Impac Mortgage Holdings, Inc. (NYSE MKT: IMH) announces the financial
results for the quarter ended March 31, 2015. For the first quarter of
2015, the Company reported net earnings of $34.0 million or $2.94 per
diluted common share, as compared to a net loss of $3.0 million or
$(0.33) per diluted common share for the first quarter of 2014 and a net
loss of $2.2 million or $(0.23) for the fourth quarter of 2014.
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Results of Operations
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For the Three Months Ended
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(in thousands, except share data)
(unaudited)
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March 31, 2015
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December 31, 2014
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March 31, 2014
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Revenues:
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Gain on sale of loans, net
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$
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37,398
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$
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8,749
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$
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4,573
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Real estate services fees, net
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2,742
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3,447
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3,679
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Servicing income, net
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635
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813
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1,569
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Loss on mortgage servicing rights
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(6,568
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)
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(1,576
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)
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(977
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)
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Other
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136
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20
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1,385
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Total revenues
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34,343
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11,453
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10,229
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Expenses:
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Personnel expense
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11,490
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9,557
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9,460
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General, administrative and other
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5,651
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4,662
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5,468
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Total expenses
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17,141
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14,219
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14,928
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Operating income (loss):
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17,202
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(2,766
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)
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(4,699
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)
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Other income (expense):
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Net interest income (expense)
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1,058
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797
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(313
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)
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Change in fair value of long-term debt
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(7,116
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)
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(3,590
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)
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(650
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)
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Change in fair value of net trust assets
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(876
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)
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3,222
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3,038
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Total other (expense) income
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(6,934
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)
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429
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2,075
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Net earnings (loss) before income taxes
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10,268
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(2,337
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)
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(2,624
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)
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Income tax (benefit) expense
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(23,704
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)
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(100
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)
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342
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Net earnings (loss)
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$
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33,972
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$
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(2,237
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)
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$
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(2,966
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)
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Diluted (loss) earnings per share
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$
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2.94
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$
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(0.23
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)
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$
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(0.33
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)
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The increase in net earnings was primarily due to an increase of “Gain
on sale of loans” from higher origination volumes and the recognition of
a portion of the Company’s deferred tax asset offset by a loss on
“Mortgage servicing rights” (“MSR”) and an increase in the estimated
fair value of the long term debt.
In the first quarter, we completed the acquisition of the CashCall
Mortgage (“CCM”) operations. CCM’s operations, which includes the
complete origination platform, systems and personnel, now operate as a
separate division of Impac Mortgage Corp. (“IMC”) under the name
CashCall Mortgage. This division operates as a centralized call center
that utilizes a marketing platform to generate customer leads through
the internet and call center loan agents. By using its marketing
platform to generate internal leads, we believe CCM is able to compete
with some of the largest internet lenders across the nation. In
addition, our goal is to leverage this same marketing platform to expand
volumes of our new AltQM products, as well as FHA and VA products.
Similarly we believe the acquisition of CCM will allow us to leverage
our state licenses to expand its national lending footprint. With the
addition of CCM we now have a scalable retail platform able to expand
quickly and efficiently.
Pursuant to the Asset Purchase Agreement (“APA”), the acquisition of the
retail call center operations was effective on January 2, 2015, but did
not close until March 31, 2015. The net gains earned from the sale of
CCM loans were recorded in “Gain on sale of loans”, net of the
associated operating expenses. The gain on sale revenue margin earned on
retail originations in the first quarter of 2015 was in excess of 2.75%.
However, because the net gain on sale revenue recognized was net of
operating expenses for the CCM division, the gain on sale margins on
total origination volume were 1.64% in the first quarter of 2015 as
compared to 0.79% in the fourth quarter of 2014 and 1.30% in the first
quarter of 2014.
Operating income (loss), defined as revenues less operating expenses,
increased to $17.2 million in the first quarter of 2015 as compared to
operating losses of $2.8 million and $4.7 million in the fourth quarter
of 2014 and the first quarter of 2014, respectively. Operating income
(loss) does not include any gains or losses from the long-term mortgage
portfolio, which includes the net trust assets (residual interests in
securitizations) and the long-term debt. The increase in operating
income was primarily caused by the increase in origination volumes in
the first quarter and more specifically, the retail origination volumes
of CCM.
Furthermore, primarily based on the expectations of taxable income in
the future, generally associated with projected net earnings from CCM,
we recognized a $24.4 million tax benefit in the first quarter of 2015,
representing estimated tax benefit from pre-tax net earnings in future
years. Offsetting these items was a loss of value of mortgage servicing
rights due to both a decline in interest rates in the first quarter of
2015 coupled with a loss on sale of servicing due to FHA dropping its
required mortgage insurance premium by 0.50% in January. This rate
change impacted the sales price received on the sale of Ginnie Mae
servicing sold in the first quarter. MSR values are subject to
fluctuation due to changes in interest rates. Lastly, with the ongoing
improvement in the Company’s financial condition and credit quality, the
estimated fair value of the long-term debt increased by $7.1 million.
Further, improvements in the Company’s financial condition in the future
may result in increases in estimated fair value of the long-term debt.
Selected Operational Data
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(in millions)
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Q1 2015
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Q4 2014
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% Change
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Q1 2014
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% Change
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Wholesale Originations
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$
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281.7
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$
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159.0
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77
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%
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$
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100.3
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181
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%
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Correspondent Originations
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$
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595.6
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$
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925.4
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-36
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%
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$
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227.5
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162
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%
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Retail Originations (1)
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$
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1,407.9
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$
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24.5
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5647
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%
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$
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25.3
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5465
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%
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Total Originations
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$
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2,285.2
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$
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1,108.9
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106
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%
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$
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353.1
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547
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%
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(1) In the first quarter of 2015, all CCM loan transactions are
considered retail originations beginning with the effective date of
the APA.
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Origination volume increased 106% in the first quarter of 2015 over the
fourth quarter of 2014. The first quarter acquisition of CashCall
Mortgage is already yielding significant results. The total origination
volume in the first quarter was approximately $2.3 billion, which more
than doubled the $1.1 billion in total originations in the fourth
quarter of 2014. Of the $2.3 billion in total originations,
approximately $1.4 billion was originated through the CCM retail
channel, which significantly increased our net earnings. While in the
fourth quarter of 2014, our retail originations contributed only 2% to
our total origination volume.
As expected, volume in the correspondent division decreased in the first
quarter as a result of CCM’s volume being moved from our correspondent
channel to our retail channel upon acquisition. In the fourth quarter of
2014, prior to the acquisition, CashCall Inc. was a correspondent seller
and the loan acquisition volume was included in the correspondent
originations. Excluding the correspondent volumes from CashCall Inc. in
the fourth quarter of 2014, the correspondent channel volume increased
52% to $595.6 million in the first quarter of 2015 from the fourth
quarter of 2014.
With the addition of new sales personnel in our wholesale group in the
first quarter, wholesale originations increased 77% to $281.7 million in
the first quarter of 2015 over the fourth quarter of 2014. We expect
this volume will continue for at least the near term as we expect to
gain market share from the expansion of our sales coverage. In addition,
the percentage of our wholesale customers delivering multiple loans per
month continues to increase month over month.
By now having an efficient retail channel with CCM, we believe it will
complement the wholesale and correspondent businesses by increasing
overall gain on sale margins and lowering overall costs for mortgage
lending. We anticipate that these channels will continue to see growth
month over month, as a result of the increased pipeline growth that both
channels have recently enjoyed due to market share expansion.
As of March 31, 2015, our total pipeline was approximately $1.3 billion
with a locked pipeline of $650 million, as compared to a total pipeline
of $750 million and a locked pipeline of $297 million at the end of the
fourth quarter of 2014.
The consideration for the purchase of CCM was a combination of cash, IMH
stock and a contingent consideration including a three-year period
earn-out provision of CCM’s pre-tax net earnings. The CCM acquisition
transaction was structured with a significant contingent consideration
component of the purchase price with the intent to minimize the
financial risk for IMH while being accretive to earnings. The purchase
price is currently estimated to be $140.7 million including (i) $10.0
million in cash, $5 million paid in the first quarter and $5 million to
be paid over twelve months following the effective date of the
acquisition, (ii) $6.2 million in IMH stock issued at closing on March
31, 2015 and (iii) $124.6 million estimated in contingent consideration
including a three-year period earn-out provision. The contingent
consideration was estimated by calculating the present value of the
projected contingent consideration to be paid in the future based on
projected volumes and projected pretax net earnings of CCM. The earn-out
percentages beginning on the effective date (January 2, 2015) are 100%
of pre-tax net earnings of CCM for January and February of 2015, 65% for
the next 10 months of 2015, 55% for the second year and 45% for the
third year. The total estimated purchase price is $140.7 million with
$3.0 million allocated to fixed assets and software acquired, $33.1
million to intangibles including trade name and customer relationships,
expected to be amortized over 15 and 7 years, respectively, and the
remaining $104.6 million allocated to goodwill, as reflected on the
summary balance sheet as of March 31, 2015. These allocations are
preliminary and subject to adjustment in accordance to GAAP.
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Summary Balance Sheet
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(in thousands, except share data)
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March 31,
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December 31,
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Increase
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%
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2015
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|
2014
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(Decrease)
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Change
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(unaudited)
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|
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Cash
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$
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5,635
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$
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10,073
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$
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(4,438
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)
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(44
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)
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%
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Restricted cash
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4,932
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|
2,420
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|
2,512
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104
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Mortgage loans held-for-sale
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531,586
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239,391
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292,195
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122
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Finance receivables
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53,340
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8,358
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44,982
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|
|
538
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Mortgage servicing rights
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26,656
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24,418
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2,238
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|
9
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Securitized mortgage trust assets
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5,130,193
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5,268,531
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(138,338
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)
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(3
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)
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Goodwill (1)
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104,938
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|
|
352
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104,586
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n/m
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Intangibles Assets (1)
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33,122
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-
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33,122
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n/m
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Deferred tax asset
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24,420
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-
|
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24,420
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n/m
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Other assets
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41,846
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25,029
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|
|
16,817
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|
67
|
|
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Total assets
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$
|
5,956,668
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|
$
|
5,578,572
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|
$
|
378,096
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7
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%
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|
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Warehouse borrowings
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$
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552,493
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$
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226,718
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|
$
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325,775
|
|
|
144
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|
%
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Convertible notes
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|
20,000
|
|
|
20,000
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|
|
-
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|
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-
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Contingent consideration (1)
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124,592
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-
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124,592
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n/m
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Long-term debt ($71,120 par)
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29,646
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22,122
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|
7,524
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|
34
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Securitized mortgage trust liabilities
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5,113,632
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5,251,307
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(137,675
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)
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(3
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)
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Other liabilities
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57,062
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|
|
33,469
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|
23,593
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|
70
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Total liabilities
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5,897,425
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5,553,616
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|
343,809
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|
6
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Total equity
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|
59,243
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|
|
24,956
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|
|
34,287
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|
|
137
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|
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Total liabilities and stockholders’ equity
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|
$
|
5,956,668
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|
$
|
5,578,572
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|
$
|
378,096
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|
|
7
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%
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|
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|
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|
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(1) Increase due to CashCall Mortgage acquisition transaction
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n/m = not meaningful
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March 31,
|
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December 31,
|
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Increase
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%
|
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2015
|
|
2014
|
|
(Decrease)
|
|
Change
|
|
|
(unaudited)
|
|
|
|
|
|
|
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Securitized mortgage trust assets
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|
$
|
5,130,193
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|
$
|
5,268,531
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|
$
|
(138,338
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)
|
|
(3
|
)
|
%
|
Securitized mortgage trust liabilities
|
|
|
5,113,632
|
|
|
5,251,307
|
|
|
(137,675
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)
|
|
(3
|
)
|
|
Residual interests in securitizations
|
|
$
|
16,561
|
|
$
|
17,224
|
|
$
|
(663
|
)
|
|
(4
|
)
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Shares outstanding
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|
|
9,690,415
|
|
|
9,588,532
|
|
|
101,883
|
|
|
|
|
Book Value per share
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|
$
|
6.11
|
|
$
|
2.60
|
|
$
|
3.51
|
|
|
135
|
%
|
|
|
|
|
|
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|
|
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As a result of the net earnings in the first quarter of 2015 primarily
attributed to the net earnings from the CCM transactions, book value per
share increased 135% to $6.11 at March 31, 2015 as compared to $2.60 at
December 31, 2014.
In the first quarter of 2015, cash balances decreased, primarily due to
an increase in warehouse haircuts associated with warehouse borrowings
used to fund increased originations volume. Because the warehouse
lenders fund less than 100% of the principal balance of the loans, we
are required to fund the remaining from cash, called warehouse haircuts.
Warehouse haircuts increased to $30 million at March 31, 2015 from $20
million at December 31, 2014. We recover the warehouse haircuts at the
time the loans are sold and the warehouse borrowing is repaid to the
warehouse lender. In our long-term mortgage portfolio, the residuals
generated cash flows of $1.9 million in the first quarter of 2015 as
compared to $2.3 million in the fourth quarter of 2014 and $3.1 million
in the first quarter of 2014.
Our warehouse lending division continues to grow and finance
receivables, representing warehouse lending advances to our warehouse
customers, increased to $53.3 million at March 31, 2015 as compared to
$8.4 million at December 31, 2014.
At December 31, 2014, we had recorded a full valuation allowance on the
$163.2 million net deferred tax asset. During the first quarter of 2015,
we reduced a portion of the valuation allowance resulting in the
recognition of a $24.4 million deferred tax asset and corresponding tax
benefit.
To manage our liquidity, we have continued to sell mortgage servicing
rights to generate cash needed to fund warehouse haircuts as well as
other operating needs. In the first quarter of 2015, we sold mortgage
servicing rights representing $1.6 billion in unpaid principal balance
of loans serviced, which will generate $15.0 million in cash. However,
because we originated, and sold service-retained, more Fannie Mae,
Freddie Mac and issued Ginnie Mae securities than the amount of mortgage
servicing rights sold in the first quarter of 2015, the balance of
mortgage servicing rights increased to $26.7 million at March 31, 2015
as compared to $24.4 million at December 31, 2014.
Selected Operational Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3/31/2015
|
|
|
12/31/2014
|
|
|
% Change
|
|
|
3/31/2014
|
|
|
% Change
|
Mortgage Servicing Portfolio
|
|
|
$2,577.1
|
|
|
$2,267.1
|
|
|
14%
|
|
|
$2,239.6
|
|
|
15%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3/31/2015
|
|
|
12/31/2014
|
|
|
% Change
|
|
|
3/31/2014
|
|
|
% Change
|
Mortgage Servicing Rights
|
|
|
$26.7
|
|
|
$24.4
|
|
|
9%
|
|
|
$25.1
|
|
|
6%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In addition, the CCM acquisition contingent consideration payment for
the first earn-out quarter is expected to be approximately $25 million.
Over time, these contingent consideration payments are based on the
performance of the CCM division and are expected to decline for the
remaining earn-out periods in 2015 since the earn-out percentage
decreases to 65%. We are currently in discussions with various parties
to provide between $25 million and $50 million of debt and/or equity
capital to provide the liquidity needed to fund warehouse haircuts,
retain mortgage servicing rights and working capital to fund the growth
of origination volumes and contingent consideration payments associated
with the acquisition of CCM.
Mr. Joseph Tomkinson, Chairman and CEO of Impac Mortgage Holdings, Inc.,
commented, “Completing the CashCall Mortgage acquisition was a major
step towards becoming, once again, a leading mortgage originator. Seeing
this strategy yield such immediate results, gives us great optimism for
our outlook moving forward.”
Conference Call
The Company will hold a conference call on April 24th, at
9:00 a.m. Pacific Time (12:00 p.m. Eastern Time), to discuss the
Company’s financial results and business outlook and to answer investor
questions. After the Company’s prepared remarks, management will host a
live Q&A session, to answer questions submitted via email. Please email
your questions to Justin.Moisio@ImpacMail.com.
Investors may participate in the conference call by dialing (800)
406-5162, conference ID number 21767638, or access the web cast via our
web site at http://ir.impaccompanies.com.
To participate in the conference call, dial in 15 minutes prior to the
scheduled start time. The conference call will be archived on the
Company's web site at http://ir.impaccompanies.com.
Forward-Looking Statements
This press release contains certain forward looking statements within
the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934. Forward looking statements, some
of which are based on various assumptions and events that are beyond our
control, may be identified by reference to a future period or periods or
by the use of forward looking terminology, such as “may,” “capable,”
“will,” “intends,” “believe,” “expect,” “likely,” “potentially”
”appear,” “should,” “could,” “seem to,” “anticipate,” “expectations,”
“plan,” “ensure,” or similar terms or variations on those terms or the
negative of those terms. The forward looking statements are based on
current management expectations. Actual results may differ materially as
a result of several factors, including, but not limited to the
following: failure to achieve the benefits expected from the acquisition
of the CashCall Mortgage operations, including an increase in
origination volume generally, increase in each of our origination
channels and ability to successfully use the marketing platform to
expand volumes of our other loan products; costs and difficulties
related to the integration of the business and operations with the
Company’s operations; whether the completion of the transaction will
have a positive effect on the Company’s profitability or the accretive
effect on the Company’s earnings that it expects; unexpected costs,
liabilities, charges or expenses resulting from the transaction;
successful development, marketing, sale and financing of new mortgage
products, including the non-Qualified Mortgage and conventional and
government loan programs; ability to increase our market share in the
various residential mortgage businesses; volatility in the mortgage
industry; unexpected interest rate fluctuations and margin compression;
our ability to manage personnel expenses in relation to mortgage
production levels; our ability to successfully use warehousing capacity;
increased competition in the mortgage lending industry by larger or more
efficient companies; issues and system risks related to our technology;
more than expected increases in default rates or loss severities and
mortgage related losses; ability to obtain additional financing through
lending and repurchase facilities, debt or equity funding, strategic
relationships or otherwise; the terms of any financing, whether debt or
equity, that we do obtain and our expected use of proceeds from any
financing; increase in loan repurchase requests and ability to
adequately settle repurchase obligations; failure to create brand
awareness; the outcome, including any settlements, of litigation or
regulatory actions pending against us or other legal contingencies; and
our compliance with applicable local, state and federal laws and
regulations and other general market and economic conditions.
For a discussion of these and other risks and uncertainties that could
cause actual results to differ from those contained in the forward
looking statements, see the annual and quarterly reports we file with
the Securities and Exchange Commission. This document speaks only as of
its date and we do not undertake, and specifically disclaim any
obligation, to release publicly the results of any revisions that may be
made to any forward looking statements to reflect the occurrence of
anticipated or unanticipated events or circumstances after the date of
such statements
About the Company
Impac Mortgage Holdings, Inc. (IMH or Impac) provides innovative
mortgage lending and warehouse lending solutions, as well as real estate
solutions that address the challenges of today’s economic environment.
Impac’s operations include mortgage and warehouse lending, servicing,
portfolio loss mitigation and real estate services as well as the
management of the securitized long-term mortgage portfolio, which
includes the residual interests in securitizations.
For additional information, questions or comments, please call Justin
Moisio, VP Investor Relations at (949) 475-3988 or email Justin.Moisio@ImpacMail.com.
Web site: http://ir.impaccompanies.com
or www.impaccompanies.com
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