- ------------- ---------------
Net earnings $ 11,678 $ 5,625 $ 22,782 $ 11,539
============= ============= ============= ===============
Weighted average shares outstanding - basic 23,784 14,431 23,372 14,271
============= ============= ============= ===============
Weighted average shares outstanding - diluted 23,962 14,655 23,559 14,514
============= ============= ============= ===============
Net earnings per share - basic $ 0.49 $ 0.39 $ 0.97 $ 0.81
============= ============= ============= ===============
Net earnings per share - diluted $ 0.49 $ 0.38 $ 0.97 $ 0.80
============= ============= ============= ===============
Dividends declared per common share $ 0.49 $ 0.40 $ 0.97 $ 0.79
============= ============= ============= ===============
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
IMPAC MORTGAGE HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
For the Six Months Ended June 30,
1998 1997
------------------ ------------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 22,782 $ 11,539
Adjustments to reconcile net earnings to net cash provided by
operating activities:
Equity in net earnings of Impac Funding Corporation (3,949) (3,703)
Equity in net earnings (loss) of Impac Commercial Holdings, Inc. (841) 1,181
Equity in net loss of Impac Commercial Capital Corporation - 257
Provision for loan losses 2,391 2,375
Depreciation and amortization 212 13
Net change in accrued interest receivable 2,936 (1,910)
Net change in other assets and liabilities 8,857 (4,050)
------------------ ------------------
Net cash provided by operating activities 32,388 5,702
------------------ ------------------
Cash flows from investing activities:
Net change in CMO collateral (632,505) (272,042)
Net change in finance receivables 84,606 154,757
Net change in mortgage loans held-for-investment 204,017 (40,982)
Proceeds from sale of other real estate owned, net 4,969 (5,173)
Purchase of investment securities available-for-sale (47,661) (7,165)
Sale of investment securities available-for-sale 5,303 9,637
Net principal reductions on investment securities available-for-sale 6,036 1,930
Purchase of premises and equipment (217) (39)
Contributions to Impac Funding Corporation - (8,910)
Contributions to Impac Commercial Holdings, Inc. - (15,003)
Dividends from Impac Commercial Holdings, Inc. 557 -
Contributions to Impac Commercial Capital Corporation - (500)
------------------ ------------------
Net cash used in investing activities (374,895) (183,490)
------------------ ------------------
Cash flows from financing activities:
Net change in reverse repurchase agreements (254,497) (81,789)
Net change in CMO borrowings 585,792 247,967
Dividends paid (21,702) (10,647)
Proceeds from exercise of stock options 109 619
Net proceeds from stock issued through structured equity shelf 106 -
Proceeds from dividend reinvestment and stock purchase plan 23,506 10,798
Advances to purchase common stock, net of principal reductions 357 (795)
------------------ ------------------
Net cash provided by financing activities 333,671 166,153
------------------ ------------------
Net change in cash and cash equivalents (8,836) (11,635)
Cash and cash equivalents at beginning of period 16,214 22,610
================== ==================
Cash and cash equivalents at end of period $ 7,378 $ 10,975
================== ==================
Supplementary information:
Interest paid $ 60,231 $ 32,871
Non-cash transactions:
Increase in accumulated other comprehensive loss $ 1,871 $ 962
Dividends declared and unpaid $ 11,789 $ 5,940
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
IMPAC MORTGAGE HOLDINGS, INC. and SUBSIDIARIES
Notes to Consolidated Financial Statements
(unaudited)
Unless the context otherwise requires, references herein to the "Company"'
refer to Impac Mortgage Holdings, Inc. (IMH), and its subsidiaries IMH
Assets Corporation (IMH Assets), Impac Warehouse Lending Group, Inc.
(IWLG), IMH/ICH Dove St., LLC (Dove), and Impac Funding Corporation
(together with its wholly-owned subsidiary, Impac Secured Assets Corp.,
IFC), collectively. References to IMH refer to Impac Mortgage Holdings,
Inc. as a separate entity from IMH Assets, IWLG, Dove and IFC.
1. Basis of Financial Statement Presentation
The accompanying consolidated financial statements have been prepared in
accordance with generally accepted accounting principles (GAAP) for
interim financial information and with the instructions to Form 10-Q and
Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by GAAP for complete financial
statements. In the opinion of management, all adjustments (consisting of
normal recurring adjustments) considered necessary for a fair presentation
have been included. Operating results for the six month period ended June
30, 1998 are not necessarily indicative of the results that may be
expected for the year ending December 31, 1998. The accompanying
consolidated financial statements should be read in conjunction with the
consolidated financial statements and related notes included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1997.
The operations of IMH have been presented in the consolidated financial
statements for the three and six months ended June 30, 1998 and 1997 and
include the financial results of IMH's equity interest in net earnings of
IFC, IMH's equity interest in net earnings (loss) of Impac Commercial
Holdings, Inc. (ICH), IMH's equity interest in net loss of Impac
Commercial Capital Corporation (ICCC), prior to ICH's initial public
offering (ICH IPO) on August 8, 1997, and results of operations of IMH,
IMH Assets, IWLG and Dove as stand-alone entities, subsequent to the
Company's initial public offering (IPO) on November 20, 1995.
The results of operations of IFC, of which 99% of the economic interest is
owned by IMH, are included in the results of operations of the Company as
"Equity in net earnings of Impac Funding Corporation." The results of
operations of ICH, of which 9.8% of ICH's Common Stock is owned by IMH,
are included in the results of operations of IMH as "Equity in net
earnings (loss) of Impac Commercial Holdings" The results of operations of
ICCC prior to the ICH IPO, of which 95% of the economic interest was owned
by IMH, are included in the results of operations of IMH as a component of
"Fee and other income."
2. Organization
The Company is a specialty finance company which, together with its
subsidiaries and related companies, primarily operates three businesses:
(1) the Long-Term Investment Operations, (2) the Conduit Operations, and
(3) the Warehouse Lending Operations. The Long-Term Investment Operations
invests primarily in non-conforming residential mortgage loans and
securities backed by such loans. The Conduit Operations purchases and
sells or securitizes primarily non-conforming mortgage loans. The
Warehouse Lending Operations provides warehouse and repurchase financing
to originators of mortgage loans. These latter two businesses include
certain ongoing operations contributed (the Contribution Transaction) to
the Company in 1995 by Imperial Credit Industries, Inc. (NASDAQ - ICII), a
leading specialty finance company. IMH is organized as a real estate
investment trust (REIT) for federal income tax purposes, which generally
allows it to pass through qualified income to stockholders without federal
income tax at the corporate level, provided that the Company distributes
95% of its taxable income to stockholders.
Long-Term Investment Operations. The Long-Term Investment Operations,
conducted by IMH and IMH Assets, invests primarily in non-conforming
residential mortgage loans and mortgage-backed securities secured by or
representing interests in such loans and, to a lesser extent, in second
mortgage loans. Non-conforming residential mortgage loans are residential
mortgages that do not qualify for purchase by government-sponsored
agencies such as the Federal National Mortgage Association (FNMA) and the
Federal Home Loan Mortgage Corporation (FHLMC). Such loans generally
provide higher yields than conforming loans.
<PAGE>
The principal differences between conforming loans and non-conforming loans
include applicable loan-to-value ratios, credit and income histories of the
mortgagors, documentation required for approval of the mortgagors, type of
properties securing the mortgage loans, loan sizes, and the mortgagors'
occupancy status with respect to the mortgaged properties. Second mortgage
loans are generally higher yielding mortgage loans secured by a second lien
on the property and made to borrowers owning single-family homes for the
purpose of debt consolidation, home improvements, education and a variety
of other purposes.
Conduit Operations. The Conduit Operations, conducted by IFC, purchases
primarily non-conforming mortgage loans and, to a lesser extent, second
mortgage loans from its network of third party correspondents and other
sellers, and subsequently securitizes or sells such loans to permanent
investors, including the Long-Term Investment Operations. Prior to the
Contribution Transaction, IFC was a division or subsidiary of ICII. IMH
owns 99% of the economic interest in IFC, while Joseph R. Tomkinson, Chief
Executive Officer of IMH and IFC, William S. Ashmore, President of IMH and
IFC, and Richard J. Johnson, Executive Vice President and Chief Financial
Officer of IMH and IFC, are the holders of all the outstanding voting
stock of, and 1% of the economic interest in, IFC.
Warehouse Lending Operations. The Warehouse Lending Operations, conducted
by IWLG, provides warehouse and repurchase financing to affiliated
companies and to approved mortgage banks, most of which are correspondents
of IFC, to finance mortgage loans during the time from the closing of the
loans to their sale or other settlement with pre-approved investors.
3. Summary of Significant Accounting Policies
Method of Accounting
The consolidated financial statements are prepared on the accrual basis of
accounting in accordance with GAAP. The preparation of financial
statements in conformity with GAAP requires management to make significant
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Reclassifications
Certain amounts in the consolidated financial statements as of and for the
three and six months ended June 30, 1997 have been reclassified to conform
to the 1998 presentation.
New Accounting Statements
In June 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting
Comprehensive Income", which is effective for fiscal years beginning after
December 15, 1997 and requires restatement of earlier financial statements
for comparative purposes. SFAS No. 130 establishes standards for reporting
and the display of comprehensive income and its components in the
financial statements. SFAS No. 130 requires that items meeting the
criteria of a component of comprehensive income (such as gains or losses
on certain investments in debt and equity securities classified as
available-for-sale), be shown in the financial statements as adjustments
to reported net earnings to arrive at a disclosure of comprehensive
income. SFAS No. 130 provides informative disclosure but does not and will
not impact previously reported or future net earnings and earnings per
share. The following table represents comprehensive income (in thousands):
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended June 30, Ended June 30,
--------------------------- ----------------------------
1998 1997 1998 1997
-------------- ------------ --------------- -------------
<S> <C> <C> <C> <C>
Net earnings $ 11,678 $ 5,625 $ 22,782 $ 11,539
Unrealized losses arising during period (1,856) (1,147) (1,871) (1,610)
Realized gains included in income - - - 648
=============== ============ ============== ============
Comprehensive income $ 9,822 $ 4,478 $ 20,911 $ 10,577
=============== ============ ============== ============
</TABLE>
<PAGE>
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information." SFAS No. 131 establishes standards
for the way that public enterprises report information about operating
segments in annual financial statements and requires that selected
information about those operating segments be reported in interim financial
statements. This statement supersedes SFAS No. 14 "Financial Reporting for
Segments of a Business Enterprise." SFAS No. 131 requires that all public
enterprises report financial and descriptive information about its
reportable operating segments. Operating segments are defined as components
evaluated regularly by the chief operating decision maker in deciding how
to allocate resources and in assessing performance. This statement is
effective for fiscal years beginning after December 15, 1997. In the
initial year of application, comparative information for earlier years
should be restated. SFAS No. 131 need not be applied to interim financial
statements in the initial year of its application, but comparative
information for interim periods in the initial year of application is to be
reported in financial statements for interim periods in the second year of
application. To date, the Company is still examining the impact of SFAS No.
131 and has not determined what operating segments will be reported.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes accounting
and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts, (collectively referred
to as derivatives) and for hedging activities. It requires that an entity
recognize all derivatives as either assets or liabilities in the statement
of financial position and measure those instruments at fair value. If
certain conditions are met, a derivative may be specifically designated as
(a) a hedge of the exposure to changes in the fair value of a recognized
asset or liability or an unrecognized firm commitment, (b) a hedge of the
exposure to variable cash flows of a forecasted transaction, or (c) a hedge
of the foreign currency exposure of a net investment in a foreign
operation, an unrecognized firm commitment, an available-for-sale security,
or a foreign-currency-denominated forecasted transaction. This statement is
effective for all fiscal quarters of fiscal years beginning after June 15,
1999.To date, the Company is still examining the impact of SFAS No. 133
and has not determined its effect on financial position and results of
operation.
4. Net Earnings per Share
Effective December 31, 1997, the Company adopted SFAS No. 128, "Earnings
per Share". SFAS No. 128 replaced the previously reported primary and
fully diluted earnings per share with basic and diluted earnings per
share. Unlike primary earnings per share, basic earnings per share
excludes any dilutive effects of stock options. Diluted earnings per share
is very similar to the previously reported fully diluted earnings per
share. Basic earnings per share is computed on the basis of the weighted
average number of shares outstanding for the period. Diluted earnings per
share is computed on the basis of the weighted average number of shares
and common equivalent shares outstanding for the period.
The following tables represent the computation of basic and diluted
earnings per share for the three and six months ended June 30, 1998 and
1997 (in thousands, except per share data):
<TABLE>
<CAPTION>
For the Three For the Three
Months Ended Months Ended
June 30, 1998 June 30, 1997
---------------------- ---------------------
<S> <C> <C>
Numerator:
Numerator for basic earnings per share--
Net earnings $ 11,678 $ 5,625
---------------------- ---------------------
Denominator:
Denominator for basic earnings per share--
Weighted average number of common shares
outstanding during the period 23,784 14,431
Net effect of dilutive stock options 178 224
---------------------- ---------------------
Denominator for diluted earnings per share 23,962 14,655
====================== =====================
Net earnings per share--basic $ 0.49 $ 0.39
====================== =====================
Net earnings per share--diluted $ 0.49 $ 0.38
====================== =====================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
For the Six For the Six
Months Ended Months Ended
June 30, 1998 June 30, 1997
---------------------- ---------------------
<S> <C> <C>
Numerator:
Numerator for basic earnings per share--
Net earnings $ 22,782 $ 11,539
---------------------- ---------------------
Denominator:
Denominator for basic earnings per share--
Weighted average number of common shares
outstanding during the period 23,372 14,271
Net effect of dilutive stock options 187 243
---------------------- ---------------------
Denominator for diluted earnings per share 23,559 14,514
====================== =====================
Net earnings per share--basic $ 0.97 $ 0.81
====================== =====================
Net earnings per share--diluted $ 0.97 $ 0.80
====================== =====================
</TABLE>
5. Mortgage Assets
Mortgage Assets consist of investment securities available-for-sale,
mortgage loans held-for-investment, CMO collateral and finance
receivables. At June 30, 1998 and December 31, 1997, Mortgage Assets
consisted of the following (in thousands):
<TABLE>
<CAPTION>
June 30, 1998 December 31, 1997
---------------------- ---------------------
<S> <C> <C>
Investment securities available-for-sale:
Subordinated securities collateralized by mortgages $ 103,073 $ 66,811
Subordinated securities collateralized by other loans 5,376 5,316
Net unrealized losses (6,987) (5,116)
---------------------- ---------------------
Carrying value 101,462 67,011
---------------------- ---------------------
Loan Receivables:
CMO collateral--
CMO collateral, unpaid principal balance 1,363,077 762,939
Unamortized net premiums on loans 45,843 28,617
Securitization expenses 14,000 3,337
---------------------- ---------------------
Carrying value 1,422,920 794,893
Finance receivables--
Due from affiliates 356,579 474,317
Due from other mortgage banking companies 91,843 58,784
---------------------- ---------------------
Carrying value 448,422 533,101
Mortgage loans held-for-investment--
Mortgage loans held-for-investment, unpaid principal balance 46,968 247,026
Unamortized net premiums on loans 2,379 10,691
---------------------- ---------------------
Carrying value 49,347 257,717
Carrying value of Gross Loan Receivables 1,920,689 1,585,711
Allowance for loan losses (5,958) (5,129)
---------------------- ---------------------
Carrying value of Net Loan Receivables 1,914,731 1,580,582
---------------------- ---------------------
Total carrying value of Mortgage Assets $ 2,016,193 $ 1,647,593
====================== =====================
</TABLE>
<PAGE>
6. Investment in Impac Funding Corporation
The Company is entitled to 99% of the earnings or losses of IFC through
its ownership of all of the non-voting preferred stock of IFC. As such,
the Company records its investment in IFC using the equity method. Under
this method, original investments are recorded at cost and adjusted by the
Company's share of earnings or losses. Gain or loss on the sale of loans
or securities by IFC to IMH are deferred and amortized or accreted over
the estimated life of the loans or securities using the interest method.
The following is financial information for IFC for the periods presented
(in thousands):
<TABLE>
<CAPTION>
BALANCE SHEETS
June 30, 1998 December 31, 1997
------------------------ -----------------------
<S> <C> <C>
ASSETS
Cash $ 1,176 $ 359
Securities available-for-sale 6,905 6,083
Securities available-for-trading 5,297 -
Mortgage loans held-for-sale 407,103 620,549
Due from affiliates 22,034 969
Mortgage servicing rights 21,219 15,568
Accrued interest receivable 2,834 4,755
Premises and equipment, net 1,892 1,788
Other assets 8,403 6,873
-------------------------- ========================
$ 476,863 $ 656,944
========================= ========================
LIABILITIES AND SHAREHOLDERS' EQUITY
Borrowings from IWLG $ 338,594 $ 458,066
Other borrowings 59,877 149,144
Due to affiliates 20,672 6,198
Deferred revenue 15,562 7,048
Other liabilities 10,770 9,092
-------------------------- ------------------------
Total liabilities 445,475 629,548
-------------------------- ------------------------
Shareholders' Equity:
Preferred stock 18,053 18,053
Common stock 182 182
Retained earnings 13,153 9,161
-------------------------- ------------------------
Total shareholders' equity 31,388 27,396
========================== ========================
$ 476,863 $ 656,944
========================== ========================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF OPERATIONS
For the Three Months For the Six Months
Ended June 30, Ended June 30,
1998 1997 1998 1997
--------------- ---------------- -------------- ---------------
<S> <C> <C> <C> <C>
Revenues:
Interest income $ 9,857 $ 7,380 $ 24,656 $ 17,164
Gain on sale of loans 5,153 5,175 8,872 9,097
Loan servicing income 1,705 1,299 2,706 1,937
Other income 115 294 311 294
--------------- ---------------- -------------- --------------
16,830 14,148 36,545 28,492
--------------- ---------------- -------------- --------------
Expenses:
Interest on borrowings from IWLG 6,804 6,705 14,570 13,849
Other interest expense 1,309 - 4,180 -
Interest on borrowings from affiliates 411 745 557 2,185
Personnel expense 2,221 1,911 4,781 3,781
Amortization of mortgage servicing rights 1,533 542 2,925 949
General and administrative expense 1,242 357 2,285 839
Provision for repurchases 170 129 340 417
--------------- ---------------- -------------- --------------
13,690 10,389 29,638 22,020
--------------- ---------------- -------------- --------------
Earnings before income taxes 3,140 3,759 6,907 6,472
Income taxes 1,325 1,586 2,915 2,732
--------------- ---------------- -------------- --------------
Net earnings $ 1,815 $ 2,173 $ 3,992 $ 3,740
=============== ================ ============== ==============
</TABLE>
7. Investment in Impac Commercial Holdings, Inc.
Subsequent to the ICH IPO, the Company was entitled to 17.4% of the
earnings losses of ICH through its ownership of 1,394,000 shares, or 9.8%,
of the combined ICH voting Common Stock and ICH non-voting Class A Common
Stock. To maintain its REIT status, the Company cannot own more than 9.8%
of securities in any company at any time. When ICH issues additional
shares of voting Common Stock, the Company's non-voting Class A Common
Stock can be converted into ICH voting Common Stock on a one-for-one
basis. Therefore, when ICH issued 2,000,000 additional shares of Common
Stock through a secondary stock offering in June 1998, the Company
converted its shares of ICH non-voting Class A Common Stock for ICH voting
Common Stock not to exceed the 9.8% limit. As of the date of ICH's
secondary stock offering, the Company is entitled to 13.9% of the earnings
or losses of ICH through its ownership of 937,084 shares of ICH voting
Common Stock and 456,916 shares of ICH non-voting Class A Common Stock. As
such, the Company records its investment in ICH using the equity method.
Under this method, original investments are recorded at cost and adjusted
by the Company's share of earnings or losses.
The following is financial information for ICH for the periods presented
(in thousands):
<PAGE>
<TABLE>
<CAPTION>
BALANCE SHEETS
June 30, 1998 December 31, 1997
---------------------- ----------------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 12,957 $ 15,908
Investment securities available-for-sale 17,895 19,353
Residual interest in securitization, held-for-trading 10,322 9,936
Loan receivables:
Commercial Mortgages held-for-investment 367,341 62,790
Finance receivables 71,669 95,711
CMO collateral 11,019 4,255
Allowance for loan losses (682) (564)
---------------------- ----------------------
Net loan receivables 449,347 162,192
Due from affiliates 13,186 1,592
Premises and equipment, net 8,051 3,857
Investment in Impac Commercial Capital Corporation 3,306 4,182
Accrued interest receivable 770 1,361
Other assets 6,247 458
---------------------- ----------------------
$ 522,081 $ 218,839
====================== ======================
LIABILITIES AND STOCKHOLDERS' EQUITY
Warehouse line agreements $ 361,434 $ 90,374
CMO borrowings 10,726 4,176
Reverse repurchase agreements 6,929 9,841
Due to affiliates 5,231 8,067
Other liabilities 8,332 3,139
---------------------- ----------------------
Total liabilities 392,652 115,597
---------------------- ----------------------
Stockholders' Equity:
Common stock 96 73
Class A common stock 5 7
Additional paid-in capital 133,128 104,761
Accumulated other comprehensive loss (394) (160)
Cumulative dividends declared (11,066) (4,250)
Retained earnings 7,660 2,811
---------------------- ----------------------
Total stockholders' equity 129,429 103,242
---------------------- ----------------------
$ 522,081 $ 218,839
====================== ======================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF OPERATIONS
For the period from
For the For the For the January 15, 1997
Three Months Three Months Six Months (commencement
Ended Ended Ended of operations)
June 30, June 30, June 30, through June 30,
-------------------------------- ----------------------------------
1998 1997 1998 1997
---------------- --------------- --------------- ------------------
<S> <C> <C> <C> <C>
Revenues:
Interest income $ 8,704 $ 986 $ 14,478 $ 1,353
Equity in net loss of Impac
Commercial Capital Corporation (423) - (876) -
Rental and other income 318 - 426 -
--------------- --------------- -------------- ------------------
8,599 986 14,028 1,353
--------------- --------------- -------------- ------------------
Expenses:
Interest expense on warehouse line and
reverse repurchase agreements 4,716 6 7,035 371
Interest expense on other borrowings 349 297 746 91
Interest expense on borrowings from Impac
Warehouse Lending Group - 220 - 340
General, administrative and other expense 575 124 901 188
Management advisory fees 217 - 379 -
Provision for loan losses 69 20 118 33
Stock compensation expense - - - 2,697
--------------- --------------- -------------- ------------------
5,926 667 9,179 3,720
--------------- --------------- -------------- ------------------
Net earnings (loss) $ 2,673 $ 319 $ 4,849 $ (2,367)
=============== =============== ============== ==================
</TABLE>
8. Stockholders' Equity
During the six months ended June 30, 1998, the Company raised capital of
$23.5 million from the sale of 1,473,277 shares of Common Stock issued
through its Dividend Reinvestment and Stock Purchase Plan (DRIP) and
$511,000 from the sale of 32,400 shares of Common Stock issued through its
Structured Equity Shelf program (SES).
On June 23, 1998, the Company declared a second quarter dividend of $11.8
million, or $0.49 per share. This dividend was paid on July 15, 1998 to
stockholders of record on July 1, 1998. On March 30, 1998, the Company
declared a first quarter dividend of $11.3 million, or $0.48 per share.
This dividend was paid on April 24, 1998 to stockholders of record on
April 9, 1998.
<PAGE>
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Certain information contained in the following Management's Discussion and
Analysis of Financial Condition and Results of Operations constitute
forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Exchange Act of
1934, as amended, which can be identified by the use of forward-looking
terminology such as "may," "will," "expect," "anticipate," "estimate" or
"continue" or the negatives thereof or other variations thereon or
comparable terminology.
BUSINESS OPERATIONS
Long-Term Investment Operations: During the six months ended June 30,
1998, the Long-Term Investment Operations, conducted by IMH and IMH
Assets, acquired $794.0 million of mortgages from IFC as compared to
$439.4 million acquired during the same period in 1997. Mortgages
purchased by the Long-Term Investment Operations during the first six
months of 1998 consisted of $616.5 million of fixed-rate mortgages
("FRMs") and $171.3 million of adjustable-rate mortgages ("ARMs") secured
by first liens on residential property and $6.2 million of fixed-rate
second trust deeds secured by residential property. In June 1998, IMH
Assets issued a CMO for $192.1 million that was collateralized by $189.3
million of primarily ARMs from the Long-Term Investment Operations and
$7.2 million of condominium mortgages from ICH. For the six months ended
June 30, 1998, IMH Assets issued CMOs totaling $775.1 million as compared
to CMOs totaling $348.0 million during the same period in 1997. As of June
30, 1998, the Long-Term Investment Operations portfolio of mortgage loans
consisted of $1.4 billion of mortgage loans held in trust as collateral
for CMOs and $49.3 million of mortgage loans held-for-investment of which
approximately 45% were FRMs and 55% were ARMs. The weighted average coupon
of the Long-Term Investment Operations portfolio of mortgage loans was
9.38% at June 30, 1998 with a weighted average margin of 2.63%. The
portfolio of mortgage loans included 84% of "A" credit quality
non-conforming mortgage loans and 16% of "B" and "C" credit quality
non-conforming mortgage loans, as defined by the Company. The Long-Term
Investment Operations also sold $151.3 million of mortgage loans to IFC
and $4.5 million of mortgage loans to third parties during the first six
months of 1998 as compared to zero during the same period in 1997. In
addition, the Long-Term Investment Operations acquired $47.7 million of
securities created by IFC through the issuance of real estate mortgage
investment conduits ("REMICs") as compared to $7.2 million during the
same period in 1997. As of June 30, 1998, the Long-Term Investment
Operations had $101.5 million of investment securities available-for-sale.
Conduit Operations: The Conduit Operations, conducted by IFC, continues to
support the Long-Term Investment Operations of the Company by supplying
IMH and IMH Assets with mortgages for IMH's long-term investment
portfolio. In acting as the mortgage conduit for the Company, IFC's
mortgage acquisitions increased 40% to $1.3 billion during the six months
ended June 30, 1998 as compared to $931.6 million of mortgages acquired
during the same period in 1997. In addition, IFC securitized $630.3
million of mortgages and sold whole loans to third party investors
totaling $154.0 million, resulting in gain on sale of loans of $8.9
million, during the six months ended June 30, 1998. This compares to
securitizations of $560.4 million and whole loan sales to third parties of
$67.8 million, resulting in gain on sale of loans of $9.1 million, during
the same period in 1997. IFC had deferred income of $15.6 million at June
30, 1998 as compared to $7.0 million at December 31, 1997. The increase in
deferred income relates to the sale of $771.2 million in principal balance
of mortgages to IMH which are deferred and amortized or accreted over the
estimated life of the loans. IFC's servicing portfolio increased 56% to
$3.4 billion at June 30, 1998 as compared to $2.2 billion at June 30,
1997. The loan delinquency rate of mortgages in IFC's servicing portfolio
which were 60 or more days past due, inclusive of foreclosures and
delinquent bankruptcies, was 4.29% at June 30, 1998 as compared to 3.20%,
3.05%, 4.03% and 3.74% for the last four quarter-end periods. During the
second quarter of 1998, 283 loans were removed from 90 days or more
delinquent status of which 118 loans, or 42%, were reinstated, repurchased
or paid-in-full ("cure rate").
Warehouse Lending Operations: At June 30, 1998, the Warehouse Lending
Operations, conducted by IWLG, had $771.0 million of warehouse lines of
credit available to 31 borrowers, of which $525.5 million was outstanding
thereunder, including $338.6 million outstanding to IFC, $83.5 million
outstanding to the Long-Term Investment Operations, and $11.6 million
outstanding to Walsh Securities, Inc. ("WSI"). James Walsh, Executive Vice
President of WSI, is also a Director of IMH and ICH.
<PAGE>
RESULTS OF OPERATIONS; IMPAC MORTGAGE HOLDINGS, INC.
THREE MONTHS ENDED JUNE 30, 1998 AS COMPARED TO THREE MONTHS ENDED
JUNE 30, 1997
Net Earnings
Net earnings for the three months ended June 30, 1998 increased 109% to
$11.7 million, or $0.49 per diluted share, on revenues of $46.4 million as
compared to $5.6 million, or $0.38 per diluted share, on revenues of $25.8
million for the three months ended June 30, 1997. The increase in net
earnings was primarily the result of higher net interest income earned on
Mortgage Assets and increased earnings from IFC and ICH as well as a
reduction in advisory fees.
Net Interest Income
Net interest income increased 80% to $11.5 million during the second
quarter of 1998 as compared to $6.4 million during the second quarter of
1997. The increase in net interest income was primarily the result of
higher average Mortgage Assets, which increased 67% to $2.0 billion during
the second quarter of 1998 as compared to $1.2 billion during the same
period of 1997. In addition, net interest spread on Mortgage Assets
increased to 1.65% during the second quarter of 1998 as compared to 1.51%
during the second quarter of 1997. This increase was primarily the result
of an increase in the net interest spread on CMO collateral, which
represents the largest portion of Mortgage Assets on a weighted-average
basis. The net interest spread on CMO collateral was 1.28% during the
second quarter of 1998 as compared to 1.05% during the second quarter of
1997. This increase was the result of lower rates of amortization expense
on CMO collateral during the second quarter of 1998. The following table
summarizes average balance, interest and weighted-average yield on
Mortgage Assets and borrowings for the three months ended June 30, 1998
and 1997 (dollars in thousands):
<TABLE>
<CAPTION>
For the Three Months For the Three Months
Ended June 30, 1998 Ended June 30, 1997
----------------------------------- ------------------------------------
Average Weighted Average Weighted
Balance Interest Avg Yield Balance Interest Avg Yield
-------------------------------------- ---------------------------------
<S> <C> <C> <C> <C> <C> <C>
MORTGAGE ASSETS
Investment securities available-for-sale:
Subordinated securities collateralized by mortgages $ 91,269 $ 2,938 12.88% $ 56,821 $ 1,766 12.43%
Subordinated securities collateralized by other loans 5,369 149 11.10 5,275 222 16.83
------------- ------------ ----------- ----------
Total investment securities available-for-sale 96,638 3,087 12.78 62,096 1,988 12.81
------------- ------------ ----------- ----------
Loan receivables:
CMO collateral 1,309,736 26,441 8.08 571,551 10,613 7.43
Mortgage loans held-for-investment 178,036 3,265 7.34 233,893 4,022 6.88
Finance receivables:
Affiliated 343,860 7,328 8.52 313,992 6,613 8.42
Non-affiliated 91,927 2,257 9.82 22,558 536 9.50
------------- ------------ ----------- ----------
Total finance receivables 435,787 9,585 8.80 336,550 7,149 8.50
------------- ------------ ----------- ----------
Total Loan Receivables 1,923,559 39,291 8.17 1,141,994 21,784 7.63
------------- ------------ ----------- ----------
TOTAL MORTGAGE ASSETS $ 2,020,197 $ 42,378 8.39% $ 1,204,090 $ 23,772 7.90%
============= ============ =========== ==========
BORROWINGS
CMO borrowings $ 1,214,975 $ 20,658 6.80% $ 538,180 $ 8,589 6.38%
Reverse repurchase agreements - mortgages 571,416 9,449 6.61 541,275 8,649 6.39
Reverse repurchase agreements - securities 23,551 377 6.40 28,797 466 6.47
-------------- ------------ ----------- ----------
TOTAL BORROWINGS ON
MORTGAGE ASSETS $ 1,809,942 $ 30,484 6.74% $ 1,108,252 $ 17,704 6.39%
============== ============ =========== ==========
NET INTEREST SPREAD 1.65% 1.51%
NET INTEREST MARGIN 2.36% 2.02%
</TABLE>
<PAGE>
Interest income on Mortgage Assets: Interest income on CMO collateral
increased 149% to $26.4 million during the second quarter of 1998 as
compared to $10.6 million during the second quarter of 1997 as average CMO
collateral increased 127% to $1.3 billion as compared to $571.6 million,
respectively. Average CMO collateral increased as the Long-Term Investment
Operations issued CMOs totaling $952.9 million which were collateralized
by $965.4 million of mortgages held by the Long-Term Investment Operations
since the end of the second quarter of 1997. Over 80%, or $775.1 million,
of CMOs issued by the Long-Term Investment Operations since the end of the
second quarter of 1997 were issued during the first six months of 1998.
The weighted-average yield on CMO collateral increased to 8.08% during the
second quarter of 1998 as compared to 7.43% during the second quarter of
1997 due to lower rates of amortization expense.
Interest income on mortgage loans held-for-investment decreased 18% to
$3.3 million during the second quarter of 1998 as compared to $4.0 million
during the second quarter of 1997 as average mortgage loans
held-for-investment decreased 24% to $178.0 million as compared to $233.9
million, respectively. The decrease in average mortgage loans
held-for-investment was the result of the Long-Term Investment Operations
issuing CMOs, whereby mortgage loans held-for-investment become CMO
collateral, at a quicker pace during the first six months of 1998 as
compared to the same period in 1997. Therefore, even though the Long-Term
Investment Operations acquired $116.2 million of mortgages from IFC during
the second quarter of 1998 as compared to $87.1 million during the second
quarter of 1997, mortgage loans held-for-investment were more efficiently
and more rapidly securitized and reflected as CMO collateral on the
Company's books during the second quarter of 1998 as compared to the
second quarter of 1997. The weighted-average yield on mortgage loans
held-for-investment increased to 7.34% during the second quarter of 1998
as compared to 6.88% during the same period of 1997 as due to lower rates
of amortization expense.
Interest income on finance receivables increased 35% to $9.6 million
during the second quarter of 1998 as compared to $7.1 million during the
second quarter of 1997 as average finance receivables increased 29% to
$435.8 million as compared to $336.6 million, respectively. This increase
was primarily the result of an increase in average finance receivables to
non-affiliated mortgage banking companies to $91.9 million during the
second quarter of 1998 as compared to $22.6 million during the second
quarter of 1997. Average finance receivables outstanding to affiliates
increased 10% to $343.9 during the second quarter of 1998 as compared to
$314.0 during the second quarter of 1997 primarily as a result of
increased loan acquisitions by IFC. IFC's loan acquisitions increased 62%
to $665.5 million during the second quarter of 1998 as compared to $409.6
million during the second quarter of 1997. The overall weighted-average
yield on finance receivables increased to 8.80% during the second quarter
of 1998 as compared to 8.50% during the second quarter of 1997. This
increase is primarily due to increased average finance receivables to
non-affiliated mortgage banking companies which have higher borrowing
costs due to the greater lending risk associated with these companies.
Interest income on investment securities available-for-sale increased 55%
to $3.1 million during the second quarter of 1998 as compared to $2.0
million during the second quarter of 1997 as average investment securities
available-for-sale, net of securities valuation allowance, increased 56%
to $96.6 million as compared to $62.1 million, respectively. The increase
in average securities available-for-sale during the second quarter of 1998
was the result of the Long-Term Investment Operations purchasing and
retaining mortgage-backed securities of $23.6 million that were issued by
IFC as REMICs. The weighted-average yield on investment securities
available-for-sale decreased slightly to 12.78% during the second quarter
of 1998 as compared to 12.81% during the second quarter of 1997.
Interest expense on borrowings: Interest expense on CMO borrowings
increased 141% to $20.7 million during the second quarter of 1998 as
compared to $8.6 million during the second quarter of 1997 as average
borrowings on CMO collateral increased 123% to $1.2 billion as compared to
$538.2 million, respectively. As stated earlier, average CMO borrowings
increased as the Long-Term Investment Operations issued CMOs totaling
$952.9 million since the end of the second quarter of 1997. The
weighted-average yield of CMO borrowings increased to 6.80% during the
second quarter of 1998 as compared to 6.38% during the second quarter of
1997. This increase was the result of the Company issuing fixed-rate CMOs
totaling $583.0 million during the first six months of 1998 at higher
interest rates than the initial interest rates on variable-rate CMOs the
Company has issued in the past. Although borrowing rates on the fixed-rate
CMOs are generally higher than the initial interest rates on variable-rate
CMOs, the Company receives a comparable interest rate spread on fixed-rate
CMOs as it does on its variable-rate CMOs.
<PAGE>
Interest expense on reverse repurchase borrowings used to fund the
acquisition of mortgage loans and finance receivables increased 9% to $9.4
million during the second quarter of 1998 as compared to $8.6 million
during the second quarter of 1997. The average balance of these reverse
repurchase agreements increased 6% to $571.4 million during the first
quarter of 1998 as compared to $541.3 million during the second quarter of
1997. This increase was primarily related to an increase in finance
receivables made to non-affiliated mortgage banking companies. The
weighted-average yield of these reverse repurchase agreements increased to
6.61% during the second quarter of 1998 as compared 6.39% during the
second quarter of 1997.
The Company also uses mortgage-backed securities as collateral to borrow
under reverse repurchase agreements to fund the purchase of
mortgage-backed securities and to act as an additional source of liquidity
for the Company's operations. Interest expense on these reverse repurchase
agreements decreased 19% to $377,000 during the second quarter of 1998 as
compared to $466,000 during the second quarter of 1997. The average
balance on these reverse repurchase agreements decreased 18% to $23.6
million during the second quarter of 1998 as compared to $28.8 million
during the second quarter of 1997. This decrease was primarily the result
of increased liquidity from other sources that reduced the Company's
reliance on these borrowings as a funding source. The weighted-average
yield of these reverse repurchase agreements decreased to 6.40% during the
second quarter of 1998 as compared 6.47% during the second quarter of
1997.
Earnings from IFC
Equity in net earnings of IFC decreased 18% to $1.8 million during the
second quarter of 1998 as compared to $2.2 million during the second
quarter of 1997. IFC's earnings were negatively affected during the second
quarter of 1998 primarily as a result of increases in personnel expense,
amortization of mortgage servicing rights ("MSRs"), and general and
administrative expense. These increases were partially offset by increases
in net interest income and loan servicing income. Personnel expense
increased 16% to $2.2 million during the second quarter of 1998 as
compared to $1.9 million during the second quarter of 1997. The increase
in personnel expense is primarily due to an increase of 26% in staff to
161 at June 30, 1998 as compared to 128 at June 30, 1997. Amortization of
MSRs increased to $1.5 million during the second quarter of 1998 as
compared to $542,000 during the second quarter of 1997 as IFC generally
retains servicing rights on all mortgage loan acquisitions. Since June 30,
1997, the Company has securitized $1.6 billion in principal balance of
mortgage loans and, accordingly, has capitalized MSRs related to those
securitizations that are amortized over the estimated life of the loans.
General and administrative expense increased 236% to $1.2 million during
the second quarter of 1998 as compared to $357,000 during the second
quarter of 1997 as loan production and staffing increased. Earnings were
positively affected by increases in net interest income and loan servicing
income to $1.3 million and $1.7 million, respectively, during the second
quarter of 1998 as compared to $(70,000) and $1.3 million, respectively,
during the second quarter of 1997. Loan servicing income increased as IFC
retained servicing rights on mortgages acquired resulting in an increase
of 6% in IFC's servicing portfolio to $3.4 billion at June 30, 1998 as
compared to $3.2 billion at March 31, 1998.
Earnings from ICH
Equity in net earnings (loss) of ICH increased to $463,000 during the
second quarter of 1998 as compared to a net loss of $710,000 during the
second quarter of 1997. Earnings increased during the second quarter of
1998 due to strong asset growth from ICH's Long-Term Investment
Operations. Average Mortgage Assets during the second quarter of 1998 were
$347.4 million earning a weighted average yield of 8.99% as compared to
$36.3 million earning a weighted average yield of 10.87% during the second
quarter of 1997. As a result of the increase in Mortgage Assets during the
second quarter of 1998, net interest income on Mortgage Assets increased
to $3.0 million on an interest spread of 1.98% as compared to net interest
income of $421,000 on an interest spread of 2.41% during the second
quarter of 1997. Mortgage Assets have continued to grow since the second
quarter of 1997 as ICH's Conduit Operations, ICCC, originated a total of
$534.4 million in commercial mortgages through the second quarter of 1998.
Mortgage Assets are comprised of commercial mortgages held-for-investment
("Commercial Mortgages"), CMO collateral, finance receivables and
commercial mortgage-backed securities ("CMBSs"). ICCC supports the
Long-Term Investment Operations of ICH by supplying ICH with Commercial
Mortgages to be held in its long-term investment portfolio. As such, ICH
acquired $384.1 million of Commercial Mortgages from ICCC since the
inception of both companies in 1997. Consistent with the ICH's business
strategy of realizing earnings from its Long-Term Investment Operations,
the Company anticipates securitizing Commercial Mortgages as part of ICH's
first CMO debt structure in August 1998.
<PAGE>
Advisory Fees
Earnings were positively affected by a reduction in advisory fees
resulting from the Company's buyout of its management agreement with
Imperial Credit Advisors, Inc. ("ICAI"). As a result of the buyout, there
were no advisory fees paid by IMH during the second quarter of 1998 as
compared to $1.4 million in advisory fees paid by IMH during the second
quarter of 1997. Under the previous management agreement with ICAI, the
Company would have paid advisory fees of approximately $2.1 million during
the second quarter of 1998 resulting in basic earnings per common share of
$0.45 as compared to actual basic earnings per common share of $0.49.
Therefore, the termination of the management agreement was 9% accretive to
the Company's stockholders in the second quarter of 1998.
Credit Exposures
The Company recorded loan loss provisions of $487,000 during the second
quarter of 1998 as compared to $911,000 during the second quarter of 1997.
The loan loss provision decreased during the second quarter of 1998 due to
a reversal of write-downs previously taken on other real estate owned
("OREO"). The Company's total allowance for loan losses expressed as a
percentage of Gross Loan Receivables, which includes mortgage loans
held-for-investment, CMO collateral and finance receivables, was 0.31% at
June 30, 1998 as compared to 0.32% at December 31, 1997. The Company
recorded losses on the disposition of OREO of $201,000 during the second
quarter of 1998 as compared to gains on disposition of OREO of $17,000
during the second quarter of 1997.
RESULTS OF OPERATIONS; IMPAC MORTGAGE HOLDINGS, INC.
SIX MONTHS ENDED JUNE 30, 1998 AS COMPARED TO SIX MONTHS ENDED
JUNE 30, 1997
Net Earnings
Net earnings for the first six months of 1998 increased 98% to $22.8
million, or $0.97 per diluted share, on revenues of $88.3 million as
compared to $11.5 million, or $0.80 per diluted share, on revenues of
$50.7 million for the first six months of 1997. The increase in earnings
was primarily the result of higher net interest income earned on Mortgage
Assets and increased earnings from IFC and ICH as well as a reduction in
advisory fees.
Net Interest Income
Net interest income increased 51% to $21.3 million during the first six
months of 1998 as compared to $14.1 million during the same period in
1997. The increase in net interest income was primarily the result of
higher average Mortgage Assets, which increased 67% to $2.0 billion during
the first six months of 1998 as compared to $1.2 billion during the same
period in 1997. The net interest spread on Mortgage Assets decreased to
1.54% during the first six months of 1998 as compared to 1.80% during the
same period in 1997. This decrease was primarily the result of a decrease
in the net interest spread on CMO collateral, which represents the largest
portion of Mortgage Assets on a weighted-average basis. The net interest
spread on CMO collateral was 0.79% during the first six months of 1998 as
compared to 1.42% during the same period in 1997. This decrease was the
result of higher rates of amortization expense on CMO collateral during
the first six months of 1998.
The following table summarizes average balance, interest and
weighted-average yield on Mortgage Assets and borrowings for the six
months ended June 30, 1998 and 1997 (dollars in thousands):
<PAGE>
<TABLE>
<CAPTION>
For the Six Months For the Six Months
Ended June 30, 1998 Ended June 30, 1997
--------------------------------- ---------------------------------
Average Weighted Average Weighted
Balance Interest Avg Yield Balance Interest Avg Yield
--------------------------------- ---------------------------------
<S> <C> <C> <C> <C> <C> <C>
MORTGAGE ASSETS
Investment securities available-for-sale:
Subordinated securities collateralized by mortgages $ 78,955 $ 4,752 12.04% $ 56,180 $ 3,542 12.61%
Subordinated securities collateralized by other loans 5,344 380 14.22 6,606 564 17.08
---------- ---------- ----------- ---------
Total investment securities available-for-sale 84,299 5,132 12.18 62,786 4,106 13.08
---------- ---------- ----------- ---------
Loan receivables:
CMO collateral 1,180,143 44,190 7.49 527,831 20,228 7.66
Mortgage loans held-for-investment 252,762 11,717 9.27 208,982 7,417 7.10
Finance receivables:
Affiliated 361,701 15,480 8.56 334,761 13,770 8.23
Non-affiliated 77,905 3,719 9.55 20,271 1,060 10.46
----------- ----------- ----------- ---------
Total finance receivables 439,606 19,199 8.73 355,032 14,830 8.35
----------- ----------- ----------- ---------
Total Loan Receivables 1,872,511 75,106 8.02 1,091,845 42,475 7.78
----------- ----------- ----------- ---------
TOTAL MORTGAGE ASSETS $ 1,956,810 $ 80,238 8.20% $ 1,154,631 $ 46,581 8.07%
=========== =========== =========== =========
BORROWINGS
CMO borrowings $ 1,095,206 $ 36,688 6.70% $ 498,014 $ 15,528 6.24%
Reverse repurchase agreements - mortgages 643,757 21,260 6.61 531,421 16,772 6.31
Reverse repurchase agreements - securities 19,352 610 6.30 23,272 725 6.23
----------- ----------- ------------ ----------
TOTAL BORROWINGS ON
MORTGAGE ASSETS $ 1,758,315 $ 58,558 6.66% $ 1,052,707 $ 33,025 6.27%
=========== =========== ============ ==========
NET INTEREST SPREAD 1.54% 1.80%
NET INTEREST MARGIN 2.22% 2.35%
</TABLE>
Interest income on Mortgage Assets: Interest income on CMO collateral
increased 119% to $44.2 million during the first six months of 1998 as
compared to $20.2 million during the same period in 1997 as average CMO
collateral increased 127% to $1.2 billion as compared to $527.8 million,
respectively. Average CMO collateral increased as the Long-Term Investment
Operations issued CMOs totaling $952.9 million which were collateralized
by $965.4 million of mortgages held by the Long-Term Investment Operations
since the end of the second quarter of 1997. Over 80%, or $775.1 million,
of CMOs issued by the Long-Term Investment Operations since June 30,1997
were issued during the first six months of 1998. The weighted-average
yield on CMO collateral decreased to 7.49% during the first six months of
1998 as compared to 7.66% during the same period in 1997.
Interest income on mortgage loans held-for-investment increased 58% to
$11.7 million during the first six months of 1998 as compared to $7.4
million during the same period in 1997 as average mortgage loans
held-for-investment increased 21% to $252.8 million as compared to $209.0
million, respectively. The increase in average mortgage loans
held-for-investment was the result of the Long-Term Investment Operations
acquiring $794.0 million of mortgages from IFC during the first six months
of 1998 as compared to $439.4 million during the first six months of 1997.
Interest income on mortgage loans held-for-investment also increased as the
average balance of 125% loan-to-value second trust deeds ("125 Loans") was
$109.1 million during the first six months of 1998 as compared to zero
during the same period in 1997. In March 1998, the majority of 125 Loans
owned by IMH were sold to IFC and were securitized by IFC as a REMIC. As of
June 30, 1998, the Long-Term Investment Operations had an outstanding
balance of $27.4 million of 125 Loans. The weighted-average yield on
mortgage loans held-for-investment increased to 9.27% during the first six
months of 1998 as compared to 7.10% during the same period in 1997
primarily due to the higher yields earned on 125 Loans during the first six
months of 1998.
<PAGE>
Interest income on finance receivables increased 30% to $19.2 million
during the first six months of 1998 as compared to $14.8 million during
the same period in 1997 as average finance receivables increased 24% to
$439.6 million as compared to $355.0 million, respectively. The increase
was primarily the result of an increase in average finance receivables to
non-affiliated mortgage banking companies of $77.9 million during the
first six months of 1998 as compared to $20.3 million during the same
period in 1997. Average finance receivables outstanding to affiliates
increased 8% to $361.7 during the first six months of 1998 as compared to
$334.8 during the same period in 1997 primarily as a result of increased
loan acquisitions by IFC. IFC's mortgage acquisitions increased 40% to
$1.3 billion during the first six months of 1998 as compared to $931.6
million during the same period in 1997. The overall weighted-average yield
on finance receivables increased to 8.73% during the first six months of
1998 as compared to 8.35% during the same period in 1997. This increase is
primarily due to increased average finance receivables to non-affiliated
mortgage banking companies which have higher borrowing costs due to the
greater lending risk associated with these companies.
Interest income on investment securities available-for-sale increased 24%
to $5.1 million during the first six months of 1998 as compared to $4.1
million during the same period in 1997 as average investment securities
available-for-sale, net of securities valuation allowance, increased 34%
to $84.3 million as compared to $62.8 million, respectively. The increase
in average securities available-for-sale during the first six months of
1998 was the result of the Long-Term Investment Operations purchasing and
retaining mortgage-backed securities of $47.7 million that were issued by
IFC as REMICs. The weighted-average yield on investment securities
available-for-sale decreased to 12.18% during the first six months of 1998
as compared to 13.08% during the first six months of 1997.
Interest expense on borrowings: Interest expense on CMO borrowings
increased 137% to $36.7 million during the first six months of 1998 as
compared to $15.5 million during the same period in 1997 as average
borrowings on CMO collateral increased 121% to $1.1 billion as compared to
$498.0 million, respectively. As stated earlier, average CMO borrowings
increased as the Long-Term Investment Operations issued CMOs totaling
$952.9 million since the end of the second quarter in 1997. The
weighted-average yield of CMO borrowings increased to 6.70% during the
first six months of 1998 as compared 6.24% during the same period of 1997.
This increase is the result of the Company issuing fixed-rate CMOs
totaling $583.0 million during the first six months of 1998 at higher
interest rates than the initial interest rates on variable-rate CMOs the
Company has issued in the past. Although borrowing rates on the fixed-rate
CMOs are generally higher than the initial interest rates on variable-rate
CMOs, the Company receives a comparable interest rate spread on fixed-rate
CMOs as it does on its variable-rate CMOs.
Interest expense on reverse repurchase borrowings used to fund the
acquisition of mortgage loans and finance receivables increased 27% to
$21.3 million during the first six months of 1998 as compared to $16.8
million during the same period in 1997. The average balance of these
reverse repurchase agreements increased 21% to $643.8 million during the
first six months of 1998 as compared to $531.4 million during the same
period in 1997. This increase was primarily related to an increase in
finance receivables made to non-affiliated mortgage banking companies. The
weighted-average yield of these reverse repurchase agreements increased to
6.61% during the first six months of 1998 as compared 6.31% during the
same period in 1997.
The Company also uses mortgage-backed securities as collateral to borrow
under reverse repurchase agreements to fund the purchase of
mortgage-backed securities and to act as an additional source of liquidity
for the Company's operations. Interest expense on these reverse repurchase
agreements decreased 16% to $610,000 during the first six months of 1998
as compared to $725,000 during the same period in 1997. The average
balance on these reverse repurchase agreements decreased 17% to $19.4
million during the first six months of 1998 as compared to $23.3 million
during the same period in 1997. This decrease was primarily the result of
increased liquidity from other sources that reduced the Company's reliance
on these borrowings as a funding source. The weighted-average yield of
these reverse repurchase agreements increased to 6.30% during the first
six months of 1998 as compared 6.23% during the same period in 1997.
<PAGE>
Earnings from IFC
Equity in net earnings of IFC increased to $4.0 million during the first
six months of 1998 as compared to $3.7 million during the same period in
1997. IFC's earnings increased primarily due to increases in net interest
income and loan servicing income. Net interest income increased primarily
due to higher net interest margins earned on 125 Loans acquired in bulk
during the third and fourth quarters of 1997. The average outstanding
balance of 125 Loans was $88.9 million during the first six months of 1998
as compared to none during the same period in 1997. IFC retained servicing
rights on mortgages acquired resulting in an increase of 13% in IFC's
servicing portfolio to $3.4 billion at June 30, 1998 as compared to $3.0
billion at December 31, 1997. As such, IFC's loan servicing income
increased 42% to $2.7 million during the first six months of 1998 as
compared to $1.9 million during the same period in 1997.
Earnings from ICH
Equity in net earnings (loss) of ICH increased to $841,000 during the
first six months of 1998 as compared to a net loss of $1.2 million during
the period from January 15, 1997 (commencement of operations) through June
30, 1997.
Advisory Fees
Earnings were positively affected by a reduction in advisory fees
resulting from the Company's buyout of its management agreement with ICAI.
As a result of the buyout, there were no advisory fees paid by IMH during
the first six months of 1998 as compared to $2.8 million in advisory fees
paid by IMH during the same period of 1997. Under the previous management
agreement with ICAI, the Company would have paid advisory fees of
approximately $4.0 million during the first six months of 1998 resulting
in basic earnings per common share of $0.89 as compared to actual basic
earnings per common share of $0.97. Therefore, the termination of the
management agreement was 9% accretive to the Company's stockholders for
the first six months of 1998.
Credit Exposures
Provision for loan losses remained constant at $2.4 million during the
first six months of 1998 and 1997. The Company's total allowance for loan
losses expressed as a percentage of Gross Loan Receivables was 0.31% at
June 30, 1998 as compared to 0.32% at December 31, 1997. The decrease in
allowance for loan losses as a percentage of Gross Loan Receivables was
partially offset by accelerated loan charge-offs through the sale of
delinquent loans, resulting in losses of $937,000 during the first six
months of 1998, which was charged against the allowance for loan losses.
The Company sold delinquent loans in order to reduce the Company's overall
exposure to future losses. Excluding the loss on sale of delinquent loans,
the allowance for loan losses as a percentage of Gross Loan Receivables
would have been 0.36% at June 30,1998. Gain on sale of OREO increased to
$491,000 during the first six months of 1998 as compared to a loss of
$23,000 during the first six months of 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company's business operations are primarily funded from monthly
interest and principal payments from its mortgage loan and investment
securities portfolios, reverse repurchase agreements secured by mortgage
loans and mortgage-backed securities, adjustable- and fixed-rate CMO
financing, proceeds from the sale of mortgage loans and the issuance of
REMICs, short-term unsecured borrowings and proceeds from the issuance of
Common Stock through secondary stock offerings, DRIP, and SES. The
acquisition of mortgage loans and mortgage-backed securities by the
Long-Term Investment Operations are primarily funded from monthly
principal and interest payments, reverse repurchase agreements, CMO
financing, short-term unsecured borrowings and proceeds from the sale of
Common Stock. The acquisition of mortgage loans by the Conduit Operations
are funded from reverse repurchase agreements, the sale of mortgage loans
and mortgage-backed securities, and the issuance of REMICs. Short-term
financing (finance receivables) provided by the Warehouse Lending
Operations are funded from reverse repurchase agreements and proceeds from
the sale of the Common Stock. The Company believes these sources of funds
are sufficient for growth of its mortgage loan and investment securities
portfolios, lending activities, repayment of short-term obligations and
payment of cash dividends.
<PAGE>
The Company's ability to meet its long-term liquidity requirements is
subject to the renewal of its credit and repurchase facilities and/or
obtaining other sources of financing, including additional debt or equity
from time to time. Any decision by the Company's lenders and/or investors
to make additional funds available to the Company in the future will
depend upon a number of factors, such as the Company's compliance with the
terms of its existing credit arrangements, the Company's financial
performance, industry and market trends in the Company's various
businesses, the general availability of and rates applicable to financing
and investments, such lenders' and/or investors' own resources and
policies concerning loans and investments, and the relative attractiveness
of alternative investment or lending opportunities.
Long-Term Investment Operations: The Long-Term Investment Operations uses
CMO borrowings to finance substantially all of its mortgage loan portfolio
as a means of eliminating certain risks associated with reverse repurchase
agreements (such as the potential need for deposits of additional
collateral) that are not present with CMO borrowings. Terms of the CMO
borrowings require that an independent third party custodian hold the
mortgages. The maturity of each class is directly affected by the rate of
principal prepayments on the related collateral. Equity in the CMOs is
established at the time the CMOs are issued at levels sufficient to
achieve desired credit ratings on the securities from rating agencies. The
amount of equity invested in CMOs by the Long-Term Investment Operations
is also determined by the Company based upon the anticipated return on
equity as compared to the estimated proceeds from additional debt
issuance. Total credit loss exposure is limited to the equity invested in
the CMOs at any point in time. At June 30, 1998, the Long-Term Investment
Operations had $1.3 billion of CMO borrowings used to finance $1.4 billion
of CMO collateral.
In August 1997, ICH entered into a revolving credit arrangement with IMH
whereby ICH agreed to advance to IMH up to maximum amount of $15.0
million. The agreement expired on August 8, 1998. Advances under the
revolving credit arrangement are at an interest rate and maturity
determined at the time of each advance with interest and principal paid
monthly. As of June 30, 1998 and December 31, 1997, there were no amounts
outstanding under the credit arrangement. Interest expense recorded by IMH
for the six months ended June 30, 1998 and June 30, 1997 related to such
advances to ICH was approximately $203,000 and none respectively.
In August 1997, ICH entered into a revolving credit arrangement with IMH
whereby IMH agreed to advance to ICH up to maximum amount of $15.0
million. The agreement expired on August 8, 1998. Advances under the
revolving credit arrangement are at an interest rate and maturity
determined at the time of each advance with interest and principal paid
monthly. As of June 30, 1998 and December 31, 1997, ICH's outstanding
borrowings under the credit arrangement were none and $9.1 million,
respectively. Interest income recorded by IMH related to such borrowings
from ICH for the six months ended June 30, 1998 and the Commencement
Period was approximately $43,000 and none respectively.
ICCC has entered into an uncommitted warehouse line agreement with IMH to
provide financing as needed. The margins on the warehouse line agreement
are at 8% of the fair market value of the collateral. The interest rates
on the borrowings are indexed to the prime rate. As of June 30, 1998 and
December 31,1997, outstanding amounts on the warehouse line agreement was
$6.4 million and $8.5 million, respectively
IMH has entered into an unsecured revolving bank line of credit to borrow
up to $10.0 million for general working capital purposes at an annual
interest rate indexed to Bank of America's prime lending rate ("Prime")
plus 0.25%. The line of credit contains certain financial covenants that
the Company must meet. As of June 30, 1998 there were no borrowings
outstanding on the revolving line of credit.
The Long-Term Investment Operations may pledge mortgage-backed securities
as collateral to borrow funds under reverse repurchase agreements. The
terms under these reverse repurchase agreements are generally for 30 days
with interest rates ranging from the one-month London Interbank Offered
Rate ("LIBOR") plus 0.45% to 2.00% depending on the type of collateral
provided. As of June 30, 1998, the Long-Term Investment Operations had
$36.0 million outstanding under these reverse repurchase agreements which
were secured by $52.3 million in fair market value of mortgage-backed
securities.
During the six months ended June 30, 1998, the Company raised capital of
$23.5 million from the sale 1,473,277 shares of Common Stock issued
through its DRIP and $511,000 from the sale of 32,400 shares of Common
Stock issued through its SES program.
<PAGE>
Conduit Operations: The Conduit Operations has entered into warehouse line
agreements to obtain financing of up to $1.1 billion from the Warehouse
Lending Operations to provide IFC mortgage loan financing during the
period that IFC accumulates mortgage loans and until the mortgage loans
are securitized and sold. The margins on the reverse repurchase agreements
are based on the type of collateral provided and generally range from 95%
to 100% of the fair market value of the collateral. The interest rates on
the borrowings are indexed to Prime, which was 8.50% at June 30, 1998.
As of June 30, 1998, the Conduit Operations had $47.4 million outstanding
under a warehouse line facility from a major investment bank to finance
the acquisition of 125 Loans. As of June 30, 1998, the warehouse line
facility expired. The Conduit Operations anticipates that the remaining
125 Loans on the warehouse line facility will be securitized as a REMIC in
September 1998, whereby, the proceeds from the securitization will be used
to reduce borrowings on the warehouse line facility. The interest rates on
the borrowings are indexed to LIBOR plus 75 basis points to 175 basis
points depending on the type of collateral provided.
As of June 30, 1998, the Conduit Operations had $12.5 million outstanding
under an uncommitted warehouse line facility from a major investment bank
to finance the acquisition of 125 Loans. The Conduit Operations
anticipates that the remaining 125 Loans on the warehouse line facility
will be securitized as a REMIC in September 1998 whereby the proceeds from
the securitization will be used to reduce borrowings on the warehouse line
facility. The interest rates on the borrowings are indexed to LIBOR plus a
spread of 75 basis points.
During the six months ended June 30, 1998, the Conduit Operations
securitized $630.3 million of mortgage loans as REMICs and sold $154.0
million in principal balance of mortgage loans to third-party investors.
In addition, IFC sold $771.2 million in principal balance of mortgage
loans to the Long-Term Investment Operations during the six months ended
June 30, 1998. By securitizing and selling loans on a periodic and
consistent basis the warehouse financing facilities were sufficient to
handle IFC's liquidity needs during the six months ended June 30,1998.
Warehouse Lending Operations: The Warehouse Lending Operations finances
the acquisition of mortgage loans by the Long-Term Investment Operations
and Conduit Operations primarily through borrowings on reverse repurchase
agreements with third party lenders. IWLG has obtained repurchase
facilities from major investment banks to provide financing as needed.
Terms of the reverse repurchase agreements require that the mortgages be
held by an independent third party custodian giving the Warehouse Lending
Operations the ability to borrow against the collateral as a percentage of
the outstanding principal balance. The borrowing rates vary from 55 basis
points to 95 basis points over one-month LIBOR, depending on the type of
collateral provided. The margins on the reverse repurchase agreements are
based on the type of mortgage collateral used and generally range from 75%
to 101% of the fair market value of the collateral.
The following table presents information on available warehouse line
agreements as of June 30, 1998 (dollars in thousands):
<TABLE>
<CAPTION>
Borrowing Amount
Lender Limit Outstanding Interest rate
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Lender A (1) $ 303,834 $ 303,834 Libor + 0.75%
Lender B (2) 400,000 161,249 Libor + 0.45%-0.95%
=============== ================
Total $ 703,834 $ 465,083
=============== ================
</TABLE>
(1) Uncommitted warehouse line facility.
(2) The warehouse line facility is committed for up to $200.0 million.
The warehouse line agreement expires on October 22, 1998.
Cash Flows
Operating Activities - During the six months ended June 30, 1998 net cash
provided by operating activities was $32.4 million. Cash provided by
operating activities was primarily due to an increase in net earnings of
$22.8 million.
<PAGE>
Investing Activities - During the six months ended June 30, 1998 net cash
used in investing activities was $374.9 million. Cash used in investing
activities was primarily due to an increase in CMO collateral of $632.5
million from the acquisition of mortgage loans which was partially offset
by decreases in finance receivables and mortgage loans held-for-investment
of $84.6 million and $204.0 million, respectively.
Financing Activities - During the six months ended June 30, 1998 net cash
provided by financing activities was $333.7 million. Cash provided by
financing activities was primarily due to an increase of $585.8 million in
CMO borrowings used to fund the acquisition of mortgage loans which was
partially offset by a decrease in reverse repurchase agreements of $254.5
million.
Inflation
The Financial Statements and Notes thereto presented herein have been
prepared in accordance with GAAP, which require the measurement of
financial position and operating results in terms of historical dollars
without considering the changes in the relative purchasing power of money
over time due to inflation. The impact of inflation is reflected in the
increased costs of the Company's operations. Unlike industrial companies,
nearly all of the assets and liabilities of the Company's operations are
monetary in nature. As a result, interest rates have a greater impact on
the Company's operations' performance than do the effects of general
levels of inflation. Inflation affects the Company's operations primarily
through its effect on interest rates, since interest rates normally
increase during periods of high inflation and decrease during periods of
low inflation. During periods of increasing interest rates, demand for
mortgage loans and a borrower's ability to qualify for mortgage financing
in a purchase transaction may be adversely affected. During periods of
decreasing interest rates, borrowers may prepay their mortgages which in
turn may adversely affect the Company's yield on its portfolio of Mortgage
Assets.
Year 2000 Compliance
The Company is currently in the process of evaluating its information
technology infrastructure for the Year 2000 ("Y2000") compliance. The
Company has identified both Information Technology ("IT") systems and
non-IT systems and contacted vendors in regards to this issue. In regards
to IT systems, the Company plans to upgrade software applications where
possible or replace existing systems if required. Regarding non-IT
systems, workstations and fileservers are currently being tested and
software that is non-compliant with Y2000 is being replaced. Acquisitions
of workstations and fileservers are compliant with Y2000. Management has
approved a proposal to bring its telecommunications system into Y2000
compliance during 1998. The Company expects to be Y2000 compliant by the
end of the first quarter of 1999. The Company does not believe that the
cost to modify its information technology infrastructure to be material to
its financial condition or results of operations, nor does the Company
anticipate any material disruption of its operations as a result of any
failure by the Company to be compliant. However, there can be no assurance
that there will not be a delay in, or increased costs associated with, the
need to address the Year 2000 issue. The Company also relies, directly and
indirectly, on other businesses such as third party service providers,
creditors and financial organizations and governmental entities. Even if
the Company's computer systems are not materially adversely affected by
the Year 2000 issue, the Company's business and operations could be
materially adversely affected by disruptions in the operations of the
enterprises with which the Company interacts.
Transactions with Related Parties
RAI Advisors, LLC ("RAI"), an affiliated company, has contracted with
Stephan Peers, a Director of IMH and ICH, to provide certain consulting
services. To the extent these services are provided on behalf of IMH or
ICH, all costs associated with the consulting arrangement with Mr. Peers
will be proportionately charged to the appropriate Impac Company based
upon time spent.
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
<PAGE>
PART II. OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS
Fortune Mortgage, etc., et. al v. Imperial Credit Industries, Inc. v.
Imperial Credit Industries, Inc., Imperial Credit Mortgage Holdings, Inc.,
ICI Funding Corp., Imperial Warehouse Lending Group, Inc., William Ashmore,
Edward Pollard, Wayne Snavely, and Joseph Tomkinson, Orange County Superior
Court Case No. 776153.
Reference is make to the discussion of the above-referenced legal
proceeding contained in the Company's Form 10-K for the year ended
December 31, 1997 under Part I, Item 3, "Legal Proceedings." The lawsuit
was resolved in June 1998. The terms of the resolution are confidential;
however, such resolution did not have a material impact on the Company's
financial position or results of operations.
ITEM 2: CHANGES IN SECURITIES AND USE OF PROCEEDS
Not applicable.
ITEM 3: DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5: OTHER INFORMATION
As of April 8, 1998, H. Wayne Snavely resigned as Chairman of the Board of
IMH and currently serves as a Director of IMH. Joseph R. Tomkinson was
appointed Chairman of the Board. In May 1998, Mary Glass-Schnnault was
promoted from Vice President to Senior Vice President of IMH.
Stockholder Proposals
Stockholders are hereby notified that if they wish a proposal to be
included in the Company's Proxy Statement and Form of Proxy relating to the
1999 annual meeting of stockholders, they must deliver a written copy of
their proposal no later than February 15, 1999. Proposals must comply with
the proxy rules relating to stockholder proposals, in particular Rule 14a-8
under the Securities Exchange Act of 1934 (the "Exchange Act"), in order to
be included in the Company's proxy materials. Stockholders who wish to
submit a proposal for consideration at the Company's 1999 annual meeting of
stockholders, but who do not wish to submit the proposal for inclusion in
the Company's proxy statement pursuant to Rule 14a-8 under the Exchange
Act, must, in accordance with the Company's bylaws, deliver a copy of their
proposal no later than May 24, 1999 nor earlier than April 24, 1999. In
either case, proposals should be delivered to 20371 Irvine Avenue, Santa
Ana Heights, California 92707, Attention: Secretary. To avoid controversy
and establish timely receipt by the Company, it is suggested that
stockholders send their proposals by certified mail return receipt
requested.
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
27 Financial Data Schedule
(b) Reports on Form 8-K:
<PAGE>
Current Report on Form 8-K, dated May 12, 1998 (filed June 4, 1998)
reporting items 5 and 7, regarding Structured Equity Shelf.
Current Report on Form 8-K, dated May 28, 1998 (filed June 3, 1998)
reporting items 5 and 7, regarding the Amendment No. 1 to Amended and
Restated Employment Agreements.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
IMPAC MORTGAGE HOLDINGS, INC.
By: /s/ Richard J. Johnson
Richard J. Johnson
Executive Vice President
and Chief Financial Officer
Date: August 14, 1998
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 6-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1996
<PERIOD-START> JAN-01-1998 JAN-01-1997
<PERIOD-END> JUN-30-1998 JUN-30-1997
<CASH> 7,378 10,975
<SECURITIES> 101,462 58,142
<RECEIVABLES> 1,920,689 1,023,237
<ALLOWANCES> (5,958) (5,269)
<INVENTORY> 0 0
<CURRENT-ASSETS> 506,048 269,237
<PP&E> 8,051 25
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 2,104,741 1,146,712
<CURRENT-LIABILITIES> 520,272 281,895
<BONDS> 0 0
0 0
0 0
<COMMON> 241 99
<OTHER-SE> 250,658 138,875
<TOTAL-LIABILITY-AND-EQUITY> 2,104,741 1,146,712
<SALES> 88,324 50,732
<TOTAL-REVENUES> 88,324 50,732
<CGS> 0 0
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 2,759 3,793
<LOSS-PROVISION> 2,391 2,375
<INTEREST-EXPENSE> 60,392 33,025
<INCOME-PRETAX> 22,782 11,539
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 22,782 11,539
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 22,782 11,539
<EPS-PRIMARY> 0.97 0.81
<EPS-DILUTED> 0.97 0.80
</TABLE>
