Impac Mortgage Holdings, Inc. (NYSE American: IMH) (the Company)
announces the financial results for the quarter ended September 30,
2018.
For the third quarter of 2018, the Company reported a net (loss)
of $(45.4) million, or $(2.16) per diluted common share, and
adjusted operating (loss) of $(8.9) million, or $(0.42) per diluted
common share, as compared to net earnings of $2.3 million, or $0.11
per diluted common share, and adjusted operating income of $114
thousand, or $0.01 per diluted common share, for the third quarter
of 2017.
For the nine months ended September 30, 2018, the Company
reported a net (loss) of $(139.0) million, or $(6.62) per diluted
common share, and adjusted operating (loss) of $(11.1) million, or
$(0.53) per diluted common share, as compared to net earnings of
$13.4 million, or $0.71 per diluted common share, and adjusted
operating income of $2.1 million or $0.10 per diluted common share,
for the nine months ended September 30, 2017. Adjusted
operating income (loss), excluding the changes in contingent
consideration and impairment charges (adjusted operating income
(loss)) is not considered an accounting principle generally
accepted in the United States of America (non-GAAP) financial
measurement; see the discussion and reconciliation on non-GAAP
financial measures further below.
Results of Operations |
|
For the Three Months Ended |
|
For the Nine Months
Ended |
(in thousands, except share data) |
|
September 30, |
|
June 30, |
|
September 30, |
|
September 30, |
|
September 30, |
(unaudited) |
|
2018 |
|
2018 |
|
2017 |
|
2018 |
|
2017 |
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on sale of loans,
net |
|
$ |
13,673 |
|
|
$ |
18,741 |
|
|
$ |
42,476 |
|
|
$ |
53,896 |
|
|
$ |
116,602 |
|
Servicing
fees, net |
|
|
10,124 |
|
|
|
9,861 |
|
|
|
8,492 |
|
|
|
29,445 |
|
|
|
23,575 |
|
(Loss)
gain on mortgage servicing rights, net |
|
|
(5,192 |
) |
|
|
167 |
|
|
|
(10,513 |
) |
|
|
2,682 |
|
|
|
(18,159 |
) |
Real
estate services fees, net |
|
|
711 |
|
|
|
1,038 |
|
|
|
1,355 |
|
|
|
3,134 |
|
|
|
4,492 |
|
Other |
|
|
71 |
|
|
|
116 |
|
|
|
266 |
|
|
|
278 |
|
|
|
541 |
|
Total
revenues |
|
|
19,387 |
|
|
|
29,923 |
|
|
|
42,076 |
|
|
|
89,435 |
|
|
|
127,051 |
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Personnel
expense |
|
|
16,061 |
|
|
|
16,678 |
|
|
|
23,062 |
|
|
|
50,481 |
|
|
|
69,353 |
|
Business
promotion |
|
|
4,351 |
|
|
|
9,000 |
|
|
|
10,403 |
|
|
|
23,082 |
|
|
|
30,744 |
|
General,
administrative and other |
|
|
7,897 |
|
|
|
10,846 |
|
|
|
8,497 |
|
|
|
27,018 |
|
|
|
24,845 |
|
Intangible asset impairment |
|
|
4,897 |
|
|
|
13,450 |
|
|
|
— |
|
|
|
18,347 |
|
|
|
— |
|
Goodwill
impairment |
|
|
29,925 |
|
|
|
74,662 |
|
|
|
— |
|
|
|
104,587 |
|
|
|
— |
|
Accretion
of contingent consideration |
|
|
— |
|
|
|
— |
|
|
|
396 |
|
|
|
— |
|
|
|
1,948 |
|
Change in
fair value of contingent consideration |
|
|
— |
|
|
|
— |
|
|
|
(4,798 |
) |
|
|
— |
|
|
|
(11,052 |
) |
Total
expenses |
|
|
63,131 |
|
|
|
124,636 |
|
|
|
37,560 |
|
|
|
223,515 |
|
|
|
115,838 |
|
Operating (loss) income : |
|
|
(43,744 |
) |
|
|
(94,713 |
) |
|
|
4,516 |
|
|
|
(134,080 |
) |
|
|
11,213 |
|
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest income |
|
|
411 |
|
|
|
546 |
|
|
|
1,546 |
|
|
|
1,977 |
|
|
|
3,090 |
|
Loss on
extinguishment of debt |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(1,265 |
) |
Change in
fair value of long-term debt |
|
|
(785 |
) |
|
|
258 |
|
|
|
104 |
|
|
|
697 |
|
|
|
(2,657 |
) |
Change in
fair value of net trust assets |
|
|
(1,315 |
) |
|
|
217 |
|
|
|
(1,745 |
) |
|
|
(3,236 |
) |
|
|
6,578 |
|
Total
other (expense) income |
|
|
(1,689 |
) |
|
|
1,021 |
|
|
|
(95 |
) |
|
|
(562 |
) |
|
|
5,746 |
|
Net
(loss) earnings before income taxes |
|
|
(45,433 |
) |
|
|
(93,692 |
) |
|
|
4,421 |
|
|
|
(134,642 |
) |
|
|
16,959 |
|
Income
tax expense |
|
|
12 |
|
|
|
3,706 |
|
|
|
2,104 |
|
|
|
4,328 |
|
|
|
3,575 |
|
Net
(loss) earnings |
|
$ |
(45,445 |
) |
|
$ |
(97,398 |
) |
|
$ |
2,317 |
|
|
$ |
(138,970 |
) |
|
$ |
13,384 |
|
Other comprehensive earnings (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in
fair value of instrument specific credit risk |
|
|
25 |
|
|
|
(526 |
) |
|
|
— |
|
|
|
(1,940 |
) |
|
|
— |
|
Total
comprehensive (loss) earnings |
|
$ |
(45,420 |
) |
|
$ |
(97,924 |
) |
|
$ |
2,317 |
|
|
$ |
(140,910 |
) |
|
$ |
13,384 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
weighted average common shares |
|
|
21,071 |
|
|
|
20,964 |
|
|
|
21,195 |
|
|
|
20,996 |
|
|
|
20,381 |
|
Diluted
(loss) earnings per share |
|
$ |
(2.16 |
) |
|
$ |
(4.65 |
) |
|
$ |
0.11 |
|
|
$ |
(6.62 |
) |
|
$ |
0.71 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) earnings as well as adjusted operating (loss) income
for the third quarter of 2018 decreased due to a decline in revenue
from gain on sale of loans, net as a result of a decrease in
origination volumes as well as a reduction in margins. Gain
on sale margins decreased by 44 basis point (bps) to 160 bps in the
third quarter of 2018, as compared to 204 bps in the third quarter
of 2017 reflecting margin compression.
As part of the CCM acquisition in 2015, we recorded goodwill of
$104.6 million, which is evaluated on a quarterly basis for
impairment. As previously reported in the second quarter of
2018, an impairment charge of $74.7 million related to goodwill and
$13.4 million related to intangible assets, was recorded as a
significant reduction in the anticipated future cash flows and
estimated fair value for this reporting unit had occurred.
During the third quarter of 2018, CCM continued to experience a
significant decline in origination volume and margin compression
that exceeded our updated projections from the second quarter of
2018. As a result, during the three months ended September
30, 2018, we recorded an impairment charge of $29.9 million related
to goodwill and $4.9 million related to intangible assets.
Despite full impairment of goodwill, the consumer direct channel
will remain an integral component of the Company’s distribution
capabilities going forward.
Personnel expense decreased $7.0 million to $16.1 million for
the three months ended September 30, 2018 as compared to the same
period in 2017. The decrease is primarily related to a
reduction in commission expense due to a decrease in loan
origination volumes as well as staff reductions in the first three
quarters of 2018. As a result of the reduction in loan
origination volumes, we continue to reduce overhead to more closely
align staffing levels to origination volumes in the current
economic environment. As a result of the staff reductions in the
third quarter of 2018, average headcount decreased 26% for the
third quarter of 2018 as compared to the same period in 2017.
Offsetting the decrease in personnel expense was $1.1 million in
severance costs associated with the repositioning of the staff and
executive management team.
Servicing Portfolio Data |
(in
millions) |
|
|
|
|
|
|
|
|
As
of September 30, 2018 |
|
As
of June 30, 2018 |
|
%
Change |
|
As
of September 30, 2017 |
|
%
Change |
Mortgage Servicing
Portfolio (UPB) |
$16,789.5 |
|
$16,786.1 |
|
0% |
|
$15,703.1 |
|
7% |
Mortgage Servicing
Rights |
$181.0 |
|
$180.7 |
|
0% |
|
$158.9 |
|
14% |
|
|
|
|
|
|
|
|
|
|
|
Q3 2018 |
|
Q2 2018 |
|
% Change |
|
Q3 2017 |
|
% Change |
Servicing Fees,
Net |
$10.1 |
|
$9.9 |
|
3% |
|
$8.5 |
|
19% |
|
|
|
|
|
|
|
|
|
|
The mortgage servicing portfolio remained flat at $16.8 billion
at September 30, 2018 as compared to June 30, 2018 but increased
from $15.7 billion at September 30, 2017. During the three
months ended September 30, 2018, the mortgage servicing portfolio
increased due to servicing retained loans sales of $570.5 million
in UPB, which were slightly offset by prepayments and principal
amortization from the servicing portfolio. In
October 2018, the Company sold $3.4 billion in unpaid principal
balance (UPB) of GNMA mortgage servicing rights (MSRs) for
approximately $35.9 million.
The servicing portfolio generated net servicing income of $10.1
million in the third quarter of 2018, a 19% increase over the net
servicing fees of $8.5 million in the third quarter of 2017.
For the three months ended September 30, 2018, we recorded a
$5.2 million loss from MSRs, net compared to a loss of $10.5
million in the comparable 2017 period. For the three months
ended September 30, 2018, we recorded a $5.4 million loss from a
change in fair value of MSRs primarily due to changes in fair value
associated with voluntary and scheduled prepayments partially
offset by changes in market rates, inputs and assumptions.
Included in the $841 thousand gain from changes in valuation market
rates, inputs or assumptions was a $2.3 million decrease in fair
value associated with the execution price to sell $3.4 billion of
our GNMA mortgage servicing portfolio during the three months ended
September 30, 2018.
Delinquencies within the servicing portfolio have remained low
at 0.98% for 60+ days delinquent as of September 30, 2018 as
compared to 0.81% at December 31, 2017.
Origination Data |
|
|
|
|
|
|
|
(in
millions) |
|
|
|
|
|
|
|
|
Q3
2018 |
|
Q2
2018 |
|
%
Change |
|
Q3
2017 |
|
%
Change |
Retail
Originations |
$432.7 |
|
$459.9 |
|
-6% |
|
$1,426.2 |
|
-70% |
Correspondent
Originations |
$200.6 |
|
$374.9 |
|
-46% |
|
$376.4 |
|
-47% |
Wholesale
Originations |
$219.9 |
|
$199.4 |
|
10% |
|
$281.7 |
|
-22% |
Total Originations |
$853.2 |
|
$1,034.2 |
|
-18% |
|
$2,084.3 |
|
-59% |
|
|
|
|
|
|
|
|
|
|
During the third quarter of 2018, total originations decreased
18% to $0.9 billion as compared to $1 billion in the second quarter
of 2018 and decreased 59% as compared to $2.1 billion in the third
quarter of 2017. The decrease in originations from the second
quarter of 2018 and third quarter of 2017 was primarily a result of
higher interest rates. From January 2017 through the third
quarter of 2018, interest rates have increased significantly from
the historically low interest rate environment of previous years,
causing a sharp drop in refinance volume, which has been the
predominance of our retail originations. During the third
quarter of 2018, the origination volume of NonQM loans increased to
$349.2 million as compared to $306.1 million in the second quarter
of 2018 and $239.4 million in the third quarter of
2017. In the third quarter of 2018, the retail channel
accounted for 29% of NonQM originations while the wholesale and
correspondent channels accounted for 71% of NonQM production.
In the second quarter of 2018, the retail channel accounted for 25%
of NonQM originations, while the wholesale and correspondent
channels accounted for 75% of NonQM production. For the third
quarter of 2018, our NonQM origination volume had an average FICO
of 724 and a weighted average LTV of 68%.
|
|
|
|
|
Summary Balance
Sheet |
|
September 30, |
|
December 31, |
(in thousands, except
per share data) |
|
2018 |
|
2017 |
ASSETS |
|
|
|
|
Cash |
|
$ |
29,217 |
|
$ |
33,223 |
Mortgage loans
held-for-sale |
|
|
344,681 |
|
|
568,781 |
Finance
receivables |
|
|
731 |
|
|
41,777 |
Mortgage servicing
rights |
|
|
181,005 |
|
|
154,405 |
Securitized mortgage
trust assets |
|
|
3,311,785 |
|
|
3,670,550 |
Goodwill and
intangibles |
|
|
380 |
|
|
126,169 |
Loans eligible
repurchase from Ginnie Mae |
|
|
78,707 |
|
|
47,697 |
Other assets |
|
|
31,196 |
|
|
39,098 |
Total assets |
|
$ |
3,977,702 |
|
$ |
4,681,700 |
|
|
|
|
|
LIABILITIES & STOCKHOLDERS' EQUITY |
|
|
|
|
Warehouse
borrowings |
|
$ |
315,152 |
|
$ |
575,363 |
Debt |
|
|
133,720 |
|
|
105,089 |
Securitized mortgage
trust liabilities |
|
|
3,296,242 |
|
|
3,653,265 |
Loans eligible
repurchase from Ginnie Mae |
|
|
78,707 |
|
|
47,697 |
Contingent
consideration |
|
|
- |
|
|
554 |
Other liabilities |
|
|
36,227 |
|
|
34,585 |
Total liabilities |
|
|
3,860,048 |
|
|
4,416,553 |
Total equity |
|
|
117,654 |
|
|
265,147 |
Total liabilities and stockholders’
equity |
$ |
3,977,702 |
|
$ |
4,681,700 |
|
|
|
|
|
Book value per share |
|
$ |
5.57 |
|
$ |
12.66 |
Tangible Book value per share |
|
$ |
5.56 |
|
$ |
6.43 |
|
|
|
|
|
|
|
Mr. George A. Mangiaracina, Chairman and CEO of Impac Mortgage
Holdings, Inc., stated, “The Company has demonstrated the ability
to make the difficult decisions to proactively eliminate cost and
expense to right size the Company. We will continue to
measure our origination capacity to demand and fine tune our
resources to ensure we are appropriately calibrated to changing
market conditions. Additionally, we are encouraged by
the growth of our NonQM origination volume across our Direct to
Consumer and TPO channels. We anticipate that the addressable
market for alternative products will continue to expand, and that
the Company is uniquely positioned to build upon our standing as a
recognized leader in providing innovative and responsible products
that match consumer needs to capital market investment
objectives.”
Non-GAAP Financial Measures
Net earnings include certain fair value adjustments, which are
non-cash items and are not related to current operating
results. Adjusted operating (loss) income, which excludes
changes in contingent consideration and impairment of goodwill and
intangible assets), is considered a non-GAAP financial
measurement. Although we are required by GAAP to record these
fair value adjustments, management believes adjusted operating
(loss) income is more useful to discuss the ongoing and future
operations of the Company, shown in the table below:
Adjusted Operating Income (Loss) |
|
For the Three Months
Ended |
|
For the Nine Months
Ended |
(in thousands, except share data) |
|
September 30, |
|
June 30, |
|
September 30, |
|
September 30, |
|
September 30, |
|
|
2018 |
|
2018 |
|
2017 |
|
2018 |
|
2017 |
Net (loss)
earnings: |
|
$ |
(45,445 |
) |
|
$ |
(97,398 |
) |
|
$ |
2,317 |
|
|
$ |
(138,970 |
) |
|
$ |
13,384 |
|
Total
other (income) expense |
|
|
1,689 |
|
|
|
(1,021 |
) |
|
|
95 |
|
|
|
562 |
|
|
|
(5,746 |
) |
Income
tax expense |
|
|
12 |
|
|
|
3,706 |
|
|
|
2,104 |
|
|
|
4,328 |
|
|
|
3,575 |
|
Operating (loss) income: |
|
$ |
(43,744 |
) |
|
$ |
(94,713 |
) |
|
$ |
4,516 |
|
|
$ |
(134,080 |
) |
|
$ |
11,213 |
|
Intangible asset impairment |
|
|
4,897 |
|
|
|
13,450 |
|
|
|
— |
|
|
|
18,347 |
|
|
|
— |
|
Goodwill
impairment |
|
|
29,925 |
|
|
|
74,662 |
|
|
|
— |
|
|
|
104,587 |
|
|
|
— |
|
Accretion
of contingent consideration |
|
|
— |
|
|
|
— |
|
|
|
396 |
|
|
|
— |
|
|
|
1,948 |
|
Change in
fair value of contingent consideration |
|
|
— |
|
|
|
— |
|
|
|
(4,798 |
) |
|
|
— |
|
|
|
(11,052 |
) |
Adjusted operating (loss) income |
|
$ |
(8,922 |
) |
|
$ |
(6,601 |
) |
|
$ |
114 |
|
|
$ |
(11,146 |
) |
|
$ |
2,109 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
weighted average common shares |
|
|
21,071 |
|
|
|
20,964 |
|
|
|
21,195 |
|
|
|
20,996 |
|
|
|
20,381 |
|
Diluted adjusted operating (loss) income per
share |
|
$ |
(0.42 |
) |
|
$ |
(0.31 |
) |
|
$ |
0.01 |
|
|
$ |
(0.53 |
) |
|
$ |
0.10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
This release contains operating (loss) income excluding changes
in contingent consideration and impairment of goodwill and
intangible assets and per share as performance measures, which are
considered non-GAAP financial measures, to further aid our
investors in understanding and analyzing our core operating results
and comparing them among periods. Adjusted operating (loss)
income and adjusted operating (loss) income per share exclude
certain items that we do not consider part of our core operating
results. These non-GAAP financial measures are not intended to be
considered in isolation or as a substitute for net earnings before
income taxes, net earnings or diluted earnings per share (EPS)
prepared in accordance with GAAP. The table below shows
operating income per share excluding these items:
|
|
For the Three Months
Ended |
|
For the Nine Months
Ended |
|
|
September 30, |
|
June 30, |
|
September 30, |
|
September 30, |
|
September 30, |
|
|
2018 |
|
2018 |
|
2017 |
|
2018 |
|
2017 |
Diluted (loss)
earnings per share |
|
$ |
(2.16 |
) |
|
$ |
(4.65 |
) |
|
$ |
0.11 |
|
|
$ |
(6.62 |
) |
|
$ |
0.71 |
|
Adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
other (income) expense (1) |
|
|
0.08 |
|
|
|
(0.05 |
) |
|
|
— |
|
|
|
0.03 |
|
|
|
(0.35 |
) |
Income
tax expense |
|
|
0.01 |
|
|
|
0.19 |
|
|
|
0.10 |
|
|
|
0.21 |
|
|
|
0.18 |
|
Intangible asset impairment |
|
|
0.23 |
|
|
|
0.64 |
|
|
|
— |
|
|
|
0.87 |
|
|
|
— |
|
Goodwill
impairment |
|
|
1.42 |
|
|
|
3.56 |
|
|
|
— |
|
|
|
4.98 |
|
|
|
— |
|
Accretion
of contingent consideration |
|
|
— |
|
|
|
— |
|
|
|
0.02 |
|
|
|
— |
|
|
|
0.10 |
|
Change in
fair value of contingent consideration |
|
|
— |
|
|
|
— |
|
|
|
(0.22 |
) |
|
|
— |
|
|
|
(0.54 |
) |
Diluted adjusted operating (loss) income per
share |
|
$ |
(0.42 |
) |
|
$ |
(0.31 |
) |
|
$ |
0.01 |
|
|
$ |
(0.53 |
) |
|
$ |
0.10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Except for when anti-dilutive, convertible debt interest
expense, net of tax is included for calculating diluted EPS and is
excluded for purposes of reconciling GAAP diluted EPS to non-GAAP
diluted adjusted operating (loss) income per share.
Conference Call
The Company will hold a conference call on November 8, 2018, at
6:00 a.m. Pacific Time (9:00 a.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 submit
questions via email, please email your questions to
Justin.Moisio@ImpacMail.com. Investors may participate in the
conference call by dialing (844) 265-1560 conference ID number
9399676, 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,”
“desire,” 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: successful development, marketing,
sale and financing of new and existing financial products,
including continued increase in interest rates; expansion of NonQM
loan originations and conventional and government-insured loan
programs; ability to successfully diversify our loan products;
decrease in our mortgage servicing portfolio; ability to continue
to grow the servicing portfolio; ability to successfully sell loans
to third-party investors; 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; ability to successfully create cost and product
efficiencies through new 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; 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, SVP Business Development & 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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