Impac Mortgage Holdings, Inc. (NYSE American:IMH) announces the
financial results for the quarter ended September 30, 2017.
For the third quarter of 2017, the Company reported GAAP net
earnings of $2.3 million, or $0.11 per diluted common share, and
Adjusted Operating (Loss) Income (as defined below) of $114
thousand, or $0.01 per diluted common share, as compared to GAAP
net earnings of $16.5 million, or $1.18 per diluted common share,
and Adjusted Operating Income of $47.4 million, or $3.29 per
diluted common share for the third quarter of 2016.
|
|
|
|
|
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) |
|
2017 |
|
2017 |
|
2016 |
|
2017 |
|
2016 |
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on
sale of loans, net |
|
$ |
42,476 |
|
|
$ |
36,806 |
|
|
$ |
113,158 |
|
|
$ |
116,602 |
|
|
$ |
245,849 |
|
Real
estate services fees, net |
|
|
1,355 |
|
|
|
1,504 |
|
|
|
2,678 |
|
|
|
4,492 |
|
|
|
6,773 |
|
Servicing
fees, net |
|
|
8,492 |
|
|
|
7,764 |
|
|
|
3,789 |
|
|
|
23,575 |
|
|
|
8,680 |
|
Loss on
mortgage servicing rights, net |
|
|
(10,513 |
) |
|
|
(6,669 |
) |
|
|
(15,857 |
) |
|
|
(18,159 |
) |
|
|
(41,249 |
) |
Other |
|
|
266 |
|
|
|
228 |
|
|
|
225 |
|
|
|
541 |
|
|
|
453 |
|
Total
revenues |
|
|
42,076 |
|
|
|
39,633 |
|
|
|
103,993 |
|
|
|
127,051 |
|
|
|
220,506 |
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Personnel
expense |
|
|
23,062 |
|
|
|
21,373 |
|
|
|
38,467 |
|
|
|
69,353 |
|
|
|
93,025 |
|
Business
promotion |
|
|
10,403 |
|
|
|
10,110 |
|
|
|
10,350 |
|
|
|
30,744 |
|
|
|
30,828 |
|
General,
administrative and other |
|
|
8,497 |
|
|
|
8,324 |
|
|
|
7,736 |
|
|
|
24,845 |
|
|
|
23,742 |
|
Accretion
of contingent consideration |
|
|
396 |
|
|
|
707 |
|
|
|
1,591 |
|
|
|
1,948 |
|
|
|
5,244 |
|
Change in
fair value of contingent consideration |
|
|
(4,798 |
) |
|
|
(6,793 |
) |
|
|
23,215 |
|
|
|
(11,052 |
) |
|
|
34,569 |
|
Total
expenses |
|
|
37,560 |
|
|
|
33,721 |
|
|
|
81,359 |
|
|
|
115,838 |
|
|
|
187,408 |
|
Operating income: |
|
|
4,516 |
|
|
|
5,912 |
|
|
|
22,634 |
|
|
|
11,213 |
|
|
|
33,098 |
|
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest income |
|
|
1,546 |
|
|
|
1,098 |
|
|
|
1,304 |
|
|
|
3,090 |
|
|
|
2,036 |
|
Loss on
extinguishment of debt |
|
|
— |
|
|
|
(1,265 |
) |
|
|
— |
|
|
|
(1,265 |
) |
|
|
— |
|
Change in
fair value of long-term debt |
|
|
104 |
|
|
|
(265 |
) |
|
|
(8,641 |
) |
|
|
(2,657 |
) |
|
|
(7,286 |
) |
Change in
fair value of net trust assets |
|
|
(1,745 |
) |
|
|
2,005 |
|
|
|
1,071 |
|
|
|
6,578 |
|
|
|
2,609 |
|
Total
other income (expense) |
|
|
(95 |
) |
|
|
1,573 |
|
|
|
(6,266 |
) |
|
|
5,746 |
|
|
|
(2,641 |
) |
Net
earnings before income taxes |
|
|
4,421 |
|
|
|
7,485 |
|
|
|
16,368 |
|
|
|
16,959 |
|
|
|
30,457 |
|
Income
tax expense |
|
|
2,104 |
|
|
|
1,045 |
|
|
|
(130 |
) |
|
|
3,575 |
|
|
|
728 |
|
Net
earnings |
|
$ |
2,317 |
|
|
$ |
6,440 |
|
|
$ |
16,498 |
|
|
$ |
13,384 |
|
|
$ |
29,729 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
weighted average common shares |
|
|
21,195 |
|
|
|
21,258 |
|
|
|
14,403 |
|
|
|
20,381 |
|
|
|
13,973 |
|
Diluted
earnings per share |
|
$ |
0.11 |
|
|
$ |
0.32 |
|
|
$ |
1.18 |
|
|
$ |
0.71 |
|
|
$ |
2.27 |
|
|
The decrease in net earnings and Adjusted Operating Income
(Loss) was primarily attributable to a $70.7 million decline in
gain on sale of loans revenue in the third quarter of 2017 as
compared to the third quarter of 2016. The decline was due to
a decrease in origination volume, which was magnified by the
decline in gain on sale margins. Originations volume declined
51% in the third quarter of 2017 as compared to the same period in
the prior year (discussed further below). In addition, gain
on sale margins decreased by 64 basis point (bps) 204 bps in the
third quarter of 2017, as compared to 268 bps in the third quarter
of 2016 reflecting the margin compression resulting from the
historically low interest rate environment in the third quarter of
2016, in which the Company was able to generate significantly
larger volume with wide gain on sale margins.
Net earnings include certain fair value adjustments, which are
non-cash items and are not related to current operating
results. Operating income, excluding the changes in
contingent consideration (“Adjusted Operating (Loss) Income”), is
considered a non-GAAP financial measurement; see the discussion and
reconciliation of non-GAAP financial measures below. Although we
are required by GAAP to record these fair value adjustments,
management believes Adjusted Operating (Loss) Income as defined
above is more useful to discuss the ongoing and future operations
of the Company, shown in the table below:
|
|
|
|
|
Adjusted Operating (Loss) Income |
|
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, |
|
|
2017 |
|
2017 |
|
2016 |
|
2017 |
|
2016 |
Net earnings: |
|
$ |
2,317 |
|
|
$ |
6,440 |
|
|
$ |
16,498 |
|
|
$ |
13,384 |
|
|
$ |
29,729 |
Total
other (income) expense |
|
|
95 |
|
|
|
(1,573 |
) |
|
|
6,266 |
|
|
|
(5,746 |
) |
|
|
2,641 |
Income
tax expense |
|
|
2,104 |
|
|
|
1,045 |
|
|
|
(130 |
) |
|
|
3,575 |
|
|
|
728 |
Operating income: |
|
$ |
4,516 |
|
|
$ |
5,912 |
|
|
$ |
22,634 |
|
|
$ |
11,213 |
|
|
$ |
33,098 |
Accretion
of contingent consideration |
|
|
396 |
|
|
|
707 |
|
|
|
1,591 |
|
|
|
1,948 |
|
|
|
5,244 |
Change in
fair value of contingent consideration |
|
|
(4,798 |
) |
|
|
(6,793 |
) |
|
|
23,215 |
|
|
|
(11,052 |
) |
|
|
34,569 |
Adjusted operating (loss) income |
|
$ |
114 |
|
|
$ |
(174 |
) |
|
$ |
47,440 |
|
|
$ |
2,109 |
|
|
$ |
72,911 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
weighted average common shares |
|
|
21,195 |
|
|
|
21,258 |
|
|
|
14,403 |
|
|
|
20,381 |
|
|
|
13,973 |
Diluted adjusted operating income (loss) per
share |
|
$ |
0.01 |
|
|
$ |
(0.01 |
) |
|
$ |
3.29 |
|
|
$ |
0.10 |
|
|
$ |
5.22 |
|
During 2017 we have also maintained marketing activities and
certain costs consistent with 2016, despite higher interest rates,
in an effort to increase NonQM and government-insured loan
production both of which have higher margins and both of which have
increased over the third quarter of 2016 (as discussed below), as
well as expanding our geographic footprint outside of California in
the consumer direct channel.
|
|
|
|
Servicing Portfolio Data |
|
|
|
(in
millions) |
|
|
|
|
|
As of September 30,
2017 |
|
As of June 30,
2017 |
|
% Change |
|
As of September 30,
2016 |
|
% Change |
Mortgage Servicing
Portfolio (UPB) |
$15,703.1 |
$14,667.9 |
7% |
$9,450.7 |
66% |
Mortgage Servicing
Rights |
$159.0 |
$152.3 |
4% |
$87.4 |
82% |
|
|
|
|
|
|
|
Q3 2017 |
|
Q2 2017 |
|
% Change |
|
Q3 2016 |
|
% Change |
Servicing Fees,
Net |
$8.5 |
$7.8 |
9% |
$3.8 |
124% |
|
|
|
|
|
|
|
|
|
|
|
Beginning in 2016, we developed a strategy to retain servicing.
As a result, the unpaid principal balance (“UPB”) of the Company’s
mortgage servicing portfolio increased 66% to $15.7 billion as of
September 30, 2017 from $9.4 billion as of September 30,
2016. The servicing portfolio generated net servicing fees of
$8.5 million in the third quarter of 2017, a 124% increase over the
net servicing fees of $3.8 million in the third quarter of
2016. Additionally, delinquencies within the servicing
portfolio remain low at 0.49% for 60+ delinquencies as of September
30, 2017.
The loss on mortgage servicing rights (“MSR”) in the third
quarter of 2017 was primarily due to mark-to-market (“MTM”) loss
and charges associated with payoffs in the portfolio related to the
decrease in prevailing mortgage rates in the third quarter.
We have begun an effort to reduce prepayments in the servicing
portfolio. By doing so, we expect to reduce the payoffs in
the portfolio as well as reduce the loss on mortgage servicing
rights.
|
|
|
|
|
Origination Data |
|
|
|
|
(in
millions) |
|
|
|
|
|
|
Q3 2017 |
|
Q2 2017 |
|
% Change |
|
Q3 2016 |
|
% Change |
Retail
Originations |
$1,426.2 |
$1,186.8 |
20% |
$3,273.7 |
-56% |
Correspondent
Originations |
$376.4 |
$305.8 |
23% |
$583.2 |
-35% |
Wholesale
Originations |
$281.7 |
$301.0 |
-6% |
$360.1 |
-22% |
Total Originations |
$2,084.3 |
$1,793.6 |
16% |
$4,217.0 |
-51% |
|
|
|
|
|
|
|
|
|
|
|
During the third quarter of 2017, total originations increased
16% to $2.1 billion as compared to $1.8 billion in the second
quarter of 2017. However, volume decreased 51% as compared to
$4.2 billion in the third quarter of 2016. The decrease in
originations from the third quarter of 2016 was a result of higher
interest rates during the third quarter of 2017 as compared to the
aforementioned historically low interest rate environment the
previous year, causing a sharp drop in refinance volume.
In the third quarter of 2017, NonQM and government-insured
originations represented approximately 35% of total originations,
as compared to just 12% of total originations in the third quarter
of 2016. During the third quarter of 2017, the origination volume
of NonQM loans increased to $239.4 million, as compared to $68.9
million of NonQM production for the third quarter of 2016. In
the third quarter of 2017, the retail channel accounted for 26% of
NonQM originations while the wholesale and correspondent channels
accounted for 74% of NonQM production.
We continue to believe there is an underserved mortgage market
for borrowers with good credit who may not meet the qualified
mortgage (QM) guidelines set out by the Consumer Financial
Protection Bureau (CFPB). We have established lending guidelines,
including determining the prospective borrowers’ ability to repay
the mortgage, which we believe will keep delinquencies and
foreclosures at acceptable levels. Through the third quarter
of 2017, we have originated $656.2 million of NonQM originations,
with a weighted average FICO of 726 and weighted average LTV of
64%.
Additionally, in the third quarter of 2017, the Company’s
government-insured loan production increased to $499.7 million, as
compared to $439.2 million in the third quarter of 2016.
NonQM and government-insured mortgages are typically a higher
margin product for the Company.
|
|
|
|
Summary Balance
Sheet |
September 30, |
|
December 31, |
(in
thousands, except per share data) |
2017 |
|
2016 |
ASSETS |
|
|
|
Cash |
$ |
34,815 |
|
$ |
40,096 |
Mortgage
loans held-for-sale |
|
572,268 |
|
|
388,422 |
Finance
receivables |
|
60,912 |
|
|
62,937 |
Mortgage
servicing rights |
|
158,950 |
|
|
131,537 |
Securitized mortgage trust assets |
|
3,769,231 |
|
|
4,033,290 |
Goodwill
and intangibles |
|
127,569 |
|
|
130,716 |
Deferred
tax asset |
|
24,420 |
|
|
24,420 |
Other
assets |
|
67,212 |
|
|
52,316 |
Total
assets |
$ |
4,815,377 |
|
$ |
4,863,734 |
|
|
|
|
LIABILITIES & STOCKHOLDERS' EQUITY |
|
|
|
Warehouse
borrowings |
$ |
591,583 |
|
$ |
420,573 |
Debt |
|
94,666 |
|
|
102,082 |
Securitized mortgage trust liabilities |
|
3,751,831 |
|
|
4,017,603 |
Contingent consideration |
|
5,816 |
|
|
31,072 |
Other
liabilities |
|
62,028 |
|
|
61,364 |
Total
liabilities |
|
4,505,924 |
|
|
4,632,694 |
Total equity |
|
309,453 |
|
|
231,040 |
Total liabilities and stockholders’
equity |
$ |
4,815,377 |
|
$ |
4,863,734 |
|
|
|
|
Book value per share |
$ |
14.77 |
|
$ |
14.42 |
|
|
|
|
|
|
Mr. Joseph Tomkinson, Chairman and CEO of Impac Mortgage
Holdings, Inc., commented, “Since the end of the third quarter, we
have seen our NonQM and government production grow across all
origination channels. Prepayments in the servicing portfolio remain
high, causing a write down on the mortgage servicing assets.
However, as our servicing portfolio continues to grow, it is
generating significant and stable quarterly revenue, in excess of
$8.5 million a quarter. We still anticipate securitizing our NonQM
production in the first quarter of 2018, which will be a
significant milestone for the Company.”
Non-GAAP Financial Measures
This release contains operating income excluding changes in
contingent consideration (“Adjusted Operating (Loss) Income”) 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 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, |
|
|
2017 |
|
2017 |
|
2016 |
|
2017 |
|
2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share |
|
$ |
0.11 |
|
|
$ |
0.32 |
|
|
$ |
1.18 |
|
|
$ |
0.71 |
|
|
$ |
2.27 |
Adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
other (expense) income (1) |
|
|
— |
|
|
|
(0.09 |
) |
|
|
0.40 |
|
|
|
(0.35 |
) |
|
|
0.05 |
Income
tax expense |
|
|
0.10 |
|
|
|
0.05 |
|
|
|
(0.01 |
) |
|
|
0.18 |
|
|
|
0.05 |
Accretion
of contingent consideration |
|
|
0.02 |
|
|
|
0.03 |
|
|
|
0.11 |
|
|
|
0.10 |
|
|
|
0.38 |
Change in
fair value of contingent consideration |
|
|
(0.22 |
) |
|
|
(0.32 |
) |
|
|
1.61 |
|
|
|
(0.54 |
) |
|
|
2.47 |
Diluted adjusted operating income (loss) per
share |
|
$ |
0.01 |
|
|
$ |
(0.01 |
) |
|
$ |
3.29 |
|
|
$ |
0.10 |
|
|
$ |
5.22 |
(1) Except
for when anti-dilutive, convertible debt interest expense, net of
tax is included for calculating diluted earnings per share (EPS)
and is excluded for purposes of reconciling GAAP diluted EPS to
non-GAAP diluted adjusted operating income (loss) per share. |
|
Conference Call
The Company will hold a conference call on November 9, 2017, 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 submit
questions via email, please email your questions to
Justin.Moisio@ImpacMail.com. Investors may participate in the
conference call by dialing (844) 265-1560conference ID number
8185418, 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: failure to increase origination
volume in each of our origination channels and ability to
successfully leverage our marketing platform to expand volumes of
our other loan products; successful development, marketing, sale
and financing of new and existing financial products, including
expansion of NonQM loan originations and conventional and
government-insured loan programs; inability to successfully reduce
prepayments on our mortgage loans; ability to successfully
diversify our mortgage products; ability to continue to grow
servicing portfolio; 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; 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 Business Development & Investor Relations at
(949) 475-3988 or email Justin.Moisio@ImpacMail.com. Web site:
http://ir.impaccompanies.com or www.impaccompanies.com
Impac Mortgage (AMEX:IMH)
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