<PAGE>
United States
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, 2000
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.)
1401 Dove Street
Newport Beach, CA 92660
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (949) 475-3600
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 10, 2000, the aggregate market value of the voting stock held by
non-affiliates of the registrant was approximately $65.9 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 10, 2000 was
21,400,906.
Documents incorporated by reference: None
<PAGE>
IMPAC MORTGAGE HOLDINGS, INC.
FORM 10-Q QUARTERLY REPORT
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
<S> <C>
Item 1. CONSOLIDATED FINANCIAL STATEMENTS - IMPAC MORTGAGE HOLDINGS, INC. Page #
AND SUBSIDIARIES ------
Consolidated Balance Sheets as of June 30, 2000 and December 31, 1999................................ 3
Consolidated Statements of Operations and Comprehensive Earnings (Loss),
For the Three- and Six Months Ended June 30, 2000 and 1999........................................... 4
Consolidated Statements of Cash Flows, For the Six Months Ended June 30, 2000 and 1999............... 5
Notes to Consolidated Financial Statements........................................................... 6
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS............................................................................ 13
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK........................................... 27
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS.................................................................................... 28
Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS............................................................ 28
Item 3. DEFAULTS UPON SENIOR SECURITIES...................................................................... 28
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.................................................. 28
Item 5. OTHER INFORMATION.................................................................................... 28
Item 6. EXHIBITS AND REPORTS ON FORM 8-K..................................................................... 28
SIGNATURES 29
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
IMPAC MORTGAGE HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except per share data)
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
---------------- --------------
<S> <C> <C>
ASSETS
Cash and cash equivalents............................................................. $ 13,041 $ 20,152
Investment securities available-for-sale.............................................. 41,612 93,206
Loan Receivables:
CMO collateral..................................................................... 1,182,125 949,677
Finance receivables................................................................ 296,380 197,119
Mortgage loans held-for-investment................................................. 126,229 363,435
Allowance for loan losses.......................................................... (12,867) (4,029)
---------------- --------------
Net loan receivables.......................................................... 1,591,867 1,506,202
Investment in Impac Funding Corporation............................................... 16,458 17,372
Due from affiliates................................................................... 14,500 14,500
Accrued interest receivable........................................................... 10,898 11,209
Other real estate owned............................................................... 6,222 8,820
Other assets.......................................................................... 5,521 3,969
---------------- --------------
Total assets..................................................................... $ 1,700,119 $ 1,675,430
================ ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
CMO borrowings........................................................................ $ 1,081,738 $ 850,817
Reverse repurchase agreements......................................................... 400,100 539,687
Borrowings secured by investment securities available-for-sale........................ 25,935 31,333
Senior subordinated debentures........................................................ 6,838 6,691
Accrued dividends payable............................................................. 3,356 3,570
Due to affiliates..................................................................... -- 2,945
Other liabilities..................................................................... 1,493 1,543
---------------- --------------
Total liabilities................................................................ 1,519,460 1,436,586
---------------- --------------
Stockholders' Equity:
Preferred stock; $.01 par value; 5,100,000 shares authorized; none issued or
outstanding at June 30, 2000 and December 31, 1999, respectively................... -- --
Series A junior participating preferred stock, $.01 par value; 2,500,000 shares
authorized; none issued and outstanding at June 30, 2000 and December 31, 1999..... -- --
Series B 10.5% cumulative convertible preferred stock, $.01 par value; $30,000
liquidation value; 1,200,000 shares authorized; none and 1,200,000 issued and
outstanding at June 30, 2000 and December 31, 1999, respectively................... -- 12
Series C 10.5% cumulative convertible preferred stock, $.01 par value; $30,000
liquidation value; 1,200,000 shares authorized; 1,200,000 and none issued and
outstanding at June 30, 2000 and December 31, 1999, respectively................... 12 --
Common stock; $.01 par value; 50,000,000 shares authorized; 21,400,906 shares
issued and outstanding at June 30, 2000 and December 31, 1999, respectively........ 214 214
Additional paid-in capital............................................................ 327,632 327,632
Accumulated other comprehensive earnings (loss)....................................... 2,189 (7,579)
Notes receivable from common stock sales.............................................. (900) (905)
Accumulated deficit:
Cumulative dividends declared...................................................... (99,830) (93,080)
Retained earnings (accumulated deficit)............................................ (48,658) 12,550
---------------- --------------
Net accumulated deficit......................................................... (148,488) (80,530)
---------------- --------------
Total stockholders' equity.................................................... 180,659 238,844
---------------- --------------
Total liabilities and stockholders' equity.................................... $ 1,700,119 $ 1,675,430
================ ==============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
IMPAC MORTGAGE HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
and COMPREHENSIVE EARNINGS (LOSS)
(in thousands, except per share data)
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended June 30, Ended June 30,
--------------------------- --------------------------
2000 1999 2000 1999
------------- ------------- ------------ -------------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Mortgage Assets............................................. $ 34,041 $ 29,900 $ 67,631 $ 59,586
Other interest income....................................... 489 433 1,039 1,146
------------- ------------- ------------ -------------
Total interest income 34,530 30,333 68,670 60,732
------------- ------------- ------------ -------------
INTEREST EXPENSE:
CMO borrowings.............................................. 20,578 16,377 39,710 33,458
Reverse repurchase agreements............................... 7,489 5,032 14,842 9,479
Borrowings secured by investment
securities available-for-sale......................... 807 331 1,692 711
Senior subordinated debentures.............................. 316 271 630 278
Other borrowings............................................ 2 159 43 397
------------- ------------- ------------ -------------
Total interest expense.................................... 29,192 22,170 56,917 44,323
------------- ------------- ------------ -------------
Net interest income......................................... 5,338 8,163 11,753 16,409
Provision for loan losses................................. 3,304 1,490 16,488 2,989
------------- ------------- ------------ -------------
Net interest income after provision for loan losses......... 2,034 6,673 (4,735) 13,420
NON-INTEREST INCOME:
Equity in net earnings (loss) of Impac Funding Corporation.. (1,488) 1,409 (1,080) 2,499
Loan servicing fees......................................... 176 387 338 854
Other income................................................ 264 223 1,054 376
------------- ------------- ------------ -------------
Total non-interest income (loss).......................... (1,048) 2,019 312 3,729
NON-INTEREST EXPENSE:
Write-down on investment securities available-for-sale..... 29,426 1,256 53,404 1,678
Loss on disposition of other real estate owned.............. 880 559 1,307 1,110
Professional services....................................... 458 559 1,087 1,370
General and administrative and other expense................ 377 271 680 630
Personnel expense........................................... 160 93 307 212
------------- ------------- ------------ -------------
Total non-interest expense................................ 31,301 2,738 56,785 5,000
------------- ------------- ------------ -------------
Net earnings (loss)......................................... (30,315) 5,954 (61,208) 12,149
Less: Cash dividends on cumulative convertible
preferred stock........................................ (788) (788) (1,575) (1,676)
------------- ------------- ------------ -------------
Net earnings (loss) available to common stockholders........ (31,103) 5,166 (62,783) 10,473
Other comprehensive earnings (loss):
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising during period... 5,014 (3,767) 16,100 (1,662)
Less: Reclassification of losses included
in earnings (loss)................................... (2,338) (866) (6,332) (305)
------------- ------------- ------------ -------------
Net unrealized gain (losses) arising during period..... 2,676 (4,633) 9,768 (1,967)
------------- ------------- ------------ -------------
Comprehensive earnings (loss)............................... $ (27,639) $ 1,321 $ (51,440) $ 10,182
============= ============= ============ =============
Net earnings (loss) per share--basic.........................$ (1.45) $ 0.23 $ (2.93) $ 0.44
============= ============= ============ =============
Net earnings (loss) per share--diluted.......................$ (1.45) $ 0.21 $ (2.93) $ 0.41
============= ============= ============ =============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
IMPAC MORTGAGE HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
For the Six Months
Ended June 30,
-------------------------------
2000 1999
--------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings (loss)................................................................. $ (61,208) $ 12,149
Adjustments to reconcile net earnings (loss) to net cash provided by
operating activities:
Equity in net (earnings) loss of Impac Funding Corporation....................... 1,080 (2,499)
Provision for loan losses........................................................ 16,488 2,989
Amortization of loan premiums and securitization costs........................... 8,393 9,219
Loss on disposition of other real estate owned................................... 1,307 1,110
Write-down of investment securities available-for-sale........................... 53,404 1,678
Net change in accrued interest receivable........................................ 311 (1,529)
Net change in other assets and liabilities....................................... (4,547) (6,636)
--------------- --------------
Net cash provided by operating activities...................................... 15,228 16,481
--------------- --------------
Cash flows from investing activities:
Net change in CMO collateral........................................................ 90,785 (30,003)
Net change in finance receivables................................................... (99,807) 89,993
Net change in mortgage loans held-for-investment.................................... (109,472) (358)
Proceeds from sale of other real estate owned, net.................................. 9,239 5,936
Purchase of investment securities available-for-sale................................ -- (9,084)
Sale of investment securities available-for-sale.................................... 5,704 3,803
Net principal reductions on investment securities available-for-sale................ 2,088 2,869
--------------- --------------
Net cash provided by (used in) investing activities............................ (101,463) 63,156
--------------- --------------
Cash flows from financing activities:
Net change in reverse repurchase agreements and other borrowings.................... (144,838) (89,509)
Proceeds from CMO borrowings........................................................ 451,950 298,076
Repayments of CMO borrowings........................................................ (221,029) (291,421)
Dividends paid...................................................................... (6,964) (15,289)
Repurchase of common stock.......................................................... -- (3,874)
Proceeds from dividend reinvestment and stock purchase plan......................... -- 928
Advances to purchase common stock, net of principal reductions...................... 5 11
--------------- --------------
Net cash provided by (used in) financing activities............................ 79,124 (101,078)
--------------- --------------
Net change in cash and cash equivalents............................................... (7,111) (21,441)
Cash and cash equivalents at beginning of period...................................... 20,152 33,876
--------------- --------------
Cash and cash equivalents at end of period............................................ $ 13,041 $ 12,435
=============== ==============
Supplementary information:
Interest paid....................................................................... $ 52,086 $ 45,820
Non-cash transactions:
Exchange of Series B preferred stock for Series C preferred stock................... $ 28,658 $ --
Exchange of common stock for senior subordinated debentures......................... -- 6,448
Transfer of mortgage loans held-for-investment to CMO collateral.................... 337,016 --
Dividends declared and unpaid....................................................... 3,356 3,515
Accumulated other comprehensive gain (loss)......................................... 9,768 (1,967)
Loans transferred to other real estate owned........................................ 7,948 8,512
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 Corporation, 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 three- and six-month periods
ended June 30, 2000 are not necessarily indicative of the results that may
be expected for the year ending December 31, 2000. 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, 1999.
The operations of IMH have been presented in the consolidated financial
statements for the three- and six- months ended June 30, 2000 and 1999 and
include the financial results of IMH's equity interest in net earnings
(loss) of IFC and IMH Assets, IWLG and Dove as stand-alone entities. The
financial results of Dove are only included in the three and six- months
ended June 30, 1999. 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 (loss) of Impac
Funding Corporation."
2. Organization
The Company is a mortgage real estate investment trust (Mortgage REIT)
which, together with its subsidiaries and related companies, primarily
operates three businesses: (1) the Long-Term Investment Operations, (2)
the Mortgage 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
Mortgage Operations is comprised of the Conduit Operations, which
primarily purchases and sells or securitizes non-conforming mortgage
loans, and the Wholesale/Retail Lending Operations, which allows brokers
and retail customers to access the Company directly to originate,
underwrite and fund their loans. The Warehouse Lending Operations provides
warehouse and repurchase financing to originators of mortgage loans. IMH
is organized as a 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 common 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. Subsequent to
1997, the Long-Term Investment Operations investment strategy has been to
only acquire or invest in investment securities that are secured by
mortgage loans underwritten and purchased by IFC ("Impac Securities").
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). 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 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.
<PAGE>
Mortgage 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.
IFC subsequently securitizes or sells such loans to permanent investors,
including the Long-Term Investment Operations. IMH owns 99% of the
economic interest in IFC, while Joseph R. Tomkinson, Chairman and Chief
Executive Officer, William S. Ashmore, President and Chief Operating
Officer, and Richard J. Johnson, Executive Vice President and Chief
Financial Officer, are the holders of all the outstanding voting stock of,
and 1% of the economic interest in, IFC.
The Wholesale/Retail Lending Operations, conducted by Impac Lending
Group ("ILG"), a division of IFC, markets, underwrites, processes and
funds mortgage loans for both wholesale and retail customers. Through the
wholesale division, ILG allows mortgage brokers to work directly with the
Company to originate, underwrite and fund their mortgage loans. Many of
the Company's wholesale customers cannot conduct business with the Conduit
Operations as correspondent sellers because they do not meet the higher
net worth requirements. Through the retail division, ILG markets mortgage
loans directly to the public. Both the wholesale and retail divisions
offer all of the loan programs that are offered by the Conduit Operations.
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 generally accepted accounting principles
(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, liabilities and contingent
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results may differ materially from those estimates.
Reclassifications
Certain amounts in the consolidated financial statements as of December
31, 1999 and for the three- and six-months ended June 30, 1999 may have
been reclassified to conform to the 2000 presentation.
New Accounting Statements
In June 1998, the Financial Accounting Standards Board (FASB) issued
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities", which was subsequently amended by SFAS No. 137. 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.
<PAGE>
Under SFAS No. 133, an entity that elects to apply hedge accounting
is required to establish at the inception of the hedge the method it will
use for assessing the effectiveness of the hedging derivative and the
measurement approach for determining the ineffective aspect of the hedge.
Those methods must be consistent with the entity's approach to managing
risk.
SFAS No. 137 delayed the implementation of SFAS No. 133 to all fiscal
quarters of fiscal years beginning after June 15, 2000. In June 2000, SFAS
No. 133 was further amended by SFAS No. 138. SFAS No. 138 addresses a
limited number of issues causing implementation difficulties for numerous
entities that apply SFAS No. 133. SFAS No. 138 also amends SFAS No. 133 for
the decisions reached by the Derivatives Implementation Group Process.
Management is currently evaluating the impact of implementation of SFAS 133
on the Company's financial position and results of operations.
4. Net Earnings per Share
The following table represents the computation of basic and diluted net
earnings (loss) per share for the periods presented, as if all stock
options and cumulative convertible preferred stock (Preferred Stock), if
dilutive, were outstanding for these periods (in thousands, except per
share data):
<TABLE>
<CAPTION>
For the Three Months
Ended June 30,
-----------------------------
2000 1999
-------------- --------------
<S> <C> <C>
Numerator:
Numerator for basic earnings per share--
Net earnings (loss)............................................................ $ (30,315) $ 5,954
Less: Dividends paid to preferred stockholders................................ (788) (788)
-------------- --------------
Net earnings (loss) available to common stockholders........................ $ (31,103) $ 5,166
============== ==============
Denominator:
Denominator for basic earnings per share--
Weighted average number of common shares outstanding during the period......... 21,401 22,726
Impact of assumed conversion of cumulative convertible preferred stock......... -- 6,061
Net effect of dilutive stock options........................................... -- 27
-------------- --------------
Weighted average common and common equivalent shares........................ 21,401 28,814
============== ==============
Net earnings (loss) per share--basic............................................ $ (1.45) $ 0.23
============== ==============
Net earnings (loss) per share--diluted.......................................... $ (1.45) $ 0.21
============== ==============
</TABLE>
The antidilutive effects of stock options outstanding as of June 30,
2000 and 1999 was 684 and none, respectively. The antidilutive effects of
Preferred Stock outstanding as of June 30, 2000 and 1999 was 6,355,932 and
none, respectively.
<TABLE>
<CAPTION>
For the Six Months
Ended June 30,
-----------------------------
2000 1999
-------------- --------------
<S> <C> <C>
Numerator:
Numerator for basic earnings per share--
Net earnings (loss)............................................................ $ (61,208) $ 12,149
Less: Dividends paid to preferred stockholders................................ (1,575) (1,676)
-------------- --------------
Net earnings (loss) available to common stockholders........................ $ (62,783) $ 10,473
============== ==============
Denominator:
Denominator for basic earnings per share--
Weighted average number of common shares outstanding during the period......... 21,401 23,539
Impact of assumed conversion of cumulative convertible preferred stock......... -- 6,061
Net effect of dilutive stock options........................................... -- 27
-------------- --------------
Weighted average common and common equivalent shares........................ 21,401 29,627
============== ==============
Net earnings (loss) per share--basic............................................ $ (2.93) $ 0.44
============== ==============
Net earnings (loss) per share--diluted.......................................... $ (2.93) $ 0.41
============== ==============
</TABLE>
<PAGE>
The antidilutive effects of stock options outstanding as of June 30,
2000 and 1999 was 420 and none, respectively. The antidilutive effects of
Preferred Stock outstanding as of June 30, 2000 and 1999 was 6,355,932 and
none, respectively.
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, 2000 and December 31, 1999, Mortgage Assets
consisted of the following (in thousands):
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
---------------- ----------------
<S> <C> <C>
Investment securities available-for-sale:
Subordinated securities collateralized by mortgages $ 39,212 $ 94,985
Subordinated securities collateralized by other loans 210 5,633
Net unrealized gains (losses) 2,190 (7,412)
---------------- ----------------
Carrying value of investment securities available-for-sale 41,612 93,206
---------------- ----------------
Loan Receivables:
CMO collateral--
CMO collateral, unpaid principal balance 1,141,198 908,987
Unamortized net premiums on loans 25,530 28,797
Securitization expenses 15,397 11,893
---------------- ----------------
Carrying value of CMO collateral 1,182,125 949,677
Finance receivables--
Due from affiliates 119,900 67,416
Due from other mortgage banking companies 176,480 129,703
---------------- ----------------
Carrying value of finance receivables 296,380 197,119
Mortgage loans held-for-investment--
Mortgage loans held-for-investment, unpaid principal balance 127,276 361,394
Unamortized net premiums (discounts) on loans (1,047) 2,041
---------------- ----------------
Carrying value of mortgage loans held-for-investment 126,229 363,435
---------------- ----------------
Carrying value of Gross Loan Receivables 1,604,734 1,510,231
Allowance for loan losses (12,867) (4,029)
---------------- ----------------
Carrying value of Net Loan Receivables 1,591,867 1,506,202
---------------- ----------------
Total carrying value of Mortgage Assets $ 1,633,479 $ 1,599,408
================ ================
</TABLE>
6. Segment Reporting
The basis for the Company's segments is to separate its entities as
follows: segments that derive income from investment in long-term Mortgage
Assets, segments that derive income by providing short-term financing and
segments that derive income from the purchase and sale or securitization
of mortgage loans.
The Company internally reviews and analyzes its segments as follows:
(1) 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 in second mortgage loans, (2) 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, and (3) the Mortgage
Operations, comprised of the Conduit Operations, conducted by IFC, which
primarily purchases and sells or securitizes non-conforming mortgage
loans, and the Wholesale/Retail Lending Operations, conducted by ILG,
which allows brokers and retail customers to access the Company directly
to originate, underwrite and fund their loans.
<PAGE>
The following table shows the Company's reporting segments as of and
for the six months ended June 30, 2000 (in thousands):
<TABLE>
<CAPTION>
Long-Term Warehouse
Investment Lending Intercompany
Operations Operations Other (b) Elimination (c) Consolidated
---------------- ------------- ------------ ---------------- ---------------
<S> <C> <C> <C> <C> <C>
Balance Sheet Items:
CMO collateral $ 1,182,125 $ -- $ -- $ -- $ 1,182,125
Total assets 1,495,516 454,651 -- (250,048) 1,700,119
Total stockholders' equity 251,336 54,440 -- (125,117) 180,659
Income Statement Items:
Interest income $ 50,675 $ 21,265 $ -- $ (3,270) $ 68,670
Interest expense 45,338 14,849 -- (3,270) 56,917
Equity interest in net loss
of IFC (a) -- -- -- (1,080) (1,080)
Net earnings (loss) (65,884) 5,756 -- (1,080) (61,208)
The following table shows the Company's reporting segments for the
three months ended June 30, 2000 (in thousands):
Income Statement Items:
Interest income $ 24,596 $ 10,333 $ -- $ (399) $ 34,530
Interest expense 22,100 7,491 -- (399) 29,192
Equity interest in net loss
of IFC (a) -- -- -- (1,488) (1,488)
Net earnings (loss) (31,198) 2,371 -- (1,488) (30,315)
</TABLE>
The following table shows the Company's reporting segments as of and
for the six months ended June 30, 1999 (in thousands):
<TABLE>
<CAPTION>
Long-Term Warehouse
Investment Lending Intercompany
Operations Operations Other (b) Elimination (c) Consolidated
---------------- ------------- ------------ ---------------- ---------------
<S> <C> <C> <C> <C> <C>
Balance Sheet Items:
CMO collateral $ 1,183,306 $ -- $ -- $ -- $ 1,183,306
Total assets 1,418,232 258,596 15 (106,200) 1,570,643
Total stockholders' equity 290,103 43,972 -- (88,297) 245,778
Income Statement Items :
Interest income $ 49,206 $ 15,038 $ 21 $ (3,533) $ 60,732
Interest expense 38,307 9,544 5 (3,533) 44,323
Equity interest in net earnings
of IFC (a) -- -- -- 2,499 2,499
Net earnings 3,165 5,227 41 3,716 12,149
The following table shows the Company's reporting segments for the
three months ended June 30, 1999 (in thousands):
Income Statement Items:
Interest income $ 24,327 $ 8,695 $ 4 $ (2,693) $ 30,333
Interest expense 19,815 5,048 -- (2,693) 22,170
Equity interest in net earnings
of IFC (a) -- -- -- 1,409 1,409
Net earnings (loss) 1,059 3,486 (1) 1,410 5,954
</TABLE>
<PAGE>
(a) The Mortgage Operations is accounted for using the equity method and is
an unconsolidated subsidiary of the Company.
(b) Primarily includes the operations of Dove, of which the Company owned a
50% interest, and account reclassifications.
(c) Elimination of intersegment balance sheet and income statement items.
7. 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):
BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
----------------- ----------------
ASSETS
<S> <C> <C>
Cash $ 15,036 $ 8,805
Investment securities available-for-sale 310 1,887
Mortgage loans held-for-sale 121,905 68,084
Mortgage servicing rights 13,916 15,621
Premises and equipment, net 4,367 3,575
Due from affiliates -- 4,307
Accrued interest receivable 354 48
Other assets 11,491 13,919
----------------- ----------------
Total assets $ 167,379 $ 116,246
================ =================
LIABILITIES AND SHAREHOLDERS' EQUITY
Borrowings from IWLG $ 120,020 $ 66,125
Other borrowings 81 181
Due to affiliates 14,500 14,500
Deferred revenue 5,853 7,635
Accrued interest expense 1,241 843
Other liabilities 9,062 9,414
----------------- ----------------
Total liabilities 150,757 98,698
----------------- ----------------
Shareholders' Equity:
Preferred stock 18,053 18,053
Common stock 182 182
Accumulated deficit (1,613) (520)
Accumulated other comprehensive loss -- (167)
----------------- ----------------
Total shareholders' equity 16,622 17,548
----------------- ----------------
Total liabilities and shareholders' equity $ 167,379 $ 116,246
================= ================
</TABLE>
<PAGE>
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended June 30, Ended June 30,
---------------------------- --------------------------
2000 1999 2000 1999
------------- -------------- ------------ -------------
<S> <C> <C> <C> <C>
Interest income $ 7,107 $ 4,662 $ 12,052 $ 9,495
Interest expense 7,014 4,299 12,674 9,045
------------- -------------- ------------ -------------
Net interest income (expense) 93 363 (622) 450
Gain on sale of loans 4,149 9,483 9,370 14,490
Loan servicing income 1,012 1,553 2,548 3,694
Other non-interest income 384 145 408 484
------------- -------------- ------------ -------------
Total non-interest income 5,545 11,181 12,326 18,668
General and administrative and other expense 3,136 2,249 4,907 3,445
Personnel expense 2,259 1,561 4,581 3,351
Write-down on investment securities available-for-sale 1,537 3,666 1,537 4,225
Amortization of mortgage servicing rights 1,265 1,137 2,457 2,564
Provision for repurchases 7 159 71 179
Loss on sale of mortgage servicing rights -- 309 -- 876
------------- -------------- ------------ -------------
Total non-interest expense 8,204 9,081 13,553 14,640
------------- -------------- ------------ -------------
Net earnings (loss) before income taxes (2,566) 2,463 (1,849) 4,478
Income taxes (1,060) 1,040 (756) 1,954
------------- -------------- ------------ -------------
Net earnings (loss) $ (1,506) $ 1,423 $ (1,093) $ 2,524
============= ============== ============ =============
</TABLE>
8. Stockholders' Equity
In February 2000, the Series B Preferred Stock was exchanged for Series
C Preferred Stock and the conversion rate was adjusted to $4.72 per share
convertible into 5.29661 shares of Common Stock or an aggregate of
6,355,932 shares of Common Stock.
On March 30, 2000, the Company declared a first quarter cash dividend
on common stock of $2.6 million, or $0.12 per share. This dividend was
paid on April 20, 2000 to common stockholders of record on April 10, 2000.
On March 30, 2000, the Company declared a first quarter cash dividend
of $788,000 or $0.65625 per share to series C preferred stockholders. This
dividend was paid on April 25, 2000.
On June 27, 2000, the Company declared a second quarter cash dividend
on common stock of $2.6 million, or $0.12 per share. This dividend was
paid on July 17, 2000 to common stockholders of record on July 6, 2000.
On June 27, 2000, the Company declared a second quarter cash dividend
of $788,000 or $0.65625 per share to series C preferred stockholders. This
dividend was paid on July 25, 2000.
<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," "intend," "should,"
"anticipate," "estimate," or "believe" or the negatives thereof or other
variations thereon or comparable terminology. The Company's actual results
may differ materially from those contained in the forward-looking
statements. Factors which may cause a difference to occur include the rate
of growth and expansion of the Company's new divisions, the availability
of suitable opportunities for potential acquisitions, ownership and
disposition of Mortgage Assets (which depend on the type of Mortgage Asset
involved) and yields available from time to time on such Mortgage Assets,
interest rates, changes in estimates of book basis and tax basis earnings,
fluctuations and increase in prepayment rates, the availability of
suitable financing and investments, trends in the economy which affect
confidence and demand on the Company's portfolio of Mortgage Assets and
other factors referenced in this report and other reports filed by the
Company with the SEC, including its Annual Report on Form 10-K.
SIGNIFICANT TRANSACTIONS
Exchange of Series B Cumulative Convertible Preferred Stock for Series C
Cumulative Convertible Preferred Stock
In February 2000, all shares of Series B 10.5% Cumulative Convertible
Preferred Stock ("Series B Preferred Stock") were exchanged for Series C
10.5% Cumulative Convertible Preferred Stock ("Series C Preferred Stock")
and the conversion rate was adjusted to $4.72 per share convertible into
5.29661 shares of Common Stock or an aggregate of 6,355,932 shares of
Common Stock. Other than the foregoing, the Series C Preferred Stock has
the same rights, preferences and privileges as the Series B Preferred
Stock.
Collateralized Mortgage Obligations ("CMOs")
The Company issued a CMO during the first six months of 2000 for $452.0
million, which was collateralized by $428.1 million of adjustable-rate
mortgages and $27.6 million of fixed-rate mortgages. The issuance of CMOs
provides the Company with immediate liquidity, a relatively stable net
interest rate spread and eliminates the Company's exposure to margin calls
on such loans.
Definitive Agreement to Acquire a California Thrift and Loan
In July of 2000, the Company withdrew its application to acquire a
California Thrift and Loan ("Bank"). The decision to withdraw its
application was based upon management's assessment that a mutually
acceptable approval to operate the Bank was not likely. Management does
not believe that the decision to withdraw its application will adversely
affect the Company's future operations and profitability. The $10.0
million of capital, which had been set aside to capitalize the Bank upon
approval of the application, will be redeployed in the Company's operating
businesses and to further grow the Company's balance sheet. The Company
may re-evaluate this decision in the future if there is a change in the
regulatory environment regarding residential mortgage lending. All costs
related to the acquisition of the Bank, which were incurred during the
approval process, were written-off during the second quarter of 2000.
Total capitalized expenses written-off by IFC during the second quarter of
represented an after-tax charge of $862,000.
BUSINESS OPERATIONS
Long-Term Investment Operations: During the first six months of 2000,
the Long-Term Investment Operations, conducted by IMH and IMH Assets,
acquired $156.9 million of mortgages from IFC as compared to $283.0
million of mortgages acquired during the same period in 1999. Mortgages
purchased by the Long-Term Investment Operations during the first six
months of 2000 consisted of $149.9 million of adjustable-rate mortgages
("ARMs") secured by first liens on residential property and $7.0 million
of fixed-rate mortgages ("FRMs") primarily secured by second trust deeds
on residential property. During the first six months of 2000, IMH Assets
issued CMOs totaling $452.0 million as compared to CMOs totaling $298.1
<PAGE>
million during the same period in 1999. As of June 30, 2000, the Long-Term
Investment Operations' portfolio of mortgage loans consisted of $1.2
billion of mortgage loans held in trust as collateral for CMOs and $126.2
million of mortgage loans held-for-investment, of which approximately 30%
were FRMs and 70% were ARMs. The weighted average coupon of the Long-Term
Investment Operations portfolio of mortgage loans was 9.24% at June 30,
2000 with a weighted average margin of 4.25%. The portfolio of mortgage
loans included 81% of "A" credit quality, non-conforming mortgage loans
and 19% of "B" and "C" credit quality, non-conforming mortgage loans, as
defined by the Company. During the first six months of 2000, the Long-Term
Investment Operations acquired no securities from IFC as compared to $9.1
million during the same period in 1999, as IFC sold all interests in its
periodic issuances of real estate mortgage investment conduits ("REMICs")
to third party investors. As of June 30, 2000, the Long-Term Investment
Operations had $41.6 million of investment securities available-for-sale.
The loan delinquency rate of the Long-Term Investment Operations portfolio
which were 60 or more days past due, inclusive of foreclosures and
delinquent bankruptcies, was 4.98% at June 30, 2000 as compared to 6.13%
at June 30, 1999.
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 36% to $886.0 million during the first six
months of 2000 as compared to $649.7 million of mortgages acquired during
the same period in 1999. IFC sold whole loans to third party investors or
securitized $621.6 million, which contributed to the gain on sale of loans
of $9.4 million, during the first six months of 2000. This compares to
whole loan sales or securitizations to third party investors of $439.8
million, resulting in gain on sale of loans of $14.5 million, during the
same period in 1999. Of the $621.6 million of whole loan sales and
securitizations during the first six months of 2000, IFC issued two
REMIC's for $583.1 million. IFC had deferred income of $5.9 million at
June 30, 2000 as compared to $7.6 million at December 31, 1999. Deferred
income results from the sale of mortgages to IMH, which are deferred and
amortized or accreted over the estimated life of the loans. During the
first six months of 2000, IFC sold $155.2 million in principal balance of
mortgages to IMH as compared to $287.6 million during the first six months
of 1999. IFC's master servicing portfolio increased 15% to $3.0 billion at
June 30, 2000 as compared to $2.6 billion at June 30, 1999. IFC had
mortgage servicing rights of $13.9 million at June 30, 2000 as compared to
$15.6 million at December 31, 1999. 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 4.15% at June
30, 2000 as compared to 4.33%, 4.37%, 5.28%, and 6.18% for the last four
quarter-end periods.
Wholesale/Retail Lending Operations: The Wholesale/Retail Lending
Operations, conducted by ILG, increased total loan originations by 212% to
$60.5 million during the second quarter of 2000 as compared to $19.4
million during the first quarter of 2000. As of June 30, 2000, ILG
approved mortgage brokers increased by 73% to 316 as compared to 183 at
December 31, 1999 as ILG added sales staff.
Warehouse Lending Operations: At June 30, 2000, the Warehouse Lending
Operations, conducted by IWLG, had $1.5 billion of warehouse lines of
credit available to 56 borrowers, of which $296.4 million was outstanding
thereunder, after elimination of borrowings to the Long-Term Investment
Operations, including $119.9 million outstanding to IFC.
RESULTS OF OPERATIONS--IMPAC MORTGAGE HOLDINGS, INC.
For the Three Months Ended June 30, 2000 as compared to the Three Months
Ended June 30, 1999
Results of Operations
The Company recorded a net loss of $(30.3) million, or $(1.45) per
diluted common share, during the second quarter of 2000 as compared to net
earnings of $6.0 million, or $0.21 per diluted common share, during the
second quarter of 1999. During the second quarter of 2000, the Company
recognized charges of $33.6 million, of which $29.2 million was related to
write-downs on investment securities available-for-sale ("investment
securities") and $2.6 million was provided for additional increases in the
Company's allowance for loan losses related to its high loan-to-value
("HLTV") second trust deed portfolio. Due to the continued deterioration
in the performance of collateral supporting specific investment
securities, which were partially written-down during the first quarter of
<PAGE>
2000, the Company wrote-off substantially all remaining book value on
these investment securities during the second quarter of 2000. Charges
recorded during the second quarter of 2000 include the write-off of
substantially all investment securities secured by HLTV second trust
deeds, investment securities secured by franchise mortgage receivables and
certain sub-prime subordinated securities all of which were acquired from
third parties prior to 1998. Subsequent to 1997, the Company's investment
strategy has been to only acquire or invest in investment securities that
are secured by Impac Securities. Additionally, IFC wrote off substantially
all of its remaining investment securities portfolio, which was secured by
franchise mortgage receivables, during the second quarter of 2000, which
resulted in an after-tax charge to the Company of $1.0 million. Prior to
the recognition of these charges, the Company's operating earnings were
$3.3 million, or $0.12 per diluted common share, as compared to net
earnings of $6.0 million, or $0.21 per diluted common share, during the
second quarter of 1999. The decrease in operating earnings was primarily
the result of a $2.8 million decrease in net interest income due to
interest rate compression on the Company's portfolio of Mortgage Assets.
Mortgage Assets are comprised of mortgage loans held-for-investment, CMO
collateral, finance receivables and investment securities
available-for-sale. During the second quarter of 2000, net interest margin
decreased to 1.20% as compared to 2.02% during the second quarter of 1999
as the increase in short-term interest rates during the second quarter of
2000 resulted in a more rapid increase in variable-rate CMO financing than
variable-rate CMO collateral, which is restricted by periodic and lifetime
interest rate cap limitations. Refer to "Net Interest Income" for
additional information.
Total average outstanding finance receivables of the warehouse lending
operations increased 35% to $395.9 million during the second quarter of
2000 as compared to $292.5 million during the second quarter of 1999. The
majority of the increase in average outstanding finance receivables was
with non-affiliated companies which increased 88% to $129.0 million during
the second quarter of 2000 as compared to $68.7 million during the second
quarter of 1999. During the second quarter of 2000, IWLG's contribution to
earnings and earnings per diluted share was approximately $2.3 million and
$0.11, respectively, as compared to approximately $1.6 million and $0.06,
respectively, during the second quarter of 1999.
Total assets were $1.7 billion at June 30, 2000 as compared to $1.675
billion at December 31, 1999. The Company's ratio of debt to equity
("Leverage Ratio") increased to 8.4:1 at June 30, 2000 as compared to
6.0:1 at December 31, 1999 as stockholders' equity decreased to $180.7
million as compared to $238.8 million, respectively. Stockholders' equity
decreased as the Company recorded $68.9 million of non-cash charges during
the first and second quarters of 2000. Excluding these charges for the
first six months of 2000, diluted book value (calculated by including
preferred stock conversion rights of 6.4 million common shares) increased
5% to $9.02 per common share at June 30, 2000 as compared to $8.60 per
common share at December 31, 1999. The recognition of non-cash charges
decreased diluted book value by 15% to $6.51 per common share at June 30,
2000 as compared to diluted book value of $7.63 per common share at March
31, 2000. The combined liquidity of the Company and IFC was $28.1 million
at June 30, 2000 as compared to $29.0 million at December 31, 1999.
Net Interest Income
Net interest income decreased 35% to $5.3 million during the second
quarter of 2000 as compared to $8.2 million during the second quarter of
1999. The decrease in net interest income was primarily the result of
higher CMO borrowing costs due to an increase in one-month LIBOR, which is
the index used to reprice the Company's adjustable-rate CMO borrowings, as
the Federal Reserve Bank increased short-term interest rates to slow
economic growth. During the second quarter of 2000, one-month LIBOR
averaged 6.47% as compared to 4.96% during the second quarter of 1999,
which caused CMO borrowing costs to rise to 7.21% as compared to 6.22%,
respectively. While CMO borrowing costs increased 99 basis points between
the second quarters of 2000 and 1999, the yield on CMO collateral
increased to 7.13% during the second quarter of 2000 as compared to 6.72%
during the second quarter of 1999, an increase of 41 basis points. The 58
basis point decrease in net interest spread on CMO collateral was the
result of adjustable-rate CMO borrowings re-pricing upwards more quickly
than adjustable-rate CMO collateral, which are restricted to periodic and
lifetime cap limitations. Net interest income was also negatively affected
by the non-recognition of interest income on investment securities that
were written-off during the first and second quarters of 2000. During the
first six months of 2000, the Company wrote-off $52.6 million of
investment securities. The decrease in net interest income from
compression of interest rate spreads and the write-off of investment
securities was partially offset by an increase in average Mortgage Assets
which increased 6% to $1.7 billion as compared to $1.6 billion,
respectively.
<PAGE>
The increase in average Mortgage Assets during the second quarter of
2000 was primarily the result of an increase in average finance
receivables and average CMO collateral of $103.4 million and $84.0
million, respectively. Average finance receivables increased during the
second quarter of 2000 as the Warehouse Lending Operations, IWLG, expanded
its business. As of June 30, 2000, IWLG had approved warehouse lines
available to 55 non-affiliated customers totaling $373.6 million as
compared to 39 customers totaling $264.0 million as of June 30, 1999. For
the month of June 2000, IWLG's average outstanding finance receivables was
$145.0 million, which was an all-time high since inception of the
Warehouse Lending Operations in November of 1995. The increase in average
CMO collateral was due to the completion of a $452.0 million CMO in
January of 2000, which was collateralized by $455.7 million of mortgage
loans.
The following table summarizes average balance, interest and weighted
average yield on Mortgage Assets and borrowings on Mortgage Assets for the
second quarters of 2000 and 1999 and includes interest income on Mortgage
Assets and interest expense related to borrowings on Mortgage Assets only
(dollars in thousands):
<TABLE>
<CAPTION>
For the Three Months For the Three Months
Ended June 30, 2000 Ended June 30, 1999
--------------------------------- ----------------------------------
Average Weighted Average Weighted
Balance Interest Avg. Balance Interest Avg.
Yield Yield
--------------------------------- ----------------------------------
MORTGAGE ASSETS
<S> <C> <C> <C> <C> <C> <C>
Investment securities available-for-sale:
Securities collateralized by mortgages $ 64,007 $ 1,511 9.44 % $ 91,275 $ 3,213 14.08 %
Securities collateralized by other loans 5,673 70 4.94 10,779 213 7.90
------------ ---------- ----------- -----------
Total investment securities
available-for-sale 69,680 1,581 9.08 102,054 3,426 13.43
------------ ---------- ----------- ----------
Loan receivables:
CMO collateral 1,243,379 22,153 7.13 1,159,345 19,489 6.72
Mortgage loans held-for-investment 17,881 402 8.99 58,088 1,104 7.60
Finance receivables:
Affiliated 266,910 6,540 9.80 223,773 4,340 7.76
Non-affiliated 128,952 3,365 10.44 68,717 1,541 8.97
------------ ---------- ----------- ---------- --
Total finance receivables 395,862 9,905 10.01 292,490 5,881 8.04
------------ ---------- ----------- ----------
Total Loan Receivables 1,657,122 32,460 7.84 1,509,923 26,474 7.01
------------ ---------- ----------- ----------
Total Mortgage Assets $ 1,726,802 $ 34,041 7.89 % $1,611,977 $ 29,900 7.42 %
============ ========== =========== ==========
BORROWINGS
CMO borrowings $ 1,141,240 $ 20,578 7.21 % $1,053,205 $ 16,377 6.22 %
Reverse repurchase agreements - mortgages 393,431 7,489 7.61 328,034 5,032 6.14
Borrowings secured by investment securities
Available-for-sale 27,549 807 11.72 20,727 331 6.39
------------ ---------- ----------- ----------
Total borrowings on Mortgage Assets $ 1,562,220 $ 28,874 7.39 % $1,401,966 $ 21,740 6.20 %
============ ========== =========== ==========
Net Interest Spread 0.50 % 1.22 %
Net Interest Margin 1.20 % 2.02 %
</TABLE>
Interest Income on Mortgage Assets
Interest income on CMO collateral increased 14% to $22.2 million during
the second quarter of 2000 as compared to $19.5 million during the second
quarter of 1999 as average CMO collateral increased to $1.243 billion as
compared to $1.159 billion, respectively. Average CMO collateral increased
as the Long-Term Investment Operations issued CMOs totaling $452.0 million
during the first quarter of 2000, which was partially offset by total
principal prepayments on CMO collateral of $374.3 million since the end of
the second quarter of 1999. During the second quarter of 2000, constant
prepayment rates ("CPR") on CMO collateral was 26% CPR as compared to 41%
CPR during the second quarter of 1999. An increase in mortgage rates
during 2000 and an increase in loans acquired from IFC with prepayment
penalties contributed to greater stability in prepayments. Due to IFC's
correspondent agreements and increased levels of prepayment penalties,
subsequent CMO collateral acquired by the Long-Term Investment Operations
from IFC should continue to contribute to a reduction in prepayment rates
and stability of earnings. The weighted average yield on CMO collateral
increased to 7.13% during the second quarter of 2000 as compared to 6.72%
during the second quarter of 1999 primarily due to an increase in interest
rates, which affect variable-rate CMO collateral.
<PAGE>
Interest income on mortgage loans held-for-investment decreased to
$402,000 during the second quarter of 2000 as compared to $1.1 million
during the second quarter of 1999 as average mortgage loans
held-for-investment decreased to $17.9 million as compared to $58.1
million, respectively. Average mortgage loans held-for-investment
decreased primarily as the Long-Term Investment Operations acquired $156.9
million of mortgage loans near the end of the second quarter of 2000. The
weighted average yield on mortgage loans held-for-investment increased to
8.99% during the second quarter of 2000 as compared to 7.60% during the
second quarter of 1999. The increase in the weighted average yield was
primarily due to the acquisition of higher-yielding mortgage loans from
IFC, which reflected an increase in mortgage rates.
Interest income on finance receivables increased 68% to $9.9 million
during the second quarter of 2000 as compared to $5.9 million during the
second quarter of 1999 as average finance receivables increased 35% to
$395.9 million as compared to $292.5 million, respectively. Average
finance receivables to affiliated companies increased 19% to $266.9
million during the second quarter of 2000 as compared to $223.8 million
during the second quarter of 1999 as IFC's mortgage loan acquisitions
increased to $427.3 million as compared to $395.9 million, respectively.
As such, interest income on finance receivables to affiliates increased
51% to $6.5 million during the second quarter of 2000 as compared to $4.3
million during the second quarter of 1999. The weighted average yield on
affiliated finance receivables increased to 9.80% during the second
quarter of 2000 as compared to 7.76% during the second quarter of 1999
primarily due to an increase in Bank of America's prime rate ("prime"),
which is the index used to determine interest rates on finance
receivables.
Interest income on finance receivables to non-affiliated mortgage
banking companies increased 127% to $3.4 million during the second quarter
of 2000 as compared to $1.5 million during the second quarter of 1999 as
average finance receivables outstanding to non-affiliated mortgage banking
companies increased 88% to $129.0 million as compared to $68.7 million,
respectively. Average finance receivables to non-affiliates increased
during the second quarter of 2000 as compared to the second quarter of
1999 primarily due to IWLG's business expansion. The weighted average
yield on non-affiliated finance receivables increased to 10.44% during the
second quarter of 2000 as compared to 8.97% during the second quarter of
1999 primarily due to an increase in prime. Average prime increased to
9.25% during the second quarter of 2000 as compared to 7.75% during the
second quarter of 1999.
Interest income on investment securities available-for-sale decreased
53% to $1.6 million during the second quarter of 2000 as compared to $3.4
million during the second quarter of 1999 as average investment securities
available-for-sale, net of securities valuation allowance, decreased 31%
to $69.7 million as compared to $102.1 million, respectively. Average
securities available-for-sale decreased as the Company wrote-off $24.0
million of investment securities during the first quarter of 2000, which
affected the average for the second quarter of 2000. The write-off of
investment securities during the second quarter of 2000 occurred at the
end of the second quarter and therefore did not materially affect the
average for the second quarter of 2000. The weighted average yield on
investment securities available-for-sale decreased to 9.08% during the
second quarter of 2000 as compared to 13.43% during the second quarter of
1999 due to actual realized losses experienced on investment securities
written-off during the second quarter of 2000.
Interest Expense on Mortgage Assets
Interest expense on CMO borrowings increased 26% to $20.6 million
during the second quarter of 2000 as compared to $16.4 million during the
second quarter of 1999 as average borrowings on CMO collateral increased
8% to $1.141 billion as compared to $1.053 billion, respectively. Interest
expense on CMO borrowings rose as one-month LIBOR, which is the index used
to reprice the Company's adjustable-rate CMO borrowings, increased as a
result of the Federal Reserve Bank increasing short-term interest rates to
slow economic growth. During the second quarter of 2000, one-month LIBOR
averaged 6.47% as compared to 4.96% during the second quarter of 1999,
which caused CMO borrowing costs to rise to 7.21% as compared to 6.22%,
respectively.
Interest expense on reverse repurchase agreements used to fund the
acquisition of mortgage loans and finance receivables increased 50% to
$7.5 million during the second quarter of 2000 as compared to $5.0 million
<PAGE>
during the second quarter of 1999 as average reverse repurchase agreements
increased 20% to $393.4 million as compared to $328.0 million,
respectively. The increase in interest expense on reverse repurchase
agreements was primarily the result of an increase in one-month LIBOR,
which is the index used to re-price reverse repurchase agreements, and in
average finance receivables made to non-affiliates due to the expansion of
business by the Warehouse Lending Operations. The weighted average yield
on reverse repurchase agreements increased to 7.61% during the second
quarter of 2000 as compared 6.14% during the second quarter of 1999.
The Company also uses mortgage-backed securities as collateral to
borrow and fund the purchase of mortgage assets and to act as an
additional source of liquidity for the Company's operations. Interest
expense on borrowings secured by investment securities available-for sale
increased 144% to $807,000 during the second quarter of 2000 as compared
to $331,000 during the second quarter of 1999 as the average balance on
these borrowings increased 33% to $27.5 million as compared to $20.7
million, respectively. The weighted average yield of these borrowings
increased to 11.72% during the second quarter of 2000 as compared 6.39%
during the second quarter of 1999 primarily as the Company re-securitized
a portion of its investment securities available-for-sale portfolio with
long-term financing, as opposed to short-term reverse repurchase financing
which is subject to margin calls. The Company did not have any short-term
reverse repurchase financing outstanding at June 30, 2000 and December 31,
1999.
Provision for Loan Losses
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 196% to 0.80% at June 30,
2000 as compared to 0.27% at December 31, 1999. The Company recorded net
loan loss provisions of $3.3 million during the second quarter of 2000 as
compared to $1.5 million during the second quarter of 1999. Net loan loss
provisions during the second quarter of 2000 includes an additional $2.6
million provision for loan losses to increase the Company's allowance for
loan losses to adequately provide for losses within what remains of the
HLTV portfolio. Management's decision to further increase allowance for
loan losses is based upon increased levels of charge-offs and
delinquencies that occurred during the second quarter of 2000.
The charges related to HLTV second trust deeds underlying CMO
collateral were calculated based upon management's estimate of the
inherent losses in the HLTV portfolio. The Company has written these
assets down and provided allowances to absorb expected losses. The
allowance for loan losses is determined primarily on the basis of
management's judgment of net loss potential, including specific allowances
for known impaired loans, changes in the nature and volume of the
portfolio, the value of the collateral and current economic conditions
that may affect the borrowers' ability to pay.
Activity for allowance for loan losses was as follows (in thousands):
<TABLE>
<CAPTION>
For the Three Months For the Three Months For the year ended
Ended June 30, 2000 Ended March 31, 2000 December 31, 1999
------------------------ ---------------------- ----------------------
<S> <C> <C> <C>
Balance, beginning of period...........$ 12,768 $ 4,029 $ 6,959
Provision for loan losses.............. 3,304 13,184 5,547
Charge-offs, net of recoveries......... (3,205) (4,445) (7,152)
Loss on sale of delinquent loans....... -- -- (1,325)
------------------------- ----------------------- -----------------------
Balance, end of period.................$ 12,867 $ 12,768 $ 4,029
========================= ======================= =======================
</TABLE>
Non-Interest Income (Loss)
Non-interest income (loss) includes equity in net earnings (loss) of
IFC and other non-interest income, primarily including loan servicing fees
and fees associated with the Company's Warehouse Lending Operations.
During the second quarter of 2000, non-interest income (loss) was $(1.0)
million as compared to $2.0 million during the second quarter of 1999. The
decrease in non-interest income (loss) during the second quarter of 2000
was primarily due to a decrease of $2.9 million in equity in net earnings
(loss) of IFC. The Company records 99% of the earnings or losses from IFC
as the Company owns 100% of IFC's preferred stock, which represents 99% of
the economic interest in IFC. Equity in net earnings (loss) of IFC
decreased to $(1.5) million during the second quarter of 2000 as compared
to $1.4 million during the second quarter of 1999 as IFC's net earnings
decreased primarily due to a decrease in gain on sale of loans, an
increase in personnel expense and the write-off of Bank related charges.
Refer to "Results of Operations--Impac Funding Corporation" for additional
information.
<PAGE>
Non-Interest Expense
During the second quarter of 2000, non-interest expense increased to
$31.3 million as compared to $2.7 million during the second quarter of
1999. However, after excluding write-down on investment securities,
non-interest expense increased to $1.9 million during the second quarter
of 2000 as compared to $1.5 million during the second quarter of 1999
primarily due to a $321,000 increase in loss on disposition of real estate
owned.
RESULTS OF OPERATIONS-- IMPAC FUNDING CORPORATION
For the Three Months Ended June 30, 2000 as compared to the Three Months
Ended June 30, 1999
Results of Operations
IFC recorded a net loss of $(1.5) million during the second quarter of
2000 as compared to net earnings of $1.4 million during the second quarter
of 1999. However, total loan production at IFC remained strong as
production increased 8% to $427.3 million during the second quarter of
2000 as compared to $395.9 million during the second quarter of 1999. This
increase compares favorably to a 28% decline in national mortgage
originations of 1-to-4 family properties for the second quarter of 2000,
as forecasted by the Mortgages Bankers Association, due to a decline in
mortgage refinance activity. Since IFC has historically generated a more
significant volume of purchase money transactions, as opposed to refinance
transactions, the decrease in forecasted national originations has not
affected IFC as severely as other mortgage loan originators.
Net Interest Income (Loss)
IFC's net interest income (loss) decreased to $93,000 during the second
quarter of 2000 as compared to income of $363,000 during the second
quarter of 1999 primarily as a result of an increase in borrowing costs
due to an increase in prime and the spread charged by IWLG. Average prime
increased to 9.25% during the second quarter of 2000 as compared to 7.75%
during the second quarter of 1999.
Non-Interest Income
During the second quarter of 2000, non-interest income decreased to
$5.5 million as compared to $11.2 million during the second quarter of
1999. However, after excluding a $4.1 million reduction of mark-to-market
allowances recorded during the second quarter of 1999, non-interest income
decreased to $5.5 million during the second quarter of 2000 as compared to
$7.1 million during the second quarter of 1999. This decrease is primarily
due to a $1.3 million decrease in gain on sale of loans, after excluding
reduction of mark-to-market allowances during the second quarter of 1999,
and a $541,000 decrease in loan servicing income.
The decrease in gain on sale of loans was primarily due to a $1.7
million decrease in amortization of deferred gains. Amortization of
deferred gains results from the sale of mortgage loans from IFC to IMH, an
affiliated transaction. Because of the affiliated nature of the
transaction, IFC defers income from loan sales over the estimated life of
the mortgage loans. Due to lower mortgage prepayments during the second
quarter of 2000 as compared to the second quarter of 1999, amortization of
deferred income was lower. The decrease in loan servicing income was
primarily due to a decrease in the size of IFC's servicing portfolio, as
IFC sold loans on a servicing released basis and sold mortgage servicing
rights during 1999 and the first six months of 2000.
Non-Interest Expense
During the second quarter of 2000, non-interest expense decreased to
$8.2 million as compared to $9.1 million during the second quarter of 1999.
However, after excluding write-down on investment securities, non-interest
expense increased to $6.7 million during the second quarter of 2000 as
compared to $5.4 million during the second quarter of 1999. Non-interest
expense increased by $1.3 million during the second quarter of 2000,
primarily due to a $1.4 million write-off of Bank related charges including
contract expenses, fixed assets and acquisition costs.
<PAGE>
RESULTS OF OPERATIONS-- IMPAC MORTGAGE HOLDINGS, INC.
For the Six Months Ended June 30, 2000 as compared to the Six Months Ended
June 30, 1999
Results of Operations
The Company recorded a net loss of $(61.2) million, or $(2.93) per
diluted common share, during the first six months of 2000 as compared to
net earnings of $12.1 million, or $0.41 per diluted common share, during
the same period of 1999. During the six months ended June 30, 2000, the
Company recognized of $68.9 million, of which $52.6 million was related to
write-downs on its investment securities portfolio and $14.5 million was
provided for additional increases in the Company's allowance for loan
losses related to its HLTV second trust deed portfolio. Due to the
continued deterioration in the performance of collateral supporting
specific investment securities, which were partially written-down during
the first quarter of 2000, the Company wrote-off substantially all
remaining book value on these investment securities during the second
quarter of 2000. Charges recorded during the first six months of 2000
include the write-off of substantially all investment securities secured
by HLTV second trust deeds, investment securities secured by franchise
mortgage receivables and certain sub-prime subordinated securities all of
which were acquired prior to 1998. Subsequent to 1997, the Company's
investment strategy has been to only acquire or invest in Impac
Securities. Additionally, IFC wrote off substantially all of its remaining
investment securities portfolio, which was secured by franchise mortgage
receivables, during the first six months of 2000, which resulted in an
after-tax charge to the Company of $1.0 million. Prior to the recognition
of these charges, the Company's operating earnings during the first six
months of 2000 was $7.7 million, or $0.28 per diluted common share, as
compared to net earnings of $12.1 million, or $0.41 per diluted common
share, during the same period of 1999. The decrease in operating earnings
was primarily the result of a $4.6 million decrease in net interest income
due to interest rate compression on the Company's portfolio of Mortgage
Assets. During the first six months of 2000, net interest margin decreased
to 1.32% as compared to 2.00% during the same period of 1999 as the
increase in short-term interest rates during the first six months of 2000
resulted in a more rapid increase in variable-rate CMO financing than
variable-rate CMO collateral, which is restricted by periodic and lifetime
interest rate cap limitations. Refer to "Net Interest Income" for
additional information.
Total average outstanding finance receivables of the Warehouse Lending
Operations increased 31% to $357.1 million during the first six months of
2000 as compared to $273.4 million during the same period of 1999. The
majority of the increase in average outstanding finance receivables was
with non-affiliated companies which increased 73% to $119.3 million during
the first six months of 2000 as compared to $69.1 million during the same
period of 1999. IWLG continued to provide a consistent contribution to net
earnings and earnings per share during the first six months of 2000.
During the first six months of 2000, IWLG's contribution to earnings and
earnings per diluted share was approximately $4.9 million and $0.23,
respectively, as compared to approximately $3.4 million and $0.12,
respectively, during the same period of 1999.
Net Interest Income
Net interest income decreased 28% to $11.8 million during the first six
months of 2000 as compared to $16.4 million during the same period of
1999. The decrease in net interest income during the first six months of
2000 was primarily the result of higher CMO borrowing costs due to an
increase in one-month LIBOR, which is the index used to re-price the
Company's adjustable-rate CMO borrowings. During the first six months of
2000, one-month LIBOR increased as a result of the Federal Reserve Bank
increasing short-term interest rates to slow economic growth. One-month
LIBOR averaged 6.19% during the first six months of 2000 as compared to
4.96% during the same period of 1999, which caused CMO borrowing costs to
rise to 7.08% as compared to 6.28%, respectively. While CMO borrowing
costs increased 80 basis points between the first six months of 2000 and
1999, the yield on CMO collateral increased to 6.91% during the first six
months of 2000 as compared to 6.76% during the same period of 1999, an
increase of 15 basis points. The 65 basis point decrease in net interest
spread on CMO collateral was the result of adjustable-rate CMO borrowings
repricing upwards more quickly than adjustable-rate CMO collateral, which
are restricted to periodic and lifetime cap limitations. Net interest
income was also negatively effected by the non-recognition of interest
income on investment securities that were written-off during the first and
second quarters of 2000. During the first six months of 2000, the Company
wrote-off $52.6 million of investment securities. The decrease in net
interest income from compression of interest rate spreads and the
<PAGE>
write-off of investment securities was partially offset by an increase in
average Mortgage Assets which increased 6% to $1.7 billion as compared to
$1.6 billion, respectively. The increase in average Mortgage Assets during
the first six months of 2000 was primarily the result of an increase in
average finance receivables and average CMO collateral of $83.7 million
and $56.0 million, respectively. Average finance receivables increased
during the first six months of 2000 as the Warehouse Lending Operations,
IWLG, expanded its business. The increase in average CMO collateral was
due to the completion of a $452.0 million CMO in January of 2000, which
was collateralized by $455.7 million of mortgage loans.
The following table summarizes average balance, interest and weighted
average yield on Mortgage Assets and borrowings on Mortgage Assets for the
six months ended June 30, 2000 and 1999 and includes interest income on
Mortgage Assets and interest expense related to borrowings on Mortgage
Assets only (dollars in thousands):
<TABLE>
<CAPTION>
For the Six Months For the Six Months
Ended June 30, 2000 Ended June 30, 1999
----------------------------------- ----------------------------------
Average Weighted Average Weighted
Balance Interest Avg. Balance Interest Avg.
Yield Yield
----------------------------------- ----------------------------------
<S> <C> <C> <C> <C> <C> <C>
MORTGAGE ASSETS
Investment securities available-for-sale:
Securities collateralized by mortgages $ 75,942 $ 4,390 11.56 % $ 90,392 $ 6,315 13.97 %
Securities collateralized by other loans 5,665 273 9.64 9,352 436 9.32
------------ ---------- ------------ -----------
Total investment securities
available-for-sale 81,607 4,663 11.43 99,744 6,751 13.54
------------ ---------- ------------ ----------
Loan receivables:
CMO collateral 1,224,099 42,307 6.91 1,168,051 39,497 6.76
Mortgage loans held-for-investment 68,879 2,737 7.95 55,745 1,906 6.84
Finance receivables:
Affiliated 237,818 11,716 9.85 204,296 8,323 8.15
Non-affiliated 119,272 6,208 10.41 69,103 3,109 9.00
------------ ---------- ------------ ----------
Total finance receivables 357,090 17,924 10.04 273,399 11,432 8.36
------------ ---------- ------------ --------
Total Loan Receivables 1,650,068 62,968 7.63 1,497,195 52,835 7.06
------------ ---------- ------------ --------
Total Mortgage Assets $ 1,731,675 $ 67,631 7.81 % $ 1,596,939 $59,586 7.46 %
============ ========== ============ ========
BORROWINGS
CMO borrowings $ 1,121,569 $ 39,709 7.08 % $ 1,065,930 $33,458 6.28 %
Reverse repurchase agreements - mortgages 404,615 14,842 7.34 305,100 9,479 6.21
Borrowings secured by investment securities
available-for-sale 28,910 1,692 11.71 21,853 711 6.51
------------ ---------- ------------ ----------
Total borrowings on Mortgage Assets $ 1,555,094 $ 56,243 7.23 % $ 1,392,883 $ 43,648 6.27 %
============ ========== ============ ==========
Net Interest Spread 0.58 % 1.19 %
Net Interest Margin 1.32 %% 2.00 %%
</TABLE>
Interest Income on Mortgage Assets
Interest income on CMO collateral increased 7% to $42.3 million during
the first six months of 2000 as compared to $39.5 million during the same
period of 1999 as average CMO collateral increased to $1.224 billion as
compared to $1.168 billion, respectively. Average CMO collateral increased
as the Long-Term Investment Operations issued CMOs totaling $452.0 million
during the first quarter of 2000, which was partially offset by total
principal prepayments on CMO collateral of $374.3 million since the end of
the second quarter of 1999. During the first six months of 2000, constant
prepayment rates ("CPR") on CMO collateral was 26% CPR as compared to 37%
CPR during the same period of 1999. An increase in mortgage rates during
2000 and an increase in loans acquired from IFC with prepayment penalties
contributed to greater stability in prepayments. Due to IFC's
correspondent agreements and increased levels of prepayment penalties,
subsequent CMO collateral acquired by the Long-Term Investment Operations
from IFC should continue to contribute to a reduction in prepayment rates
and stability of earnings. The weighted average yield on CMO collateral
increased to 6.91% during the first six months of 2000 as compared to
6.76% during the same period of 1999 primarily due to an increase in
interest rates, which affect variable-rate CMO collateral.
<PAGE>
Interest income on mortgage loans held-for-investment increased to $2.7
million during the first six months of 2000 as compared to $1.9 million
during the same period of 1999 as average mortgage loans
held-for-investment increased to $68.9 million as compared to $55.7
million, respectively. Average mortgage loans held-for-investment
increased primarily as mortgage loans acquired by the Long-Term Investment
Operations were held onto longer before being placed into CMO's. The
weighted average yield on mortgage loans held-for-investment increased to
7.95% during the first six months of 2000 as compared to 6.84% during the
same period of 1999. The increase in the weighted average yield was
primarily due to the acquisition of higher-yielding mortgage loans from
IFC, which reflected an increase in mortgage rates.
Interest income on finance receivables increased 57% to $17.9 million
during the first six months of 2000 as compared to $11.4 million during
the same period of 1999 as average finance receivables increased 31% to
$357.1 million as compared to $273.4 million, respectively. Average
finance receivables to affiliated companies increased 16% to $237.8
million during the first six months of 2000 as compared to $204.3 million
during the same period of 1999 as IFC's mortgage loan acquisitions
increased to $886.0 million as compared to $649.7 million, respectively.
As such, interest income on finance receivables to affiliates increased
41% to $11.7 million during the first six months of 2000 as compared to
$8.3 million during the same period of 1999. The weighted average yield on
affiliated finance receivables increased to 9.85% during the first six
months of 2000 as compared to 8.15% during the same period of 1999
primarily due to an increase in prime, which is the index used to
determine interest rates on finance receivables.
Interest income on finance receivables to non-affiliated mortgage
banking companies increased 100% to $6.2 million during the first six
months of 2000 as compared to $3.1 million during the same period of 1999
as average finance receivables outstanding to non-affiliated mortgage
banking companies increased 73% to $119.3 million as compared to $69.1
million, respectively. Average finance receivables to non-affiliates
increased during the first six months of 2000 as compared to the first six
months of 1999 primarily due to IWLG's business expansion. The weighted
average yield on non-affiliated finance receivables increased to 10.41%
during the first six months of 2000 as compared to 9.00% during the same
period of 1999 primarily due to an increase in prime. Average prime
increased to 8.96% during the first six months of 2000 as compared to
7.75% during the same period of 1999.
Interest income on investment securities available-for-sale decreased
31% to $4.7 million during the first six months of 2000 as compared to
$6.8 million during the same period of 1999 as average investment
securities available-for-sale, net of securities valuation allowance,
decreased 18% to $81.6 million as compared to $99.7 million, respectively.
Average securities available-for-sale decreased as the Long-Term
Investment Operations did not purchase and retain mortgage-backed
securities during the first six months of 2000 as compared to $9.1 million
during the same period of 1999. In addition, average securities
available-for-sale decreased during the first six months of 2000 due to
the write-off investment securities. The weighted average yield on
investment securities available-for-sale decreased to 11.43% during the
first six months of 2000 as compared to 13.54% during the same period of
1999 primarily due to actual realized losses experienced on investment
securities written-off during the first six months of 2000.
Interest Expense on Mortgage Assets
Interest expense on CMO borrowings increased 19% to $39.7 million
during the first six months of 2000 as compared to $33.5 million during
the first six months of 1999 as average borrowings on CMO collateral
increased 5% to $1.122 billion as compared to $1.066 billion,
respectively. Interest expense on CMO borrowings rose as one-month LIBOR,
which is the index used to re-price the Company's adjustable-rate CMO
borrowings, increased as a result of the Federal Reserve Bank increasing
short-term interest rates to slow economic growth. During the first six
months of 2000, one-month LIBOR averaged 6.19% as compared to 4.96% during
the same period of 1999, which caused CMO borrowing costs to rise to 7.08%
as compared to 6.28%, respectively.
Interest expense on reverse repurchase agreements used to fund the
acquisition of mortgage loans and finance receivables increased 56% to
$14.8 million during the first six months of 2000 as compared to $9.5
million during the same period of 1999 as average reverse repurchase
agreements increased 33% to $404.6 million as compared to $305.1 million,
respectively. This increase was primarily the result of an increase in
finance receivables made to non-affiliates due to the expansion of
business by the Warehouse Lending Operations. The weighted average yield
on reverse repurchase agreements increased to 7.34% during the first six
months of 2000 as compared 6.21% during the same period of 1999 due to an
increase in one-month LIBOR, which is the interest rate index of these
instruments.
<PAGE>
The Company also uses mortgage-backed securities as collateral to
borrow and fund the purchase of mortgage assets and to act as an
additional source of liquidity for the Company's operations. Interest
expense on borrowings secured by investment securities available-for-sale
increased 139% to $1.7 million during the first six months of 2000 as
compared to $711,000 during the same period of 1999 as the average balance
on these borrowings increased 32% to $28.9 million as compared to $21.9
million, respectively. The weighted average yield of these borrowings
increased to 11.71% during the first six months of 2000 as compared 6.51%
during the same period of 1999 primarily as the Company re-securitized a
portion of its investment securities available-for-sale portfolio with
long-term financing, as opposed to short-term reverse repurchase financing
which is subject to margin calls. The Company did not have any short-term
reverse repurchase financing outstanding at June 30, 2000 and December 31,
1999.
Provision for Loan Losses
As a result of the negative performance of the Company's HLTV portfolio
during the first six months of 2000, the Company significantly increased
its provision for loan losses. The Company recorded net loan loss
provisions of $16.5 million during the first six months of 2000 as
compared to $3.0 million during the same period of 1999. Net loan loss
provisions during the first six months of 2000 includes an additional
$14.5 million provision to increase the Company's allowance for loan
losses and to provide for losses within the HLTV portfolio.
Non-Interest Income (Loss)
Non-interest income (loss) includes equity in net earnings (loss) of
IFC and other non-interest income, primarily including loan servicing fees
and fees associated with the Company's Warehouse Lending Operations.
During the first six months of 2000, non-interest income (loss) was
$312,000 as compared to $3.7 million during the same period of 1999. The
decrease in non-interest income (loss) during the first six months of 2000
was primarily due to a decrease of $3.6 million in equity in net earnings
(loss) of IFC. The Company records 99% of the earnings or losses from IFC
as the Company owns 100% of IFC's preferred stock, which represents 99% of
the economic interest in IFC. Equity in net earnings (loss) of IFC
decreased to $(1.1) million during the first six months of 2000 as
compared to $2.5 million during the same period of 1999 as IFC's net
earnings decreased primarily due to a decrease in gain on sale of loans
and loan servicing income, an increase in personnel expense and the
write-off of Bank related charges. Refer to "Results of Operations--Impac
Funding Corporation" for more information.
Non-Interest Expense
During the first six months of 2000, non-interest expense increased to
$ 56.8 million as compared to $5.0 million during the same period of 1999.
However, after excluding write-down on investment securities of $52.6
million, non-interest expense decreased to $4.2 million during the first
six months of 2000 as compared to $5.0 million during the same period of
1999.
RESULTS OF OPERATIONS-- IMPAC FUNDING CORPORATION
For the Six Months Ended June 30, 2000 as compared to the Six Months Ended
June 30, 1999
Results of Operations
IFC recorded a net loss of $(1.1) million during the first six months
of 2000 as compared to net earnings of $2.5 million during the same period
of 1999. However, total loan production at IFC remained strong as
production increased 36% to $886.0 million during the first six months of
2000 as compared to $649.7 million during the same period of 1999. IFC
exceeded production goals for the first six months of 2000 and, absent any
significant market changes, the Company expects that it will meet
production goals for the remainder of the year. The roll out of IFC's
automated underwriting and loan approval system, called IDASL, to IFC's
customers during 2000 is intended to further enhance IFC's production
capacity without increasing current staff levels.
<PAGE>
Net Interest Income (Loss)
IFC's net interest income (loss) decreased to a loss of $(622,000)
during the first six months of 2000 as compared to income of $450,000
during the same period of 1999 primarily as a result of an increase in
borrowing costs due to an overall increase in prime and the spread charged
by IWLG. Average prime increased to 8.96% during the first six months of
2000 as compared to 7.75% during the same period of 1999.
Non-Interest Income
During the first six months of 2000, non-interest income decreased to
$12.3 million as compared to $18.7 million during the same period of 1999.
However, after excluding a $4.1 million reduction of mark-to-market
allowances recorded during the second quarter of 1999, non-interest income
decreased to $12.3 million during the first six months of 2000 as compared
to $14.6 million during the same period of 1999. This decrease is
primarily due to a $1.2 million decrease in loan servicing income and a
$1.0 million decrease in gain on sale of loans, after excluding reduction
of mark-to-market allowances during the second quarter of 1999.
The decrease in loan servicing income was primarily due to a decrease
in the size of IFC's servicing portfolio, as IFC sold loans on a servicing
released basis and sold mortgage servicing rights during 1999 and the
first six months of 2000. The decrease in gain on sale of loans was
primarily due to a decrease in amortization of deferred gains.
Amortization of deferred gains results from the sale of mortgage loans
from IFC to IMH, an affiliated transaction. Because of the affiliated
nature of the transaction, IFC defers income from loan sales over the
estimated life of the mortgage loans. Due to lower mortgage prepayments
during the first six months of 2000 as compared to the second quarter of
1999, amortization of deferred income was lower.
Non-Interest Expense
During the first six months of 2000, non-interest expense increased to
$12.0 million as compared to $10.4 million during the first six months of
1999, after excluding write-down on investment securities. Non-interest
expense increased by $1.6 million during the first six months of 2000,
primarily due to $1.4 million write-off of Bank related charges including
contract expenses, fixed assets and acquisition costs.
LIQUIDITY AND CAPITAL RESOURCES
Overview
Historically, the Company's business operations are primarily funded
from monthly interest and principal payments from its mortgage loan and
investment securities portfolios, adjustable- and fixed-rate CMO
financing, reverse repurchase agreements secured by mortgage loans,
borrowings secured by mortgage-backed securities, proceeds from the sale
of mortgage loans and the issuance of REMICs and proceeds from the
issuance of Common Stock through secondary stock offerings, Dividend
Reinvestment and Stock Purchase Plan ("DRSPP"), and its structured equity
shelf program ("SES Program"). 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, and proceeds from
the sale of Common Stock. The issuance of CMO financing provides the
Long-Term Investment Operations with immediate liquidity, a relatively
stable interest rate spread and eliminates the Company's exposure to
margin calls on such loans. Presently, the Company has suspended both the
DRSPP and SES Program and has issued no new shares of Common Stock through
these programs or through secondary stock offerings during the first six
months of 2000. 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 warehouse financing, finance receivables, provided by the
Warehouse Lending Operations are primarily funded from reverse repurchase
agreements.
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
<PAGE>
investments, and the relative attractiveness of alternative investment or
lending opportunities. The Company believes that current liquidity levels,
available financing facilities and additional liquidity provided by
operating activities will adequately provide for the Company's projected
funding needs, asset growth and the payment of dividends for the near
term. The Company is continuously exploring alternatives for increasing
liquidity and monitors current and future cash requirements through its
asset/liability committee ("ALCO"). However, no assurances can be given
that such alternatives will be available, or if available, under
comparable rates and terms as currently exist.
Long-Term Investment Operations
Primary Source of Funds
The Long-Term Investment Operations uses CMO borrowings to finance
substantially its entire mortgage loan portfolio. 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. For the first six months of 2000, the
Company issued a CMO totaling $452.0 million that was collateralized by
$455.7 million of residential mortgages. At June 30, 2000, the Long-Term
Investment Operations had $1.1 billion of CMO borrowings used to finance
$1.2 billion of CMO collateral.
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 LIBOR
plus a spread depending on the type of collateral provided. As of June 30,
2000, the Long-Term Investment Operations had no amounts outstanding under
reverse repurchase agreements secured by investment securities
available-for-sale.
Primary Use of Funds
During the first six months of 2000, the Long-Term Investment
Operations acquired $155.2 million in principal balance of mortgage loans
from IFC.
During the first six months of 2000, the Company paid common and
preferred stock dividends of $6.7 million.
Warehouse Lending Operations
Primary Source of Funds
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 reverse 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 85 basis points to 200
basis points over one-month LIBOR, depending on the type of collateral
provided. The advance rate 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. At June 30, 2000, the
Warehouse Lending Operations had $222.4 million outstanding on uncommitted
reverse repurchase agreements at a rate of one-month LIBOR plus 0.85% to
2.00%.
Primary Use of Funds
During the first six months of 2000, the Warehouse Lending Operations
increased outstanding finance receivables by $99.8 million.
Mortgage Operations
<PAGE>
Primary Source of Funds
The Mortgage Operations has entered into reverse repurchase 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. Interest rates on the
borrowings were indexed to prime plus 1.00%, which was 9.50% at June 30,
2000. At June 30, 2000, the Conduit Operations had $101.2 million
outstanding under the reverse repurchase agreements.
During the first six months of 2000, the Mortgage Operations sold
$621.6 million in principal balance of mortgage loans to third party
investors. In addition, IFC sold $155.2 million in principal balance of
mortgage loans to the Long-Term Investment Operations during the first six
months of 2000. By securitizing and selling loans on a periodic and
consistent basis the reverse repurchase agreements were sufficient to
handle IFC's liquidity needs during the six-months ended June 30, 2000.
Primary Use of Funds
During the first six months of 2000, the Mortgage Operations acquired
$886.0 million of mortgage loans.
Cash Flows
Operating Activities - During the first six months of 2000, net cash
provided by operating activities was $15.2 million.
Investing Activities - During the first six months of 2000, net cash
used in investing activities was $101.5 million. Cash used in investing
activities was primarily due to an increase in finance receivables of
$99.8 million as the Warehouse Lending Operations expanded its business.
Financing Activities - During the first six months of 2000, net cash
provided by financing activities was $79.1 million. Cash provided by
financing activities was primarily due to proceeds from CMO borrowings of
$452.0 million, which was partially offset by repayment of CMO borrowings
and reverse repurchase agreements of $365.8 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 and subsequently the value
of its portfolio of Mortgage Assets.
<PAGE>
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Securitizations/Sales - Hedging Interest Rate Risk. The most
significant variable in the determination of gain on sale in a
securitization is the spread between the weighted average coupon on the
securitized loans and the pass-through interest rate. In the interim
period between loan origination or purchase and securitization or sale of
such loans, the Company is exposed to interest rate risk. The majority of
loans are securitized or sold within 90 days of origination of purchase.
However, a portion of the loans are held-for-sale or securitization for as
long as 12 months (or longer, in very limited circumstances) prior to
securitization or sale. If interest rates rise during the period that the
mortgage loans are held, in the case of a securitization, the spread
between the weighted average interest rate on the loans to be securitized
and the pass-through interest rates on the securities to be sold (the
latter having increased as a result of market rate movements) would
narrow. Upon securitization or sale, this would result in a reduction of
the Company's related gain or an increase in the Company's loss on sale.
Interest- and Principal-Only Strips. The Company had interest- and
principal-only strips of $8.7 million and $35.7 million outstanding at
June 30, 2000 and December 31, 1999, respectively. These instruments are
carried at the lower of amortized cost or market value at June 30, 2000
and December 31, 1999. The Company values these assets based on the
present value of future cash flow streams net of expenses using various
assumptions.
These assets are subject to risk of accelerated mortgage prepayment or
losses in excess of assumptions used in valuation. Ultimate cash flows
realized from these assets would be reduced should prepayments or losses
exceed assumptions used in the valuation. Conversely, cash flows realized
would be greater should prepayments or losses be below expectations.
<PAGE>
PART II. OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS
Not applicable.
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
None.
ITEM 5: OTHER INFORMATION
None.
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
10.4 (d) Amendment dated October 1, 1999 to lease between The Realty
Associates Fund V and Impac Mortgage Holdings, Inc.
27 Financial Data Schedule.
(b) Reports on Form 8-K:
None.
<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 11, 2000
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