<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (date of earliest event reported) February 11, 1999
IMPAC MORTGAGE HOLDINGS, INC.
(Name of registrant as specified in its charter)
<TABLE>
<S> <C>
Maryland 33-0675505
(State or other jurisdiction of incorporation or organization) (I.R.S. employer identification number)
20371 Irvine Avenue
Santa Ana Heights, California 92707
(Address of principal executive offices) (Zip code)
</TABLE>
Issuer's telephone number: (714) 556-0122
-------------------------------------------------------------
(Former name or former address, if changed since last report)
<PAGE>
Item 5. Other Events
(a) Reference is made to the press release issued to the public by the
Registrant on February 11, 1999, the text of which is attached hereto as Exhibit
99.1, for a description of the events reported pursuant to this Form 8-K.
Item 7. Financial Statements and Exhibits
(c) Exhibits
99.1 Press Release dated February 11, 1999.
2
<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, hereunto duly authorized.
Date: February 18, 1999
IMPAC MORTGAGE HOLDINGS, INC.
BY: /s/ Richard J. Johnson
--------------------------------------
Richard Johnson
Executive Vice President Finance
and Chief Financial Officer
<PAGE>
EXHIBIT 99.1
================================================================================
Thursday February 11, 7:08 pm Eastern Time
Company Press Release
Impac Mortgage Holdings Inc. Announces a Loss of $8.1 Million for the Fourth
Quarter of 1998 and a Loss of $5.9 Million for the Year Ended Dec. 31, 1998
SANTA ANA HEIGHTS, Calif.--(BUSINESS WIRE)--Feb. 11, 1999--Impac Mortgage
Holdings Inc. (the "company" or "IMH") (AMEX:IMH - news), a real estate
--- ----
investment trust ("REIT"), announced a net loss of $(8.1) million, or $(0.33)
per basic and diluted common share, for the fourth quarter of 1998, compared
with a net loss of $(34.8) million, or $(1.70) per basic and diluted common
share, for the fourth quarter of 1997.
The company's net loss for the fourth quarter of 1998 was primarily the result
of a tax adjusted loss of $6.0 million on the sale of mortgage loans
held-for-sale at Impac Funding Corp. ("IFC"), the company's conduit operations,
and a tax-adjusted non-cash charge of $2.9 million for the write-down of IFC's
mortgage loan servicing rights ("MSRs") and investment securities
available-for-sale.
The company records 99% of earnings or losses from IFC as the company owns 100%
of IFC's preferred stock, which represents 99% of the economic interest in IFC.
In addition, the company's earnings for the fourth quarter of 1998 were
negatively affected by a loss on sale of mortgage loans of $2.1 million, loss on
disposition of real estate owned of $1.6 million, and a non-cash charge of $1.3
million on write-down of a mortgage-backed security.
Excluding the consolidated tax adjusted losses on mortgage loan sales of $8.1
million and consolidated tax adjusted non-cash charges of $4.2 million, the
company's earnings for the fourth quarter of 1998 would have been $4.2 million,
or $0.17 per basic and diluted common share, compared with earnings of $9.6
million, or $0.47 per basic and diluted common share, for the fourth quarter of
1997 after excluding a non-cash charge of $44.4 million of the company's buyout
of its management agreement with Imperial Credit Advisors Inc. ("ICAI") in
December 1997.
The company's net loss for the year ended Dec. 31, 1998, was $(5.9) million, or
$(0.25) per basic and diluted common share, compared with a net loss of $(16.0)
million, or $(0.99) per basic and diluted common share, for the same period of
1997. The company's net loss for 1998 was primarily the result of a tax
adjusted loss of $7.3 million on the sale of mortgage loans held-for-sale at IFC
and a tax adjusted non-cash charge of $2.9 million on the write-down of IFC's
MSRs and investment securities available-for-sale.
In addition, the company's 1998 earnings were negatively affected by a $9.1
million loss on the sale of its equity investment in Impac Commercial Holdings
Inc. ("ICH"), which reflects the price the company received on the sale of its
ICH common stock on Oct. 19, 1998, an impairment charge of $14.1 million on
investment securities available-for-sale, a loss on sale of mortgage loans of
$3.1 million, and a loss on disposition of real estate owned of $1.7 million.
<PAGE>
Excluding the consolidated tax adjusted losses on mortgage loan sales of $10.4
million, consolidated tax adjusted non-cash charges of $17.0 million, and the
loss on sale of equity investment in ICH of $9.1 million, the company's earnings
for the year ended Dec. 31, 1998, would have been $30.6 million, or $1.28 per
basic and diluted common share, compared with earnings of $28.3 million, or
$1.74 per basic and diluted common share, for the same period of 1997, after
excluding a non-cash charge of $44.4 million for the company's buyout of its
management agreement.
Earnings per share for 1998, on an adjusted basis, were lower, compared with
earnings per share for 1997 due to an increase in the number of common shares
outstanding during 1998.
The loss on the sale of mortgage loans and the write-down of mortgage assets by
the company and IFC was precipitated by the deterioration of the mortgage-backed
securitization market during the third and fourth quarters of 1998. The
deterioration of the mortgage-backed securitization market in 1998 created
liquidity problems for the company as the company's lenders made margin calls on
their warehouse and reverse repurchase facilities.
These margin calls resulted in the company delaying its third-quarter dividend,
which was paid on Jan. 6, 1999, and selling mortgage loans and mortgage-backed
securities at losses in order to reduce outstanding borrowings on these
facilities.
Although a loss was recorded for the fourth quarter of 1998, the company was
successful in improving liquidity and protecting stockholder value by selling
out of its mortgage loan positions rather than continuing to expose the company
to further market risk while accumulating these loans for securitization.
To further enhance the company's liquidity, the company completed the issuance
of 1.2 million shares of Series B 10.5% Cumulative Convertible Preferred Stock
in December 1998, which generated net proceeds of $28.8 million. The company's
cash and cash equivalents at Dec. 31, 1998, were $33.9 million, compared with
$2.2 million at Sept. 30, 1998.
In addition to asset sales and the issuance of Preferred Stock to improve the
company's liquidity, IFC completed the execution of a master agreement to sell
up to $1.0 billion of its future mortgage loan production to a major
institutional investor over the next year.
IFC expects to complete its first delivery of mortgage loans under the new
agreement in February 1999, and anticipates that the first settlement will occur
no later than March 1999. The transaction is a servicing retained agreement,
which gives IFC a guaranteed pricing spread and cash gains plus the value of the
servicing rights created.
The company's primary objective in response to the deterioration of the
mortgage-backed securitization market was to improve liquidity. However, the
company made other strategic decisions in response to the mortgage market
downturn, as follows: (1) adjusted loan interest rates on its loan programs, (2)
adjusted purchase pricing on the acquisition of its loans and (3) reduced staff
levels at IFC by 25%. As the liquidity crisis improved, the company made a
further strategic decision that it believes will help minimize the company's
exposure to market conditions as occurred during 1998.
As such, the company has signed a letter of intent to acquire a California,
federally insured thrift and loan. The acquisition is contingent upon the
execution of a definitive agreement and obtaining satisfactory approvals from
all regulatory agencies. The company does not anticipate any significant
regulatory impediments.
Upon the consummation of the transaction, the company intends to contribute
certain assets of IFC into the thrift and loan charter and operate the entire
mortgage banking and selected investment activities from the thrift and loan.
This acquisition will reduce the company's reliance on outside warehouse and
reverse repurchase facilities with commercial and investment banks. The thrift
and loan charter will give IFC access to low-cost funds and borrowings from the
Federal Home Loan Bank.
<PAGE>
In addition to improving the company's liquidity during the fourth quarter, the
company has taken steps to increase its book value per share by implementing a
stock repurchase plan. During the fourth quarter of 1998, the board of
directors authorized the repurchase of approximately $5.0 million of the
company's common stock. Through Feb. 10, 1999, the company has repurchased
184,100 shares of its common stock for $998,700.
The company also intends to increase book value by distributing only its taxable
earnings as dividends during 1999, as is required as a REIT, as opposed to
distributing its book basis earnings, or Generally Accepted Accounting
Principles ("GAAP") earnings. As a REIT, the company must distribute a minimum
of 95% of its taxable earnings, which are not necessarily GAAP earnings.
Taxable earnings are calculated by adjusting the company's GAAP earnings by
various differences between taxable earnings and GAAP earnings.
Significant adjustments to the company's taxable earnings are a tax deduction of
approximately $10.9 million annually for the next three years of amortization
expense on the buyout of the company's management agreement in 1997 and the
exclusion from taxable earnings the net earnings or losses from IFC.
For the year ended Dec. 31, 1998, the company's estimated taxable earnings,
after adjusting GAAP earnings by various tax differences, was approximately
$29.0 million, or $1.21 per basic and diluted common share, compared with GAAP
earnings of $(5.9) million, or $(0.25) per basic and diluted common share.
During 1998, the company distributed $37.9 million as cash dividends to its
stockholders, which resulted in return of capital, or excess dividends, to the
company's stockholders of $8.9 million ($37.9 million less $29.3 million), or
$0.37 per basic and diluted common share. The company expects dividends for the
first quarter of 1999 to be less than its GAAP earnings.
During 1998, the company's net loss was reduced by an increase in the company's
core earnings. Core earnings is defined as net interest income earned on
Mortgage Assets. Mortgage Assets are comprised of mortgage loans
held-for-investment, Collateralized Mortgage Obligation ("CMO") collateral,
finance receivables and investment securities available-for-sale.
Core earnings increased 27% to $42.3 million, or $1.77 per basic and diluted
common share, during 1998, compared with $32.0 million, or $1.96 per diluted
common share, during 1997 as a result of continued growth by the company's
Long-Term Investment and Warehouse Lending Operations. Core earnings per share
for 1998 were lower, compared with core earnings per share for 1997 due to an
increase in the number of common shares outstanding during 1998.
During 1998, average Mortgage Assets increased 51% to $2.0 billion, earning a
weighted average yield of 8.12% and net interest spread of 1.49%, compared with
$1.3 billion, earning a weighted average yield of 8.26% and a net interest
spread of 1.87%, during 1997.
Consistent with the company's business strategy of realizing earnings from the
Long-Term Investment Operations, the company issued $768.0 million of CMOs and
acquired $866.7 million in mortgages from IFC, compared with $521.7 million and
$877.1 million, respectively, during the same period of 1997. The net spread
during 1998 decreased, compared with 1997 due to a decline in the corresponding
index interest rates.
The company's net loss was also reduced by the elimination of adviser fees as a
result of the company's termination of its management agreement with ICAI. As a
result of the buyout of the management agreement, the company paid no adviser
fees to ICAI during 1998, compared with $6.2 million in advisory fees paid
during 1997.
<PAGE>
The company's total allowance for loan losses expressed as a percentage of Gross
Loan Receivables which includes loans held-for-investment, CMO collateral and
finance receivables, increased 47% to 0.47% at Dec. 31, 1998, compared with
0.32% at Dec. 31, 1997. The company recorded net loan loss provisions of $4.4
million during 1998, compared with $6.8 million during 1997.
The amount provided for loan losses during 1998 decreased primarily due to a
reduction in exposure to future losses through the sale of delinquent loans and
the transfer of certain loans from the held-for-investment to the held-for-sale
portfolio, which resulted in a mark-to-market adjustment of $5.9 million.
The allowance for loan losses is determined primarily on the basis of
management's judgment of net loss potential including specific allowances for
known impaired loans, changes in the nature and volume of the portfolio, value
of the collateral and current economic conditions that may affect the borrowers'
ability to pay.
IFC recorded a net loss of $(10.1) million and $(14.0) million, respectively,
for the fourth quarter of 1998 and for the year ended Dec. 31, 1998, compared
with net earnings of $2.2 million and $8.4 million, respectively, for the same
periods in 1997.
Earnings decreased for the fourth quarter of 1998 and for the year ended Dec.
31, 1998, compared with the same periods in 1997 primarily as a result of net
losses on sale of mortgage loans and non-cash charges for the write-down of MSRs
and investment securities available-for-sale. The net loss on sale of mortgage
loans and the non-cash charges were due to the deterioration of the mortgage-
backed securitization market, as previously discussed.
In addition, earnings for the fourth quarter of 1998 and for the year ended Dec.
31, 1998, were negatively affected by increases in personnel expense,
amortization of MSRs, and general and administrative and other expense.
Personnel expense and general and administrative and other expense increased
during 1998 as IFC's loan acquisition volumes and staff levels were higher than
during 1997 and prior to the fourth quarter of 1998 when IFC reduced staffing.
Amortization of MSRs increased due to the growth of IFC's servicing portfolio.
During 1998, the company securitized $927.9 million in principal balance of
mortgage loans and, accordingly, capitalized MSRs related to those
securitizations, which are amortized in proportion to, and over the period of
expected net servicing income.
Loan servicing income increased as IFC generally retains servicing rights on
mortgages acquired resulting in an increase of 23% in IFC's servicing portfolio
to $3.7 billion at Dec. 31, 1998, compared with $3.0 billion at Dec. 31, 1997.
IFC continues to support the Long-Term Investment Operations of the company by
supplying IMH with mortgages for its long-term investment portfolio. In acting
as the mortgage conduit for the company, IFC sold $866.7 million of mortgages to
IMH, compared with $877.1 million of mortgages sold during the same period in
1997. IFC's mortgage acquisitions decreased 14% to $2.2 billion during 1998,
compared with $2.5 billion of mortgages acquired during the same period in 1997.
IFC securitized $927.9 million of mortgages and sold whole loans to third-party
investors totaling $856.2 million, resulting in net losses on sale of loans of
$11.7 million, during 1998. This compares with securitizations of $878.0
million and whole loan sales to third parties of $304.0 million, resulting in
net gain on sale of loans of $19.4 million, during 1997.
Both the reduction in mortgage acquisitions and the increase in loan sales
during 1998, compared with 1997 were due to the deterioration of the
mortgage-backed securitization market. Loan acquisitions decreased as IFC made
interest rate and purchase price adjustments on its mortgage loan acquisitions,
which resulted in lower loan volumes from correspondent sellers.
In addition, the lack of liquidity resulting from margin calls on the company's
warehouse and reverse repurchase facilities prohibited IFC from funding loan
acquisitions at comparable levels to prior quarters
<PAGE>
in 1998. Loan sales increased as IFC sold loans, at reduced prices to carrying
amounts, to reduce its outstanding borrowings on its warehouse and reverse
repurchase facilities in order to meet margin calls from its lenders.
IFC's deferred income increased to $10.6 million at Dec. 31, 1998, compared with
$7.0 million at Dec. 31, 1997. The increase in deferred income relates to the
sale of $842.9 million in principal balance of mortgages to IMH during 1998,
which are deferred and amortized or accreted over the estimated life of the
loans.
The company is a mortgage loan investment company that invests primarily in
non-conforming, high-yielding mortgages which, together with its subsidiaries
and related companies, operates three businesses. The company's first business
is to act as a long-term investor of primarily non-conforming residential
mortgage loans and mortgage-backed securities secured by or representing
interests in such loans.
The second business is IFC, which purchases primarily non-conforming mortgage
loans and to a lessor extent, second mortgages, from a network of third-party
correspondent loan originators and subsequently securitizes or sells such loans
to permanent investors. As the company's third business, Impac Warehouse Lending
Group, a wholly owned subsidiary of the company, focuses on providing warehouse
and reverse-repurchase financing to approved mortgage banks, most of which are
correspondents of IFC.
This news release contains forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995, which can be identified by the
use of forward-looking terminology such as "may," "will," "intend," "expect,"
"anticipate," "estimate," or "continue," or the negatives thereof or other
comparable terminology. The company's actual results could differ materially
from those anticipated in such forward-looking statements as a result of certain
factors, including but not limited to, changes in the origination and resale
pricing of mortgage loans, changes in management's estimates and expectations,
general financial markets and economic conditions and other factors described in
this news release. The financial information presented in this release
pertaining to actual results should not be taken to predict future earnings, as
the company may not experience similar earnings in future periods.
<PAGE>
IMPAC MORTGAGE HOLDINGS INC.
(In thousands, except per-share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Balance Sheets: Dec. 31, Dec. 31,
1998 1997
<S> <C> <C>
Cash and cash equivalents $ 33,876 $ 16,214
Investment securities
available-for-sale 93,486 67,011
Loan receivables:
CMO collateral 1,161,220 794,893
Finance receivables 311,571 533,101
Mortgage loans held-for-
investment 20,627 257,717
Allowance for loan losses (6,959) (5,129)
Other assets 51,683 89,005
Total Assets $ 1,665,504 $ 1,752,812
CMO borrowings $ 1,072,316 $ 741,907
Reverse repurchase agreements
and other borrowings 323,625 755,559
Other liabilities 17,957 26,316
Stockholders' Equity 251,606 229,030
Total Liabilities and
Stockholders' Equity $ 1,655,504 $ 1,752,812
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Statements of Operations: For the Three Months For the 12 Months
Ended Dec. 31, Ended Dec. 31,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Interest income $ 36,066 $ 32,824 $163,658 $109,533
Equity in net
earnings (loss) of
Impac Funding Corp. (9,964) 2,184 (13,873) 8,316
Equity in net earnings
(loss) of Impac Commercial
Holdings Inc. - 539 (998) (239)
Loss on sale of loans
held-for-sale (2,110) - (3,111) -
Gain on sale of securities
available-for-sale 427 - 427 648
Other income 994 813 4,016 1,601
Total Revenues 25,413 36,360 150,119 119,859
Interest expense on CMOs
and reverse repurchase
agreements and other
borrowings 27,064 21,761 121,695 76,577
Loss on equity investment - - 9,076 -
(Gain) loss on disposition
of real estate owned 2,337 (312) 2,457 (433)
Provision for loan losses 1,512 2,600 3,611 6,843
Write-down on investment
securities available-
for-sale 1,306 - 14,132 -
General and administrative
and other expense 1,148 665 4,563 1,953
Personnel expense 145 104 518 331
Advisory fee - 1,929 - 6,242
Termination agreement
expense - 44,375 - 44,375
Total Expenses 33,512 71,122 156,052 135,888
Net loss $ (8,099) $(34,762) $ (5,933) $(16,029)
Loss per basic and
diluted common and
common equivalent shares $ (0.33) $ (1.70) $ (0.25) $ (0.99)
Dividends declared
per common share $ - $ 0.46 $ 1.46 $ 1.68
Weighted average shares
outstanding -- basic
and diluted 24,557 20,471 23,914 16,267
</TABLE>
<PAGE>
IMPAC FUNDING CORP.
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Balance Sheets: Dec. 31, Dec.31,
1998 1997
<S> <C> <C>
Cash $ 422 $ 359
Investment securities
available-for-sale 5,965 6,083
Investment securities
held-for-trading 5,300 --
Mortgage loans held-for-sale 252,305 620,549
Mortgage servicing rights 14,062 15,568
Servicing advances 6,491 1,460
Premises and equipment, net 1,978 1,788
Accrued interest receivable 1,896 4,755
Other assets 25,453 6,382
Total Assets $ 313,872 $ 656,944
Warehouse facilities $ 259,958 $ 607,210
Deferred revenue 10,605 7,048
Other liabilities 30,446 15,290
Shareholders' Equity 12,863 27,396
Total Liabilities and
Shareholders' Equity $ 313,872 $ 656,944
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Statements of Operations: For the For the
Three Months Ended 12 Months Ended
Dec. 31, Dec. 31,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Interest income $ 8,180 $ 16,016 $ 48,510 $ 48,020
Gain (loss) on sale of
mortgage loans
held-for-sale (9,555) 5,037 (11,663) 19,414
Mark-to-market loss on
investment securities (805) -- (805) --
Gain (loss) on sale of
investment securities
available-for-sale (682) 130 (706) 550
Loan servicing income 2,550 1,091 7,071 4,109
Other income 23 9 420 93
Total Revenues (289) 22,283 42,827 72,186
Interest expense on
borrowings 7,149 13,092 40,743 41,628
Impairment of mortgage
servicing rights 3,722 -- 3,722 --
Amortization of mortgage
servicing rights 1,678 931 6,361 2,827
General and administrative
expense 1,541 1,358 5,484 3,287
Personnel expense 1,538 1,484 8,901 6,760
Provision for repurchases 1 1,600 367 3,148
Total Expenses 15,629 18,465 65,578 57,650
Earnings (loss) before
income taxes (15,918) 3,818 (22,751) 14,536
Income taxes (benefit) (5,853) 1,611 (8,738) 6,136
Net earnings (loss) $(10,065) $ 2,207 $(14,013) $ 8,400
</TABLE>
- ---------------------
Contact:
Impac Mortgage Holdings Inc., Santa Ana Heights
Thom Singha or Tania Jernigan, 714/438-2100
