<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 September 30, 1998
OR
[_] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
For the transition period from _______________ to ______________
Commission File Number: 0-13091
Impac Commercial Holdings, Inc.
(Exact name of registrant as specified in its charter)
Maryland 33-0745075
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
20371 Irvine Avenue
Santa Ana Heights, California 92707
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (714) 556-0122
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class Which registered
---------------------------------------- -----------------------------------
Common Stock $0.01 par value American Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
On November 11, 1998, the aggregate market value of the voting stock held
by non-affiliates of the registrant was approximately $56.7 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 November 11, 1998 was
8,625,000.
Documents incorporated by reference: None
<PAGE>
IMPAC COMMERCIAL HOLDINGS, INC.
1998 FORM 10-Q QUARTERLY REPORT
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
<TABLE>
<S> <C>
Item 1. CONSOLIDATED FINANCIAL STATEMENTS - IMPAC COMMERCIAL HOLDINGS, INC. Page #
Consolidated Balance Sheets, September 30, 1998 and December 31, 1997 3
Consolidated Statements of Operations, For the Three Months Ended September 30, 1998 and 1997
and For the Nine Months Ended September 30, 1998 and For the Period from January 15, 1997
(commencement of operations) through September 30, 1997 4
Consolidated Statements of Cash Flows, For the Nine Months Ended
September 30, 1998 and For the Period from January 15, 1997
(commencement of operations) through September 30, 1997 5
Notes to Consolidated Financial Statements 6
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS 12
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 24
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS 25
Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS 25
Item 3. DEFAULTS UPON SENIOR SECURITIES 25
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 25
Item 5. OTHER INFORMATION 25
Item 6. EXHIBITS AND REPORTS ON FORM 8-K 25
SIGNATURES 26
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1: CONSOLIDATED FINANCIAL STATEMENTS
IMPAC COMMERCIAL HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except share data)
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
----------------- -------------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 7,177 $ 15,908
Investment securities available-for-sale 16,807 19,353
Residual interest in securitizations, held-for-trading 9,232 9,936
Loan receivables:
CMO collateral 340,537 4,255
Finance receivables 176,930 95,711
Commercial Mortgages held-for-investment 25,894 62,790
Allowance for loan losses (1,701) (564)
----------------- -------------------
Net loan receivables 541,660 162,192
Due from affiliates 44,017 1,592
Premises and equipment, net 8,906 3,857
Investment in Impac Commercial Capital Corporation (11,531) 4,182
Accrued interest receivable 3,606 1,361
Other assets 1,616 458
----------------- -------------------
$ 621,490 $ 218,839
================= ===================
LIABILITIES AND STOCKHOLDERS' EQUITY
CMO borrowings $ 284,841 $ 4,176
Warehouse line agreements 180,181 90,374
Reverse repurchase agreements 13,895 9,841
Other borrowings 6,502 --
Due to affiliates 14,560 8,067
Other liabilities 10,352 3,139
----------------- -------------------
Total liabilities 510,331 115,597
Stockholders' Equity:
Preferred Stock; $.01 par value; 6,000,000 shares authorized; no shares
issued and outstanding at September 30, 1998 and December 31, 1997 -- --
Common Stock; $.01 par value; 46,000,000 shares authorized; 9,562,084 and
7,344,789 shares issued and outstanding at September 30, 1998 and December
31, 1997, respectively 96 73
Class A Common Stock; $.01 par value; 4,000,000 shares authorized; 456,916 and
674,211 shares issued and outstanding at September 30, 1998 and December
31, 1997, respectively 5 7
Additional paid-in-capital 133,127 104,761
Accumulated other comprehensive loss (930) (160)
Cumulative dividends declared (15,575) (4,250)
Retained earnings (5,564) 2,811
----------------- -------------------
Total stockholders' equity 111,159 103,242
----------------- -------------------
$ 621,490 $ 218,839
================= ===================
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
IMPAC COMMERCIAL HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except earnings per share data)
<CAPTION>
For the period from
January 15, 1997
(commencement
For the Three For the Three For the Nine of operations)
Months Ended Months Ended Months Ended through
September 30, September 30, September 30, September 30,
1998 1997 1998 1997
---------------- --------------- --------------- ------------------
<S> <C> <C> <C> <C>
Revenues:
Interest income $ 11,258 $ 2,457 $ 25,736 $ 3,810
Equity in net earnings (loss) of Impac
Commercial Capital Corporation (14,837) 627 (15,714) 627
Other income 594 58 1,021 58
----------------- --------------- --------------- ------------------
(2,985) 3,142 11,043 4,495
----------------- --------------- --------------- ------------------
Expenses:
Interest expense on warehouse line and
reverse repurchase agreements 4,826 540 11,861 1,206
Interest expense on CMO borrowings 2,124 -- 2,259 --
Interest expense on other borrowings 7 205 593 341
Write-down of residual interest in
securitization, held-for trading 1,085 -- 1,085 --
Provision for loan losses 1,020 22 1,137 55
General and administrative and other expense 718 75 1,363 85
Professional services 254 202 535 380
Management advisory fees 206 1 585 1
Stock compensation expense -- -- -- 2,697
----------------- --------------- --------------- ------------------
10,240 1,045 19,418 4,765
----------------- --------------- --------------- ------------------
Net earnings (loss) $ (13,225) $ 2,097 $ (8,375) $ (270)
================= =============== =============== ==================
Weighted average shares outstanding - basic 10,019 5,511 8,721 2,974
================= =============== =============== ==================
Weighted average shares outstanding - diluted 10,019 5,534 8,721 2,974
================= =============== =============== ==================
Net earnings (loss) per share--basic and diluted $ (1.32) $ 0.38 $ (0.96) $ (0.09)
================= =============== =============== ==================
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
IMPAC COMMERCIAL HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
For the period from
January 15, 1997
For the Nine (commencement of
Months Ended operations) through
September 30, 1998 September 30, 1997
------------------------- -----------------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (8,375) $ (270)
Adjustments to reconcile net loss to net cash
used in operating activities:
Equity in net earnings (loss) of Impac Commercial Capital Corporation 15,714 (627)
Stock compensation expense -- 2,697
Provision for loan losses 1,137 55
Depreciation 372 16
Net change in accrued interest on receivables (2,245) (465)
Net change in other assets and liabilities 364 5,559
Net change in due from affiliates and due to affiliates (35,932) 70
------------------------- -----------------------
Net cash provided by (used in) operating activities (28,965) 7,035
------------------------- -----------------------
Cash flows from investing activities:
Net change in Commercial Mortgages held-for-investment 36,896 (34,559)
Net change in finance receivables (81,219) (42,662)
Net change in CMO collateral (336,282) --
Purchase of investment securities available-for-sale -- (12,374)
Principal reductions on investment securities available-for-sale 1,776 --
Purchase of residual interest in securitizations -- (10,098)
Principal reductions on residual interest in securitizations 704 99
Purchase of premises and equipment (1,193) (3,917)
Contributions to ICCC -- (2,375)
------------------------- -----------------------
Net cash used in investing activities (379,318) (105,886)
------------------------- -----------------------
Cash flows from financing activities:
Net change in warehouse line agreements 89,807 12,984
Net change in reverse repurchase agreements 4,054 --
Increase in CMO borrowings 284,231 --
Decrease in CMO borrowings (3,566) --
Net change in other borrowings 6,502 2,526
Issuance of Common Stock 28,387 102,188
Dividends paid (9,863) --
------------------------- -----------------------
Net cash provided by financing activities 399,552 117,698
------------------------- -----------------------
Net change in cash and cash equivalents (8,731) 18,847
Cash and cash equivalents at beginning of period 15,908 --
------------------------- -----------------------
Cash and cash equivalents at end of period $ 7,177 $ 18,847
========================= =======================
Supplementary information:
Interest paid $ 4,620 $ 1,477
Non-cash transactions:
Increase in accumulated other comprehensive loss $ (770) $ --
Conversion of promissory notes to ICH Preferred stock -- 15,000
Dividends declared and unpaid 4,509 --
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
IMPAC COMMERCIAL HOLDINGS, INC. and SUBSIDIARIES
Notes to Consolidated Financial Statements
Unless the context otherwise requires, references herein to the "Company"
refer to Impac Commercial Holdings, Inc. (ICH) and its subsidiaries, Impac
Commercial Assets Corp. (ICH Assets), IMH/ICH Dove Street, LLC (Dove) and
Impac Commercial Capital Corporation (together with its wholly owned
subsidiary, ICCC Secured Assets Corporation, ICCC), collectively.
References to ICH refer to Impac Commercial Holdings, Inc. as a separate
entity from ICH Assets, Dove or ICCC.
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 nine-month period ended September 30,
1998 are not necessarily indicative of the results that may be expected for
the year ending December 31, 1998. The accompanying consolidated financial
statements should be read in conjunction with the consolidated financial
statements and related notes included in the Company's Annual Report on
Form 10-K for the year ended December 31, 1997.
The operations of ICH have been presented in the consolidated financial
statements for the three months ended September 30, 1998 and 1997 and for
the nine months ended September 30, 1998 and for the period from January
15, 1997 (commencement of operations) through September 30, 1997
(Commencement Period). The consolidated financial statements include the
financial results of ICH as a stand-alone entity, the financial results of
ICH's equity interest in net earnings (loss) in ICCC as a stand-alone
entity, subsequent to ICH's initial public offering (IPO) on August 8,
1997, and the financial results of ICH Assets and Dove.
The Company is entitled to 95% of the earnings or losses of ICCC through
its ownership of all of the non-voting preferred stock of ICCC. As such,
the Company records its investment in ICCC using the equity method. Under
this method, original investments are recorded at cost and adjusted by the
Company's share of earnings or losses. The results of operations of ICCC
are included in the results of operations for ICH as "Equity in net
earnings (loss) of ICCC." Gain or loss on the sale of loans or securities
by ICCC to ICH are deferred and amortized or accreted over the estimated
life of the loans or securities.
2. Organization
ICH was incorporated in Maryland in February 1997 under the name Imperial
Credit Commercial Holdings, Inc. and in June 1997 ICH changed its name to
IMH Commercial Holdings, Inc. By a vote of stockholders on January 28,
1998, a name change to Impac Commercial Holdings, Inc. was approved. ICH is
a specialty commercial property finance company, which has elected to be
taxed at the corporate level as a real estate investment trust (REIT) for
federal income tax purposes. This generally allows the Company to pass
through income to stockholders without payment of federal income tax at the
corporate level provided that the company distributes at least 95% of its
taxable income to stockholders. Impac Mortgage Holdings, Inc. (IMH)
capitalized ICH with $15.0 million in cash in March 1997. As of September
30, 1998, IMH owned 937,084, or 9.8%, of ICH voting Common Stock and
456,916 shares, or 100%, of ICH non-voting Class A Common Stock. Subsequent
to September 30, 1998, the Company repurchased from IMH 937,084 shares of
Common Stock and 456,916 shares of Class A Common Stock. After the
repurchase, the Company had 8,625,000 shares of Common Stock outstanding
and no shares of Class A Common Stock outstanding.
<PAGE>
3. Summary of Significant Accounting Policies
Method of Accounting
The consolidated financial statements are prepared on the accrual basis of
accounting in accordance with GAAP. The preparation of financial statements
in conformity with GAAP requires management to make significant estimates
and assumptions that affect the reported amounts of assets and liabilities
at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results may
differ materially from those estimates.
Reclassifications
Certain amounts in the consolidated financial statements as of and for the
three and nine months ended September 30, 1997 have been reclassified to
conform to the 1998 presentation.
New Accounting Statements
In June 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting
Comprehensive Income," which is effective for fiscal years beginning after
December 15, 1997 and requires restatement of earlier financial statements
for comparative purposes. SFAS No. 130 establishes standards for reporting
and the display of comprehensive income and its components in the financial
statements. SFAS No. 130 requires that items meeting the criteria of a
component of comprehensive income (such as gains or losses on certain
investments in debt and equity securities classified as
available-for-sale), be shown in the financial statements as adjustments to
reported net earnings to arrive at a disclosure of comprehensive income.
SFAS No. 130 provides informative disclosure but does not and will not
impact previously reported or future net earnings and earnings per share.
The following table represents comprehensive income (in thousands):
<TABLE>
<CAPTION>
For the period from
January 15, 1997
For the Nine (commencement of
For the Three Months Months Ended operations) through
Ended September 30, September 30, September 30,
1998 1997 1998 1997
-------------- ------------- --------------- ---------------------
<S> <C> <C> <C> <C>
Net earnings (loss) $ (13,225) $ 2,097 $ (8,375) $ (270)
Unrealized gains (losses) arising during period (536) 16 (770) 16
-------------- -------------- ---------------- ---------------------
Comprehensive income (loss) $ (13,761) $ 2,113 $ (9,145) $ (254)
============== ============= ================ =====================
</TABLE>
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information." SFAS 131 establishes standards for
the way that public enterprises report information about operating segments
in annual financial statements and requires that selected information about
those operating segments be reported in interim financial statements. This
statement supersedes SFAS 14, "Financial Reporting for Segments of a
Business Enterprise." SFAS No. 131 requires that all public enterprises
report financial and descriptive information about its reportable operating
segments. Operating segments are defined as components evaluated regularly
by the chief operating decision-maker in deciding how to allocate resources
and in assessing performance. This statement is effective for fiscal years
beginning after December 15, 1997. In the initial year of application,
comparative information for earlier years should be restated.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes accounting
and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts, (collectively referred
to as derivatives) and for hedging activities. It requires that an entity
recognizes all derivatives as either assets or liabilities in the statement
of financial position and measures 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
<PAGE>
(c) a hedge of the foreign currency exposure of a net investment in a
foreign operation, an unrecognized firm commitment, an available-for-sale
security, or a foreign-currency-denominated forecasted transaction. This
statement is effective for all fiscal quarters of fiscal years beginning
after June 15, 1999.
4. Net Earnings (Loss) per Share
Effective December 31, 1997, the Company adopted SFAS No. 128, "Earnings
per Share." SFAS 128 replaces the previously reported primary and fully
diluted earnings per share with basic and diluted earnings per share.
Unlike primary earning per share, basic earnings per share excludes any
dilutive effects of stock options. Diluted earnings per share are very
similar to the previously reported fully diluted earnings per share. Basic
net earnings per share are computed on the basis of the weighted average
number of shares outstanding for the period. Dilutive net earnings per
share are computed on the basis of the weighted average number of shares
and common equivalent shares outstanding for the period.
The following tables represent the computation of basic and diluted
earnings per share for the periods presented (in thousands, except per
share data):
<TABLE>
<CAPTION>
For the Three For the Three
Months Ended Months Ended
September 30, 1998 September 30, 1997
------------------------ ------------------------
<S> <C> <C>
Numerator:
Numerator for basic earnings per share--
Net earnings (loss) $ (13,225) $ 2,097
------------------------ ------------------------
Denominator:
Denominator for basic earnings per share--
Weighted average number of common shares
outstanding during the period 10,019 5,511
Net effect of dilutive stock options -- 23
------------------------ ------------------------
Denominator for diluted earnings per share 10,019 5,534
======================== ========================
Net earnings (loss) per share--basic $ (1.32) $ 0.38
======================== ========================
Net earnings (loss) per share--diluted $ (1.32) $ 0.38
======================== ========================
</TABLE>
<TABLE>
<CAPTION>
For the period from
January 15, 1997
For the Nine (commencement of
Months Ended operations) through
September 30, 1998 September 30, 1997
------------------------ ------------------------
<S> <C> <C>
Numerator:
Numerator for basic earnings per share--
Net loss $ (8,375) $ (270)
------------------------ ------------------------
Denominator:
Denominator for basic earnings per share--
Weighted average number of common shares
outstanding during the period 8,721 2,974
Net effect of dilutive stock options -- --
------------------------ ------------------------
Denominator for diluted earnings per share 8,721 2,974
======================== ========================
Net loss per share--basic $ (0.96) $ (0.09)
======================== ========================
Net loss per share--diluted $ (0.96) $ (0.09)
======================== ========================
Antidilutive options outstanding as of September 30, 1998 were 9,000.
</TABLE>
<PAGE>
5. Investment in Impac Commercial Capital Corporation
The Company is entitled to 95% of the earnings or losses of ICCC through
its ownership of all of the non-voting preferred stock of ICCC. As such,
the Company records its investment in ICCC 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 ICCC to ICH are deferred and amortized or accreted over the
estimated life of the loans or securities.
<PAGE>
The following is financial information for ICCC for the periods presented
(in thousands):
<TABLE>
BALANCE SHEETS
<CAPTION>
September 30, December 31,
1998 1997
----------------- --------------------
<S> <C> <C>
ASSETS
Cash $ 5,154 $ 2,273
Commercial Mortgages held-for-sale 186,111 106,654
Due from affiliates 6,988 1,538
Premises and equipment, net 915 381
Other assets 2,405 1,789
----------------- --------------------
$ 201,573 $ 112,635
================= ====================
LIABILITIES AND SHAREHOLDERS' EQUITY
Warehouse line agreements with affiliates $ 193,703 $ 104,219
Due to affiliates 16,307 758
Other liabilities 3,699 3,255
----------------- --------------------
Total liabilities 213,709 108,232
----------------- --------------------
Shareholders' Equity:
Preferred stock; no par value; 50,000 shares authorized; 9,500 shares issued
and outstanding at September 30, 1998 and December 31, 1997 2,875 2,875
Common stock; no par value; 50,000 shares authorized; 500 shares issued
and outstanding at September 30, 1998 and December 31, 1997 1 1
Contributed capital 150 150
Retained earnings (15,162) 1,377
----------------- --------------------
Total shareholders' equity (12,136) 4,403
----------------- --------------------
$ 201,573 $ 112,635
================= ====================
</TABLE>
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the period from
January 15, 1997
For the Three For the Three For the Nine (commencement of
Months Ended Months Ended Months Ended operations) through
September 30, September 30, September 30, September 30,
1998 1997 1998 1997
----------------- ----------------- ------------------ ---------------------
<S> <C> <C> <C> <C>
Revenues:
Interest income $ 2,242 $ 1,090 $ 8,445 $ 1,321
Mark to market loss on mortgage loans (15,022) -- (15,022) --
Gain on sale of loans held-for-sale -- 1,508 -- 1,527
Other income 90 16 435 36
----------------- ----------------- ------------------ ---------------------
(12,690) 2,614 (6,142) 2,884
Expenses:
Interest expense on warehouse line
and reverse repurchase agreements 2,414 -- 8,585 --
Interest on borrowings from affiliates 197 1,076 566 1,291
General and administrative and other expense 1,391 232 2,621 537
Professional services 242 196 617 374
Stock compensation expense -- 125 -- 150
Provision for repurchases -- 69 -- 90
----------------- ----------------- ------------------ ---------------------
4,244 1,698 12,389 2,442
Earnings (loss) before income taxes (16,934) 916 (18,531) 442
Income taxes (benefit) (1,318) 387 (1,992) 189
----------------- ----------------- ------------------ ---------------------
Net earnings (loss) $ (15,616) $ 529 $ (16,539) $ 253
================= ================= ================== =====================
</TABLE>
<PAGE>
6. Stockholders' Equity
The Company completed a secondary common stock offering, which closed in
June 1998. The Company raised additional capital of $29.1 million, net of
underwriting discounts and before other expenses, as stockholders purchased
2,000,000 shares of common stock at a price of $15.3125 per share.
On September 28, 1998, the Company declared a third quarter dividend of
$4.5 million, or $0.45 per share. The original payment date of this
dividend was set for October 26, 1998 to stockholders of record on October
9, 1998. However, on October 8, 1998 the Company announced that the third
quarter dividend payment would be paid by January 6, 1999.
On June 8, 1998, the Company declared a second quarter dividend of $3.6
million, or $0.45 per share. This dividend was paid on July 15, 1998 to
stockholders of record on June 19, 1998.
On April 1, 1998, the Company declared a first quarter dividend of $3.2
million, or $0.40 per share. This dividend was paid on April 24, 1998 to
stockholders of record on April 9, 1998.
7. Subsequent Events
On October 7, 1998, the Company's Board of Directors adopted a Stockholder
Rights Plan in which Preferred Stock Purchase Rights were distributed as a
dividend at the rate of one Right for each outstanding share of common
stock on October 19, 1998. The Rights are attached to the Company's common
stock. For additional information regarding the Stockholder Rights Plan,
refer to "Item 2. Management's Discussion of Financial Condition and
Results of Operations-- Significant Transactions."
On October 21, 1998, the Company repurchased from IMH 937,084 shares of
Common Stock and 456,916 shares of Class A Common Stock at a per share
price of $4.375, based upon the closing price on October 19, 1998, for a
total repurchase of $6.1 million.
On October 27, 1998, the Company purchased from IMH its remaining 50%
ownership interest in a commercial office building in Newport Beach,
California. After the purchase of the 50% ownership interest from IMH, the
Company has a 100% ownership interest in the building.
On October 30, 1998, ICCC sold $150.9 million of Commercial Mortgages,
which increased the Company's liquidity by $22.3 million after paying down
borrowings on warehouse lines. The financial result of the sale of
Commercial Mortgages was in line with the marked-to-market charge taken by
the Company in the third quarter of 1998.
On November 6, 1998, the Company paid the previously announced third
quarter dividend of $0.45 per share to stockholders of record on October 9,
1998. The Company paid interest in the form of an additional cash dividend
at a rate of 4% per annum for the period from the previously announced
payment date of October 26, 1998 through November 6, 1998. The total amount
of the interest the Company paid as a result of the dividend payment delay
was approximately $5,434.96 or $0.0006 per common share outstanding.
<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," "anticipate,"
"estimate," "believe" or "should" 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
effectiveness of the Stockholder Rights Plan, increased costs and delays
related to Year 2000 compliance, the availability of suitable opportunities
for the acquisition, ownership and dispositions of mortgage assets and
yields available from time to time on such mortgage assets, interest rates
and their affect on mortgages and MBS, including Commercial Mortgages and
CMBS, changes in estimates of book basis and tax basis earnings, the
availability of suitable financing and investments, and trends in the
economy which affect confidence and demand on the Company's portfolio of
mortgage assets.
GENERAL
ICH was incorporated in the state of Maryland on February 3, 1997. ICH was
formed to seek opportunities in the commercial mortgage market. Commercial
mortgage assets include mortgage loans on condominium-conversions and
mortgage loans on commercial properties, such as industrial and warehouse
space, office buildings, retail space and shopping malls, hotels and
motels, nursing homes, hospitals, multifamily, congregate care facilities
and senior living centers (collectively, "Commercial Mortgages"). The
Company operates the Long-Term Investment Operations which invests
primarily in mortgage loans and mortgage-backed securities ("MBSs"). To
date, the Long-Term Investment Operations has invested primarily in
Commercial Mortgages and mortgage-backed securities on commercial
properties ("CMBSs"). The Company also engages in the Conduit Operations,
ICCC, which originates, purchases and sells or securitizes Commercial
Mortgages. ICCC operates three divisions: the ConduitExpress Division, the
CommercialExpress Division, and the CondoSelect Division.
SIGNIFICANT TRANSACTIONS
On September 25, 1998, the Company's Board of Directors authorized the
Company to repurchase up to $5.0 million of the Company's common stock,
$.01 par value, in open market purchases from time to time in the
discretion of the Company's management; the timing and extent of the
repurchases will depend on market conditions. The Company intends to effect
such repurchases, if any, in compliance with the Rule 10b-18 under the
Securities Exchange Act of 1934. The acquired shares will be canceled
On October 7, 1998, the Company's Board of Directors adopted a Stockholder
Rights Plan in which Preferred Stock Purchase Rights were distributed as a
dividend at the rate of one Right for each outstanding share of common
stock. The dividend distribution was made on October 19, 1998, payable to
stockholders of record on that date. The Rights are attached to the
Company's common stock. The Rights will be exercisable and trade separately
only in the event that a person or group acquires or announces the intent
to acquire 10 percent or more of the Company's common stock. Each Right
will entitle stockholders to buy one-hundredth of a share
of a new series of junior participating preferred stock at an exercise
price of $16.25. If the Company is acquired in a merger or other
transaction after a person has acquired 10 percent or more of Company
outstanding common stock, each Right will entitle the stockholder to
purchase, at the Right's then-current exercise price, a number of the
acquiring Company's common shares having a market value of twice such
price. In addition, if a person or group acquires 10 percent or more of the
Company's common stock, each Right will entitle the stockholder (other than
the acquiring person) to purchase, at the Right's then-current exercise
price, a number of shares of the Company's common stock having a market
value of twice such price. Following the acquisition by a person of 10
percent or more of the Company's common stock and before an acquisition of
50 percent or more of the common stock, the Board of Directors may exchange
the Rights (other than the Rights owned by such person) at an exchange
ratio of one share of common stock per Right. Before a person or group
acquires beneficial ownership of 10 percent or more of the Company's common
stock, the Rights are redeemable for $.0001 per right at the option of the
Board of Directors. The Rights will expire on October 19, 2008. The Rights
distribution is not taxable to stockholders. The Rights are intended to
enable all the Company stockholders to realize the long-term value of their
investment in the Company. They will not prevent a takeover but should
encourage anyone seeking to acquire the Company to negotiate with the Board
of Directors prior to attempting a takeover.
<PAGE>
On October 21, 1998, ICH repurchased from IMH 937,084 shares of Common
Stock and 456,916 Class A Common Stock at a per share price of $4.375,
based upon the closing price on October 19, 1998, for a total repurchase of
$6.1 million.
On October 27, 1998, the Company purchased from IMH its remaining 50%
ownership interest in a commercial office building in Newport Beach,
California. After the purchase of the 50% ownership interest from IMH, the
Company has a 100% ownership interest in the building.
BUSINESS OPERATIONS
Long-Term Investment Operations:
During the nine months ended September 30, 1998, the Long-Term Investment
Operations, conducted by ICH, acquired $331.6 million of Commercial
Mortgages from ICCC as compared to $37.1 million of Commercial Mortgages
acquired from ICCC during the Commencement Period. Commercial Mortgages
purchased from ICCC during the first nine months of 1998 consisted of
$308.0 million of fixed-rate mortgages ("FRMs") and $23.6 million of
adjustable-rate mortgages ("ARMs") secured by first liens on commercial
property. Commercial Mortgages purchased from ICCC during the first nine
months of 1998 consisted of $209.3 million of ConduitExpress loans, $109.6
million of CommercialExpress loans and $12.7 million of CondoSelect loans.
As of September 30, 1998, the Long-Term Investment Operations portfolio of
mortgage loans consisted of $25.9 million of Commercial Mortgages
held-for-investment and $340.5 million of mortgage loans held as collateral
for Collateralized Mortgage Obligations ("CMOs") of which approximately
88.56% were FRMs and 11.44% were ARMs. The weighted average coupon of the
Long-Term Investment Operations portfolio of Commercial Mortgages was 7.97%
at September 30, 1998. In addition, the Long-Term Investment Operations had
outstanding finance receivables of $176.9 million, investment securities
available-for sale of $16.8 million and residual interest in
securitizations of $9.2 million at September 30, 1998.
Conduit Operations:
The Conduit Operations, conducted by ICCC, supports the Long-Term
Investment Operations of the Company by supplying ICH with Commercial
Mortgages for its long-term investment portfolio. In acting as the mortgage
conduit for the Company, ICCC originated $235.7 million of ConduitExpress
loans during the first nine months of 1998 as compared to $69.6 million
during the Commencement Period. The CommercialExpress Division originated
$154.2 million during the first nine months of 1998 as compared to $11.6
million during the Commencement Period. The CondoSelect Division originated
$12.7 million during the first nine months of 1998 and $19.7 million during
the Commencement Period. ICCC's servicing portfolio increased 662% to
$510.1 million as of September 30, 1998 as compared to $66.9 million as of
September 30, 1997. The loan delinquency rate of Commercial Mortgages in
ICCC's servicing portfolio was 0.83% at September 30, 1998.
RESULTS OF OPERATIONS; IMPAC COMMERCIAL HOLDINGS, INC.
THREE MONTHS ENDED SEPTEMBER 30, 1998 AS COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1997
Net Earnings
The Company recorded a net loss of $(13.2) million, or $(1.32) basic and
diluted loss per common share, for the third quarter of 1998 as compared to
net earnings of $2.1 million, or $0.38 basic and diluted earnings per
common share, for the third quarter of 1997. The net loss for the third
quarter of 1998 was primarily the result of a non-cash charge of $15.0
million related to a marked-to-market adjustment on loans held-for-sale at
ICCC and a non-cash charge of $1.1 million on the write-down of the
residual interest in securitization held-for-trading at ICH.
The non-cash charge of $15.0 million at ICCC resulted in a deficit in
equity in net earnings (loss) of ICCC of $(14.8) million for the third
quarter of 1998 as compared to earnings of $627,000 for the third quarter
of 1997. The Company sold $150.9 million of Commercial Mortgages in the
fourth quarter of 1998, which improved the Company's liquidity position and
help protect it against any future margin calls on the Company's current
warehouse lines of credit.
<PAGE>
The non-cash charge of $1.1 million was a write-down on the residual
interest in securitization held-for trading to reflect the current market
value of the security. In addition, net earnings during the third quarter
of 1998 were negatively affected by an increase of $1.0 million in
provision for loan losses and a decrease of $1.5 million in gain on sale of
loans at ICCC as compared to the third quarter of 1997. While earnings were
negatively affected by the non-cash charges recorded by the Company in the
third quarter of 1998, earnings were positively affected by a $2.6 million
increase in net interest income during the third quarter of 1998 as
compared to the third quarter of 1997.
Subsequent to quarter-end, the Company made significant changes in its
business strategy and operations to restore profitability. In addition, the
Company completed various transactions that provided positive results in
the Company's liquidity position.
Business Strategy. The Company's business strategy was revised to focus on
the origination of smaller balance loans that have higher margins, wider
spreads and more profitability. Therefore, the Company is concentrating its
efforts on the origination of CommercialExpress loans and de-emphasizing
the origination of ConduitExpress loans. CommercialExpress loans are
Commercial Mortgages with balances generally from $500,000 to $3.0 million
while ConduitExpress loans are Commercial Mortgages with balances generally
from $3.0 million to $10.0 million. While the Company expects that this
decision will result in lower origination balances in the fourth quarter of
1998 and possibly into early 1999, the Company anticipates better results
on the subsequent sale or securitization of its loans.
Historically, the Company's experience has been that CommercialExpress
loans have generally had better pricing in the execution of whole loan
sales and structured transactions than prices received on ConduitExpress
loans. A factor in the higher profitability on CommercialExpress loans is
the higher interest rate margins on these loans which generally range from
100 basis points to 150 basis points more than interest rate margins on
ConduitExpress loans. In conjunction with the concentration on the
origination of CommercialExpress loans and the de-emphasis of
ConduitExpress loan originations, the Company has taken positive steps by
reducing staff levels at ICCC by 38%.
Liquidity. In October 1998, the Company completed the sale of $150.9
million of Commercial Mortgages in order to generate liquidity and help to
protect the Company against margin calls on existing borrowings under its
current warehouse line and reverse repurchase facilities. The financial
result of the sale of Commercial Mortgages was in line with the
marked-to-market charge taken in the third quarter of 1998. The sale of
Commercial Mortgages increased the Company's liquidity by $22.3 million
after paying down borrowings on warehouse lines.
Book Value per Share. The loss during the third quarter of 1998 resulted in
the Company's book value decreasing to $11.09 per share at September 30,
1998. However, the Company repurchased 1,394,000 shares of Common Stock and
Class A Common Stock at a price of $4.375 per share, a total repurchase
price of $6.1 million, resulting in a $1.09 increase in the Company's book
value per share. Therefore, the Company's estimated book value increased to
$12.18 per share, calculated on 8,625,000 shares outstanding after the
repurchase of common stock, as compared to book values per share of $12.92,
$13.09 and $12.87 at June 30, 1998, March 31, 1998 and December 31, 1997,
respectively.
Net Interest Income
Net interest income increased 153% to $4.3 million during the third quarter
of 1998 as compared to $1.7 million during the third quarter of 1997.
Interest income is primarily interest on Commercial Mortgage Assets, and
includes interest income on cash and cash equivalents and due from
affiliates. Interest expense is primarily, borrowings on Commercial
Mortgage Assets and includes interest expense on due to affiliates The
increase in net interest income was primarily the result of higher average
Commercial Mortgage Assets which increased to $506.6 million during the
third quarter of 1998 as compared to $77.0 million during the third quarter
of 1997. The net interest spread on Commercial Mortgage Assets decreased to
1.58% during the third quarter of 1998 as compared to 3.00% during the
third quarter of 1997. The decrease in net interest spread on Commercial
Mortgage Assets was primarily due to an increase in lower yielding finance
receivables outstanding with ICCC and a decrease in the ten-year treasury
yield which the Company uses as an index to determine initial interest
rates on its Commercial Mortgages.
The following table summarizes average balance, interest and
weighted-average yield on Commercial Mortgage Assets and borrowings for the
three months ended September 30, 1998 and 1997 and includes interest
income on Commercial Mortgage Assets and interest expense related to
borrowings on Commercial Mortgage Assets only (dollars in thousands):
<PAGE>
<TABLE>
<CAPTION>
For the Three Months For the Three Months
Ended September 30, 1998 Ended September 30, 1997
----------------------------------- ------------------------------------
Average Weighted Average Weighted
Balance Interest Avg Yield Balance Interest Avg Yield
----------------------------------- ------------------------------------
<S> <C> <C> <C> <C> <C> <C>
COMMERCIAL MORTGAGE ASSETS
Investment and residual securities $ 28,400 $ 1,183 16.66% $ 13,496 $ 725 21.49%
Loan receivables:
Commercial Mortgages held-for-investment 233,955 4,504 7.70 18,720 389 8.32
CMO collateral 140,370 2,752 7.84 -- -- --
Finance receivables 103,908 2,214 8.52 44,785 960 8.56
------------------------ -------------------------
Total Loan Receivables 478,233 9,470 7.92 63,505 1,349 8.50
======================== =========================
Total Commercial Mortgage Assets $ 506,633 $ 10,653 8.40 $ 77,001 $ 2,074 10.77
======================== =========================
BORROWINGS
Warehouse line agreements $ 282,277 $ 4,749 6.73 $ 30,184 $ 540 7.16
CMO borrowings 117,965 2,124 7.20 -- -- --
Reverse repurchase agreements 7,332 77 4.20 -- -- --
Borrowings on residual interest in securitization -- -- -- 7,872 199 10.11
======================== =========================
Total Borrowings $ 407,574 $ 6,950 6.82% $ 38,056 $ 739 7.77%
======================== =========================
Net Interest Spread 1.58% 3.00%
Net Interest Margin 2.92% 6.94%
</TABLE>
Interest income on Commercial Mortgage Assets: Interest income on
Commercial Mortgages held-for-investment increased to $4.5 million during
the third quarter of 1998 as compared to $389,000 during the third quarter
of 1997 as average Commercial Mortgages held-for-investment increased to
$234.0 million as compared to $18.7 million, respectively. The increase in
average Commercial Mortgages held-for-investment was the result of the
Long-Term Investment Operations acquiring $328.7 million of Commercial
Mortgages held-for-investment from ICCC during the nine months ended
September 30, 1998. The weighted-average yield on Commercial Mortgages
held-for-investment decreased to 7.70% during the third quarter of 1998 as
compared to 8.32% during the same period of 1997. The decrease in the
weighted-average yield during the third quarter of 1998 was due to the
acquisition of lower yielding ConduitExpress loans as compared to the third
quarter of 1997 and the decrease in the ten-year treasury yield which the
Company uses as an index to determine initial interest rates on its
Commercial Mortgages.
Interest income on finance receivables increased to $2.2 million during the
third quarter of 1998 as compared to $960,000 during the third quarter of
1997 as average finance receivables increased to $103.9 million as compared
to $44.8 million, respectively. The increase was primarily the result of an
increase in ICCC's loan originations, which increased 77% to $101.7 million
during the third quarter of 1998 as compared to $57.3 million during the
third quarter of 1997. The weighted-average yield on finance receivables
decreased to 8.52% during the third quarter of 1998 as compared to 8.56%
during the third quarter of 1997.
Interest income on CMO collateral increased to $2.8 million during the
third quarter of 1998 as compared to none during the third quarter of 1997
as average CMO collateral increased to $140.4 million as compared to none,
respectively. Average CMO collateral increased as the Long-Term Investment
Operations issued CMOs totaling $276.5 million, which were collateralized
by $317.8 million in Commercial Mortgages, in August 1998. The
weighted-average yield on CMO collateral was 7.84% during the third quarter
of 1998.
Interest income on investment securities available-for-sale increased to
$1.2 million during the third quarter of 1998 as compared to $725,000
during the third quarter of 1997 as average investment securities
available-for-sale, net of securities valuation allowance, increased to
$28.4 million as compared to $13.5 million, respectively. The
weighted-average yield on investment securities available-for-sale
decreased to 16.66% during the third quarter of 1998 as compared to 21.49%
during the third quarter of 1997.
Interest expense on borrowings: Interest expense on warehouse lines used to
fund finance receivables to ICCC increased to $4.7 million during the third
quarter of 1998 as compared to $540,000 during the third quarter of 1997.
The average balance of warehouse lines increased to $282.3 million during
the third quarter of 1998 as compared to $30.2 million during the third
quarter of 1997. The increase was a result of an increase in finance
receivables made to ICCC to fund the acquisition of Commercial Mortgages.
The weighted-average yield of warehouse lines decreased to 6.73% during the
third quarter of 1998 as compared to 7.16% during the third quarter of
1997.
Interest expense on CMO borrowings increased to $2.1 million during the
third quarter of 1998 as compared to none during the third quarter of 1997
as average borrowings on CMO collateral increased to $118.0 million as
compared to none, respectively. Average CMO borrowings increased as the
Long-Term Investment Operations issued CMOs totaling $276.5 million during
the third quarter of 1998. The weighted-average yield of CMO borrowings was
7.20% during the third quarter of 1998.
<PAGE>
Interest expense on borrowings on residual interest in securitization
decreased to none during the third quarter of 1998 as compared to $199,000
during the third quarter of 1997 as average borrowings on residual interest
in securitization decreased to none as compared to $7.9 million,
respectively. Average borrowings on residual interest on securitization
decreased during the third quarter of 1998 as compared to the third quarter
of 1997 as the borrowings were liquidated with proceeds received from the
Company's IPO. The weighted-average yield of borrowings on residual
interest in securitization was 10.11% during the third quarter of 1997.
The Company also uses CMBSs as collateral to borrow under reverse
repurchase agreements to fund the purchase of CMBSs and to act as an
additional source of liquidity for the Company's operations. Interest
expense on these reverse repurchase agreements increased to $77,000 during
the third quarter of 1998 as compared to none during the third quarter of
1997. The average balance on these reverse repurchase agreements increased
to $7.3 million during the third quarter of 1998 as compared to none during
the third quarter of 1997. The weighted-average yield of these reverse
repurchase agreements was 4.20% during the third quarter of 1998.
Earnings from ICCC
Equity in net earnings (loss) of ICCC for the third quarter of 1998 was a
loss of $(14.8) million as compared to equity in net earnings of $627,000
for the third quarter of 1997. The decrease in equity in net earnings
(loss) of ICCC for the third quarter of 1998 was the result of the
aforementioned $15.0 million marked-to-market adjustment representing an
unrealized loss on $150.9 million of principal balance of mortgage loans
held-for-sale by ICCC. The non-cash adjustment reflects market bid prices
the Company received in anticipation of selling such loans in the fourth
quarter of 1998 to improve the Company's liquidity position and help
protect the Company against any future margin calls on the Company's
warehouse line of credit.
Excluding the aforementioned non-cash charges, the decrease in equity in
net earnings (loss) of ICCC was primarily because ICCC did not sell any
loans in the third quarter of 1998 as compared to whole loan sales by ICCC
of $36.7 million, resulting in a gain on sale of loans of $1.5 million,
during the third quarter of 1997. The decrease in earnings was also
attributed to an increase in general and administrative and other expense.
General and administrative and other expense increased 503% to $1.4 million
during the third quarter of 1998 as compared to $232,000 during the third
quarter of 1997 due to ICCC's expansion of its commercial origination
operations in the first and second quarters of 1998 as compared to the same
periods in 1997. As of September 30, 1998, ICCC's staff increased 230% to
89 as compared to 27 as of September 30, 1997. However, subsequent to
quarter-end, the Company reduced staffing at ICCC by approximately 38% to
55 employees.
The Company records 95% of the earnings or losses from ICCC as the Company
owns 100% of ICCC's preferred stock, which represents 95% of the economic
interest in ICCC.
<PAGE>
General and Administrative and Other Expense
General and administrative and other expense increased to $718,000 during
the third quarter of 1998 as compared to $75,000 during the third quarter
of 1997. The increase in general and administrative expense was primarily
related to operational expenses the Company incurred subsequent to August
of 1997 as a result of becoming a public Company. Additionally, property
expense on a commercial office building in which the Company had a 50%
ownership interest prior to quarter-end increased to $167,000 during the
third quarter of 1998 as compared to $30,000 during the third quarter of
1997.
Advisory Fees
Although the Company recorded a net loss for the third quarter of 1998,
advisory fees are computed on tax basis earnings which is calculated by
adjusting the Company's book basis earnings by various differences between
book basis earnings and tax basis earnings. Differences between book basis
earnings and tax basis earnings are estimates that are derived from
management's best knowledge as of September 30, 1998. Therefore, since the
advisory fees for the third quarter of 1998 were calculated on estimated
taxable earnings of $2.8 million, the Company recorded an expense of
$206,000 during the third quarter of 1998 as compared to $1,000 during the
third quarter of 1997.
Credit Exposures
The Company recorded provision for loan losses of $1.0 million during the
third quarter of 1998 as compared to $22,000 during the third quarter of
1997. Correspondingly, the allowance for loan losses increased to $1.7
million at September 30, 1998 as compared to $564,000 at December 31, 1997.
At September 30, 1998 and December 31, 1997, the Company's allowance for
loan losses expressed as a percentage of Commercial Mortgages
held-for-investment, CMO collateral and finance receivables (collectively
"Gross Loan Receivables") was 0.31% and 0.35%, respectively. The loan
delinquency rate expressed as a percentage of Gross Loan Receivables which
were 30 or more days past due was 0.83% at September 30, 1998 as compared
to none for all quarter-end periods prior to September 30, 1998. The
allowance for loan losses is determined primarily on the basis of
management's judgment of net loss potential including specific allowances
for any known impaired loans, changes in the nature and volume of the
portfolio, value of the collateral and current economic conditions that may
affect the borrowers' ability to pay. In addition, ICCC maintains an
allowance for repurchases of $201,000 as of September 30, 1998 and December
31, 1997. The allowance for repurchases is based upon a percentage of total
loan sales, which totaled $73.4 million as of September 30, 1998 and
December 31, 1997. Management expects to maintain ICCC's allowance for
repurchases, expressed as a percentage of loans sold in future periods.
RESULTS OF OPERATIONS; IMPAC COMMERCIAL HOLDINGS, INC.
NINE MONTHS ENDED SEPTEMBER 30, 1998 AS COMPARED TO THE COMMENCEMENT PERIOD
Net Earnings
The Company recorded a net loss of $(8.4) million, or $(0.96) basic and
diluted loss per common share, for the first nine months of 1998 as
compared to net loss of $(270,000), or $(0.09) basic and diluted earnings
per common share, for the Commencement Period. The actual net loss for the
first nine months of 1998 was primarily the result of a non-cash charge of
$15.0 million related to a marked-to-market adjustment on loans
held-for-sale at ICCC and a non-cash charge of $1.1 million on the
write-down of the residual interest in securitization held-for-trading at
ICH recorded in the third quarter of 1998. The non-cash charge of $15.0
million at ICCC resulted in a deficit in equity in net earnings (loss) of
ICCC of $(15.7) million for the first nine months of 1998 as compared to
earnings of $627,000 for the Commencement Period. The Company sold $150.9
million of Commercial Mortgages in the fourth quarter of 1998, which
improved the Company's liquidity position and help protect it against any
future margin calls on the Company's warehouse lines of credit. The
non-cash charge of $1.1 million was a write-down on the residual interest
in securitization held-for trading to reflect the current market value of
the security. In addition, net earnings during the first nine months of
1998 were negatively affected by an increase of $1.1 million in provision
for loan losses and a decrease of $1.5 million in gain on sale of loans at
ICCC as compared to the Commencement Period. While earnings were negatively
affected by the non-cash charges recorded by the Company during the first
nine months of 1998, earnings were positively affected by an $8.7 million
increase in net interest income during the first nine months of 1998 as
compared to the Commencement Period.
<PAGE>
Tax Basis Earnings
The Company's estimated tax basis earnings for the nine months ended
September 30, 1998 was approximately $9.6 million, or $1.10 basic and
diluted earnings per common share. Tax basis earnings is calculated by
adjusting the Company's book basis earnings by various differences between
book basis earnings and tax basis earnings. Differences between book basis
earnings and tax basis earnings are estimates that are derived from
management's best knowledge as of September 30, 1998. Actual tax basis
earnings may differ materially from current estimates. As of September 30,
1998, the Company declared or paid dividends for the 1998 tax year totaling
$12.6 million. Therefore, total dividends declared or paid for the 1998 tax
year exceed estimated tax basis earnings by $3.0 million, or $0.35 per
basic and diluted common share on 8,625,000 common shares outstanding after
the Company's repurchase of 1,394,000 common shares.
Net Interest Income
Net interest income increased 378% to $11.0 million during the first nine
months of 1998 as compared to $2.3 million during the Commencement Period.
Interest income is primarily, interest on Commercial Mortgage Assets, and
includes interest income on cash and cash equivalents and due from
affiliates. Interest expense is primarily, borrowings on Commercial
Mortgage Assets, and includes interest expense on due to affiliates. The
increase in net interest income was primarily the result of higher average
Commercial Mortgage Assets, which increased to $356.9 million during the
first nine months of 1998 as compared to $42.0 million during the
Commencement Period. The net interest spread on Commercial Mortgage Assets
decreased to 2.05% during the first nine months of 1998 as compared to
2.68% during the Commencement Period. The decrease in the yield and net
interest spread on Commercial Mortgage Assets was primarily due to an
increase in lower yielding finance receivables outstanding with ICCC and a
decrease in the ten-year treasury yield which the Company uses as an index
to determine initial interest rates on its Commercial Mortgages. The
following table summarizes average balance, interest and weighted-average
yield on Commercial Mortgage Assets and borrowings for the nine months
ended September 30, 1998 and 1997. The following table includes interest
income on Commercial Mortgage Assets and interest expense related to
borrowings on Commercial Mortgage Assets only. (dollars in thousands):
<TABLE>
<CAPTION>
For the period from January 15,
For the Nine Months 1997 (commencement of operations)
Ended September 30, 1998 through September 30, 1997
----------------------------------- ------------------------------------
Average Weighted Average Weighted
Balance Interest Avg Yield Balance Interest Avg Yield
----------------------------------- ------------------------------------
<S> <C> <C> <C> <C> <C> <C>
COMMERCIAL MORTGAGE ASSETS
Investment and residual securities $ 28,853 $ 3,354 15.50% $ 8,493 $ 1,243 19.51%
Loan receivables:
Commercial Mortgages held-for-investment 153,501 9,267 8.05 15,479 970 8.36
CMO collateral 50,121 2,979 7.92 -- -- --
Finance receivables 124,422 7,903 8.47 18,074 1,149 8.48
------------------------ -------------------------
Total Loan Receivables 328,044 20,149 8.19 33,553 2,119 8.42
======================== ==========================
Total Commercial Mortgage Assets $ 356,897 $ 23,503 8.78 $ 42,046 $ 3,362 10.66
======================== =========================
BORROWINGS
Warehouse line agreements $ 229,205 $ 11,524 6.70 $ 21,568 $ 1,206 7.46
CMO borrowings 42,503 2,259 7.09 -- -- --
Reverse repurchase agreements 8,100 337 5.55 -- -- --
Borrowings on residual interest in securitization -- -- -- 2,681 245 12.18
======================== =========================
Total Borrowings $ 279,808 $ 14,120 6.73% $ 24,249 $ 1,451 7.98%
======================== =========================
Net Interest Spread 2.05% 2.68%
Net Interest Margin 3.51% 6.06%
</TABLE>
<PAGE>
Interest income on Commercial Mortgage Assets: Interest income on
Commercial Mortgages held-for-investment increased to $9.3 million during
the first nine months of 1998 as compared to $970,000 during the
Commencement Period as average Commercial Mortgages held-for-investment
increased to $153.5 million as compared to $15.5 million, respectively. The
increase in average Commercial Mortgages held-for-investment was the result
of the Long-Term Investment Operations acquiring $328.7 million of
Commercial Mortgages held-for-investment from ICCC during the nine months
ended September 30, 1998. The weighted-average yield on Commercial
Mortgages held-for-investment decreased to 8.05% during the first nine
months of 1998 as compared to 8.36% during the Commencement Period.
Interest income on finance receivables increased to $7.9 million during the
first nine months of 1998 as compared to $1.1 million during the
Commencement Period as average finance receivables increased to $124.4
million as compared to $18.1 million, respectively. The increase was
primarily the result of an increase in ICCC's loan originations, which
increased 383% to $402.6 million during the first nine months of 1998 as
compared to $83.3 million during the Commencement Period. The
weighted-average yield on finance receivables decreased to 8.47% during the
first nine months of 1998 as compared to 8.48% during the Commencement
Period.
Interest income on CMO collateral increased to $3.0 million during the
first nine months of 1998 as compared to none during the Commencement
Period as average CMO collateral increased to $50.1 million as compared to
none, respectively. Average CMO collateral increased as the Long-Term
Investment Operations issued CMOs totaling $276.5 million, which were
collateralized by $317.8 million in Commercial Mortgages, in August 1998.
The weighted-average yield on CMO collateral was 7.92% during the first
nine months of 1998.
Interest income on investment securities available-for-sale increased to
$3.4 million during the first nine months of 1998 as compared to $1.2
million during the Commencement Period as average investment securities
available-for-sale, net of securities valuation allowance, increased to
$28.9 million as compared to $8.5 million, respectively. The
weighted-average yield on investment securities available-for-sale
decreased to 15.50% during the first nine months of 1998 as compared to
19.51% during the Commencement Period.
Interest expense on borrowings: Interest expense on warehouse lines used to
fund finance receivables to ICCC increased to $11.5 million during the
first nine months of 1998 as compared to $1.2 million during the
Commencement Period. The average balance of warehouse lines increased to
$229.2 million during the first nine months of 1998 as compared to $21.6
million during the Commencement Period. The increase was a result of an
increase in finance receivables made to ICCC to fund the acquisition of
Commercial Mortgages. The weighted-average yield of warehouse lines
decreased to 6.70% during the first nine months of 1998 as compared 7.46%
during the Commencement Period.
Interest expense on CMO borrowings increased to $2.3 million during the
first nine months of 1998 as compared to none during the Commencement
Period as average borrowings on CMO collateral increased to $42.5 million
as compared to none, respectively. Average CMO borrowings increased as the
Long-Term Investment Operations issued CMOs totaling $276.5 million during
the third quarter of 1998. The weighted-average yield of CMO borrowings was
7.09% during the first nine months of 1998.
Interest expense on borrowings on residual interest in securitization
decreased to none during the first nine months of 1998 as compared to
$245,000 during the Commencement Period as average borrowings on residual
interest in securitization decreased to none as compared to $2.7 million,
respectively. Average borrowings on residual interest on securitization
decreased during the third quarter of 1998 as compared to the Commencement
Period as the borrowings were liquidated with proceeds received from the
Company's IPO in August of 1997. The weighted-average yield of borrowings
on residual interest in securitization was 12.18% during the Commencement
Period.
The Company also uses CMBSs as collateral to borrow under reverse
repurchase agreements to fund the purchase of CMBSs and to act as an
additional source of liquidity for the Company's operations. Interest
expense on these reverse repurchase agreements increased to $337,000 during
the first nine months of 1998 as compared to none during the Commencement
Period. The average balance on these reverse repurchase agreements
increased to $8.1 million during the first nine months of 1998 as compared
to none during the Commencement Period. The weighted-average yield of these
reverse repurchase agreements was 5.55% during the first nine months of
1998.
<PAGE>
Earnings from ICCC
Equity in net earnings (loss) of ICCC for the first nine months of 1998 was
a loss of $(8.4) million as compared to equity in net loss of $($270,000)
for the Commencement Period. The decrease in equity in net earnings (loss)
of ICCC for the first nine months of 1998 was the result of the
aforementioned $15.0 million marked-to-market adjustment representing an
unrealized loss on $150.9 million of mortgage loans held-for-sale by ICCC.
The non-cash adjustment reflects market bid prices the Company received in
anticipation of selling such loans in the fourth quarter of 1998 to improve
the Company's liquidity position and help protect the Company against
future margin calls on existing borrowings under the Company's current
warehouse line and repurchase facilities.
Excluding the aforementioned non-cash charges, the decrease in equity in
net earnings (loss) of ICCC was primarily because ICCC did not sell any
loans in during the first nine months of 1998 as compared to whole loan
sales by ICCC of $36.7 million, resulting in a gain on sale of loans of
$1.5 million, during the Commencement Period. The decrease in earnings was
also attributed to an increase in general and administrative and other
expense. General and administrative and other expense increased 247% to
$3.2 million during the first nine months of 1998 as compared to $921,000
during the Commencement Period due to ICCC's expansion of its commercial
origination operations in the first and second quarters of 1998 as compared
to the same periods in 1997. As of September 30, 1998, ICCC's staff
increased 230% to 89 as compared to 27 as of September 30, 1997. However,
subsequent to quarter-end, the Company reduced staffing at ICCC by
approximately 38% to 55 employees.
General and Administrative and Other Expense
General and administrative and other expense increased to $1.4 million
during the first nine months of 1998 as compared to $85,000 during the
Commencement Period. The increase in general and administrative expense was
primarily related to operational expenses the Company incurred subsequent
to August of 1997 as a result of becoming a public Company. Additionally,
property expense on a commercial office building that the Company had a 50%
ownership interest prior to quarter-end increased to $504,000 during the
first nine months of 1998 as compared to $30,000 during the Commencement
Period.
Advisory Fees
Although the Company recorded a net loss for the first nine months of 1998,
advisory fees are computed on tax basis earnings which is calculated by
adjusting the Company's book basis earnings by various differences between
book basis earnings and tax basis earnings. Differences between book basis
earnings and tax basis earnings are estimates that are derived from
management's best knowledge as of September 30, 1998. Therefore, since the
advisory fees for the first nine months of 1998 were calculated on
estimated taxable earnings of $9.1 million, the Company recorded an expense
of $585,000 during the first nine months of 1998 as compared to $1,000
during the Commencement Period.
LIQUIDITY AND CAPITAL RESOURCES
Overview. The Company's business operations are primarily funded from
monthly interest and principal payments from its Commercial Mortgages and
CMBS portfolios, warehouse line and reverse repurchase agreements secured
by Commercial Mortgages and CMBS, CMO financing, proceeds from the sale of
Commercial Mortgages, short-term unsecured borrowings and proceeds from the
issuance of Common Stock. The acquisition of Commercial Mortgages and CMBS
by the Long-Term Investment Operations are primarily funded from monthly
principal and interest payments, warehouse and reverse repurchase
agreements, CMO financing, short-term unsecured borrowings and proceeds
from the sale of Common Stock. The acquisition of Commercial Mortgages by
the Conduit Operations are funded from reverse repurchase agreements and
the sale of Commercial Mortgages. The Company's ability to meet its
long-term liquidity requirements is subject to the renewal of its credit
and repurchase facilities and/or obtaining other sources of financing,
including additional debt or equity from time to time. Any decision by the
Company's lenders and/or investors to make additional funds available to
the Company in the future will depend upon a number of factors, such as the
Company's compliance with the terms of its existing credit arrangements,
the Company's financial performance, industry and market trends in the
Company's various businesses, the general availability of and rates
applicable to financing and investments, such lenders' and/or investors'
own resources and policies concerning loans and investments, and the
relative attractiveness of alternative investment or lending opportunities.
<PAGE>
During the third quarter of 1998, the deterioration of the CMBS market
created a lack of liquidity for the Company as the Company's lenders made
margin calls on their warehouse and reverse repurchase lines. Margin calls
result from the Company's lenders evaluating the market value of underlying
collateral securing the warehouse lines of credit and requiring additional
equity or collateral on the warehouse lines. These margin calls resulted in
the Company delaying its third quarter dividend and selling Commercial
Mortgages. Subsequent to quarter-end, the Company completed the sale of
$150.9 million of Commercial Mortgages, which increased the Company's
liquidity by $22.3 million after paying down borrowings on warehouse lines.
With the net cash proceeds from the sale of Commercial Mortgages, the
Company was able to pay its third quarter dividend on November 6, 1998,
purchase the 50% ownership interest in its commercial office building from
IMH, and maintain additional working capital for operations.
By selling Commercial Mortgages, the company reduced its exposure to margin
calls on existing borrowing under its current warehouse lines and
repurchased facilities by paying down outstanding borrowings on these
facilities. In addition, the Company believes that by concentrating on the
origination of CommercialExpress loans which have lower loan balances and
higher interest margins, the Company's liquidity should be improved on a
go-forward basis. Based upon past experience, the Company has received
better execution, both in terms of price and completion time, on both
securitizations and whole loan sales on CommercialExpress loans than on
ConduitExpress loans, which have larger loan balances and smaller interest
margins. Also, by de-emphasizing originations of ConduitExpress loans, the
Company expects loan originations to decrease in the fourth quarter of 1998
and possibly through the first quarter of 1999 and reduce borrowing needs
during this period of market volatility. The Company expects that by
originating primarily CommercialExpress loans the length of time fundings
for specific loans are outstanding on the Company's warehouse lines will be
reduced. The Company also expects that the reduction in staff in the fourth
quarter of 1998 will provide additional liquidity from operating
activities.
However, future cash flows will be negatively impacted by the deterioration
of the CMBS market and the subsequent sale of Commercial Mortgages as the
Company will not benefit from positive cash flows created by these
financial instruments. In addition, any future margin calls or termination
of warehouse lines or repurchase facilities by the Company's lenders may
adversely affect the Company's future operations. Many former lenders are
no longer in the business of providing warehouse lines for the funding of
Commercial Mortgages which may affect the Company's ability to obtain new
financing at comparable rates and terms or at all.
Long-Term Investment Operations: ICH, as a stand-alone entity, entered into
committed warehouse line agreements with two investment banks, one of which
expires in May 1999 and one of which expires in February 1999 (unless
terminated earlier), which provide up to an aggregate of $600.0 million (of
which $200.0 million is uncommitted) to finance the Company's operations as
needed. Terms of the warehouse line agreements require that the Commercial
Mortgages be held by an independent third party custodian, which gives the
Company the ability to borrow against the collateral as a percentage of the
fair market value of the Commercial Mortgages. The borrowing rates are
expressed in basis points over the one-month LIBOR or Eurodollar Rate. The
margins on the warehouse line agreements are based on the type of mortgage
collateral used and the loan amounts generally range from 75% to 92% of the
fair market value of the collateral. As of September 30, 1998, an aggregate
of $180.2 million was outstanding under the warehouse line agreements. In
addition, ICH has entered into reverse repurchase agreements whereby ICH
pledges specific CMBSs as collateral to secure short-term loans. The
interest rates on the loans are based on the one-month LIBOR plus a margin
depending on the type of collateral. As of September 30, 1998, amounts
outstanding on the reverse repurchase agreements were $13.9 million.
The Long-Term Investment Operations uses CMO borrowings to finance
Commercial Mortgages as a means of eliminating certain risks associated
with warehouse line and reverse repurchase agreements (such as the
potential need for deposits of additional collateral) that are not present
with CMO borrowings. Terms of the CMO borrowings require that an
independent third party custodian hold the mortgages. The maturity of each
class is directly affected by the rate of principal prepayments on the
related collateral. Equity in the CMOs is established at the time the CMOs
are issued at levels sufficient to achieve desired credit ratings on the
securities from rating agencies. The amount of equity invested in CMOs by
the Long-Term Investment Operations is also determined by the Company based
upon the anticipated return on equity as compared to the estimated proceeds
from additional debt issuance. Total credit loss exposure is limited to the
equity invested in the CMOs at any point in time. At September 30, 1998,
the Long-Term Investment Operations had $284.8 million of CMO borrowings
used to finance $340.5 million of CMO collateral.
<PAGE>
ICH has a credit arrangement with IMH whereby ICH advances to IMH up to
maximum amount of $15.0 million for general working capital needs. The
credit agreement expires on August 8, 1999. Advances under the credit
arrangement are at an interest rate and maturity determined at the time of
each advance with interest and principal paid monthly. As of September 30,
1998 and December 31, 1997, IMH's outstanding borrowings under the credit
arrangement were $6.9 million and none, respectively.
ICH has a credit arrangement with IMH whereby IMH advances to ICH up to
maximum amount of $15.0 million for general working capital needs. The
credit agreement expires on August 8, 1999. Advances under the credit
arrangement are at an interest rate and maturity determined at the time of
each advance with interest and principal paid monthly. As of September 30,
1998 and December 31, 1997, ICH's outstanding borrowings under the credit
arrangement were none and $9.1 million, respectively.
ICH entered into a revolving credit arrangement with a commercial bank
whereby ICH can borrow up to maximum amount of $10.0 million for general
working capital needs. The revolving credit agreement expires on March 29,
1999. Advances under the revolving credit arrangement were at an interest
rate of prime plus 0.25%. Interest is paid monthly and as an open-ended
revolving line of credit there is no set principal payment schedule. As of
September 30, 1998, ICH's outstanding borrowings under the revolving credit
arrangement was $6.5 million.
Conduit Operations: ICCC has entered into warehouse line agreements with
ICH which provide up to an aggregate of $900.0 million to finance ICCC's
operations as needed. Terms of the warehouse line agreements require that
the Commercial Mortgages be held by an independent third party custodian,
which gives the Company the ability to borrow against the collateral as a
percentage of the fair market value of the Commercial Mortgages. The
borrowing rates on the warehouse line agreements are at the prime rate,
which was 8.25% at September 30, 1998. The margins on the warehouse line
agreements are up to 90% of the fair market value of the collateral. As of
September 30, 1998 and December 31,1997, amounts outstanding on ICCC's
warehouse line agreements with ICH were $178.0 million and $95.7 million,
respectively.
ICCC has entered into an uncommitted warehouse line agreement with IMH to
provide financing as needed. The margins on the warehouse line agreement
are at 8% of the fair market value of the collateral. The interest rates on
the borrowings are indexed to the prime rate. As of September 30, 1998 and
December 31,1997, outstanding amounts on the warehouse line agreement were
$15.7 million and $8.5 million, respectively.
Cash Flows
Operating Activities - During the first nine months of 1998, net cash used
in operating activities was $29.0 million. Net cash used in operating
activities was primarily the result of a decrease of $35.9 million in net
due from and due to affiliates, which was due to an increase of $23.2
million related to the aforementioned warehouse line and revolving credit
agreements with IMH and an increase of $7.2 million related to advances to
finance the operations of ICCC.
Investing Activities - During the first nine months of 1998, net cash used
in investing activities was $379.3 million. Net cash used in investing
activities was primarily the result of the acquisition and subsequent
securitization of $317.8 million of Commercial Mortgages.
Financing Activities - During the first nine months of 1998, net cash
provided by financing activities was $399.6 million. Net cash provided by
financing activities was primarily the result of an increase in CMO
financing of $284.2 million and an increase in warehouse line agreements of
$89.8 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
<PAGE>
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 consequently the value of its portfolio of Mortgage
Assets.
Year 2000 Compliance
Project Status
The Company's Year 2000 project was approximately 50% complete as of the
end of October 1998. The Company contracted with an outside vendor to
provide coordination, support, testing and implementation in regards to
Year 2000 compliance of hardware and software systems, both on an
information technology ("IT") and non-IT level.
The Company also has its own in-house IT department that is currently
assisting the outside vendor. The Company's primary IT systems include loan
servicing, which is contracted to an outside vendor, loan tracking, and
accounting and reporting. The Company has no information in regards to Year
2000 compliance from the loan servicing systems' outside vendor. The
Company's IT department is currently getting a project plan from the loan
servicing vendor. The loan tracking system is currently in compliance with
Year 2000. The accounting and reporting system is not currently Year 2000
compliant. The vendor for this software is currently upgrading to a new
version, which will be Year 2000 compliant in 1999.
The Company's non-IT systems include its file servers, network systems,
workstations and communication systems. Testing on all other in-house
hardware is currently underway and is expected to be complete by the end of
the first quarter of 1999.
The Year 2000 project is divided into two primary phases, as follows: (1)
define scope of project and identify all IT and non-IT systems, and (2)
testing of existing systems and implementation of new systems, if required.
The outside contractor on the Year 2000 project submits monthly status
reports to the Company's IT manager and communicates with the IT department
on a daily basis. The Company's executive committee which includes the CEO
and Chairman, President, and Chief Financial Officer review the progress of
the Company's Year 2000 project through monthly status reports and reviews
with the Company's IT manager.
Phase I - Define Scope of Project
This phase primarily included the inventorying of Year 2000 items,
contacting outside vendors, including reviewing contractual terms and
conditions, reviewing internal software for compliance and determining
costs to complete the project. As of the end of October 1998, Phase I of
the project had been completed. Phase I of the project also included the
testing and implementation or upgrade of non-IT systems.
Phase II - Testing of Systems
This phase of the Year 2000 project can be divided into four separate
processes, as follows: (1) Compliance Questionnaires, (2) Hardware
Certification Information, (3) Software/Data Testing, and (4) Hardware
Testing.
Compliance Questionnaires and Hardware Certification Information. As of the
end of October 1998, these portions of Phase II were complete.
Software/Data Testing. As of the end of October 1998, this portion of Phase
II was approximately 50% complete. The remaining tasks within this process
include analyzing list of software being used, testing all software
programs, testing all data from incoming sources, testing all outgoing data
processes and reporting. The Company expects that this process will be
complete by March 31, 1999.
Hardware Testing. As of the end of October 1998, this portion of Phase II
had not been started. This phase is contingent on the completion of
software/data testing. Tasks yet to be started include testing all
workstation, servers and network systems. The Company expects to be
compliant with all internal Year 2000 issues by the end of the first
quarter of 1999.
<PAGE>
Costs
The total cost associated with required modifications or installations to
become Year 2000 compliant is not expected to be material to the Company's
financial condition. The estimated cost of the project is expected to be
approximately $108,000. As of the end of October 1998, the Company had paid
$33,000 to the outside vendor for completed work on the project. The
majority of the Company's estimated cost for the Year 2000 compliance has
been or will be spent on software upgrades and writing new program code on
existing proprietary software. Since most of the Company's hardware has
been purchased within the last two years, the cost of replacing hardware
will be minimal.
Risks
The Company does not anticipate any material disruption of its operations
as a result of any failure by the Company to be compliant. However, there
can be no assurance that there will not be a delay in, or increased costs
associated with, the need to address the Year 2000 issue. The Company also
relies, directly and indirectly, on other businesses such as third party
service providers, creditors and financial organizations and governmental
entities. Even if the Company's computer systems are not materially
adversely affected by the Year 2000 issue, the Company's business and
operations could be materially adversely affected by disruptions in the
operations of the enterprises with which the Company interacts.
Contingency Plans
The Company believes its Year 2000 compliance process should enable it to
be successful in modifying its computer systems to be Year 2000 compliant.
As previously stated, acceptance testing and sign-off has begun with
respect to the Company's in-house systems. In addition to Year 2000
compliance system modification plans, the Company has also developed
contingency plans for all other systems classified as critical and high
risk. These contingency plans provide timetables to pursue various
alternatives based upon the failure of a system to be adequately modified
and/or sufficiently tested and validated to ensure Year 2000 compliance.
However, there can be no assurance that either the compliance process or
contingency plans will avoid partial or total system interruptions or the
costs necessary to update hardware and software would not have a material
adverse effect upon the Company's financial condition.
Transactions with Related Parties
On October 21, 1998, the Company repurchased from IMH 937,084 shares of
Common Stock and 456,916 shares of Class A Common Stock at a per share
price of $4.375, based upon the closing price on October 19, 1998, for a
total repurchase of $6.1 million.
On October 27, 1998, the Company purchased from IMH its remaining 50%
ownership interest in a commercial office building in Newport Beach,
California. After the purchase of the 50% ownership interest from IMH, the
Company has a 100% ownership interest in the building.
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
<PAGE>
PART II. OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS
The Company is not a party to any material legal proceedings.
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
On July 23,1998, the Company held its annual meeting of stockholders. Of
the total number of shares eligible to vote (7,344,789), 6,839,089 votes
were returned, or 93%, formulating a quorum. At the stockholders meeting,
the following matters were submitted to stockholders for vote: Proposal I -
Election of Directors, Proposal II - Ratify appointment of Company's
independent auditors, KPMG Peat Marwick LLP. The results of voting on these
proposals are as follows:
Proposal I - Election of Directors
<TABLE>
<CAPTION>
Director For Against Elected
<S> <C> <C> <C>
Joseph R. Tomkinson 6,793,984 45,105 Yes
James Walsh 6,795,734 43,355 Yes
Frank P. Filipps 6,795,734 43,355 Yes
Stephan R. Peers 6,794,234 44,855 Yes
Thomas J. Poletti 6,795,734 43,355 Yes
Timothy R. Busch 6,791,519 47,570 Yes
</TABLE>
All directors are elected annually at the Company's annual stockholders'
meeting.
Proposal II - Appointment of independent auditors
Proposal II was approved with 6,781,665 shares voted for, 29,789 voted
against, and 27,635 abstained from voting thereby ratifying the appointment
of KPMG Peat Marwick LLP as the Company's independent auditors.
ITEM 5: OTHER INFORMATION
On July 23, 1998, Ronald M. Morrison was appointed General Counsel and
Secretary of the Company.
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
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 COMMERCIAL HOLDINGS, INC.
- -----------------------------------
By: /s/ Richard J. Johnson
Richard J. Johnson
Executive Vice President
and Chief Financial Officer
Date: November 13, 1998
<TABLE> <S> <C>
<PAGE>
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<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 7,177
<SECURITIES> 26,039
<RECEIVABLES> 543,361
<ALLOWANCES> (1,701)
<INVENTORY> 0
<CURRENT-ASSETS> 254,018
<PP&E> 9,343
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0
0
<COMMON> 101
<OTHER-SE> 111,058
<TOTAL-LIABILITY-AND-EQUITY> 621,490
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