SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended March 31, 1997 or
[_] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from _______________ to ______________
Commission File Number: 0-19861
IMPERIAL CREDIT MORTGAGE HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
Maryland 33-0675505
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
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 [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of the Form 10-K or any amendment to this
Form 10-K. [_]
The aggregate market value of the voting stock held by non-affiliates of the
registrant based upon the closing sales price of its Common Stock on May 12,
1997 on the American Stock Exchange was approximately $231.5 million.
THE NUMBER OF SHARES OF COMMON STOCK OUTSTANDING AS OF MAY 12, 1997: 9,639,784
Documents incorporated by reference
None
1
IMPERIAL CREDIT MORTGAGE HOLDINGS, INC.
1997 FORM 10-Q QUARTERLY REPORT
TABLE OF CONTENTS
PAGE #
PART I. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
ITEM 1. FINANCIAL INFORMATION - IMPERIAL CREDIT MORTGAGE HOLDINGS, INC.
Consolidated Balance Sheets, March 31, 1997 and December 31, 1996............................. 3
Consolidated Statements of Operations, Three-Months Ended March 31, 1997 and 1996............. 4
Consolidated Statements of Cash Flows, Three-Months Ended March 31, 1997 and 1996............. 5
Selected Notes to Consolidated Financial Statements........................................... 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION 11
AND RESULTS OF OPERATIONS
PART II. OTHER INFORMATION
ITEM 1.-5. NOT APPLICABLE 15
SIGNATURES 16
2
PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
IMPERIAL CREDIT MORTGAGE HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except per share data)
(unaudited)
March 31, 1997 December 31, 1996
-------------- -----------------
ASSETS
------
Cash and cash equivalents $ 15,973 $ 22,610
Investment securities available-for-sale 60,268 63,506
Loan Receivables:
CMO collateral 453,956 501,744
Mortgage loans held for investment 346,395 914
Finance receivables 208,589 362,312
Allowance for loan losses (5,176) (4,384)
-------------- -----------------
Net loan receivables 1,003,764 860,586
Investment in Imperial Credit Commercial Holdings, Inc. 14,532 -
Investment in ICI Funding Corporation 11,448 9,896
Accrued interest receivable 9,159 7,263
Due from affiliates 7,502 7,709
Other real estate owned 2,518 332
Other assets 786 453
-------------- -----------------
$ 1,125,950 $ 972,355
============== =================
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Reverse-repurchase agreements $ 556,259 $ 357,715
CMO Borrowings 431,872 474,513
Accrued dividends payable 5,475 5,170
Other liabilities 2,697 5,739
Due to affiliates 28 27
-------------- -----------------
Total Liabilities 996,331 843,164
-------------- -----------------
Stockholders' Equity:
Preferred Stock; $.01 par value; 10 million shares
authorized; none issued or outstanding at March 31,
1997 (unaudited) and at December 31, 1996 - -
Common Stock; $.01 par value; 50 million shares authorized;
9,455,000 shares issued and outstanding at March 31, 1997
(unaudited) and 9,400,000 shares issued and outstanding at
December 31, 1996 95 94
Additional paid-in capital 136,139 135,521
Investment securities valuation allowance (2,273) (2,458)
Cumulative dividends declared (20,917) (15,441)
Notes receivable from common stock sales (1,534) (720)
Retained earnings 18,109 12,195
-------------- -----------------
Total Stockholders' Equity 129,619 129,191
-------------- -----------------
$ 1,125,950 $ 972,355
============== =================
See accompanying notes to consolidated financial statements.
3
IMPERIAL CREDIT MORTGAGE HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except earnings per share data)
(unaudited)
Three Months Ended March 31,
----------------------------
1997 1996
------------- ------------
Revenues
- --------
Interest income $ 23,080 $ 13,010
Equity in net income of ICI Funding Corporation 1,552 542
Equity in net loss of Imperial Credit Commercial Holdings, Inc. (471) -
Gain on sale of securities 648 -
Fees and other income 119 172
------------- ------------
24,928 13,724
Expenses
- --------
Interest on CMO borrowings and reverse repurchase agreements 15,322 9,009
Advisory fee 1,465 426
Provision for loan losses 1,464 2,415
Professional services 494 44
General and administrative expense 162 92
Personnel expense 67 44
Loss on sale of other real estate owned 40 -
------------- ------------
19,014 12,030
------------- ------------
Net income $ 5,914 $ 1,694
============= ============
Primary and fully diluted income per common share $ 0.62 $ 0.39
============= ============
Cumulative dividends declared per common share $ 0.58 $ 0.39
============= ============
See accompanying notes to consolidated financial statements.
4
IMPERIAL CREDIT MORTGAGE HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
(unaudited)
Three Months Ended March 31,
----------------------------
1997 1996
----------- ------------
Cash flows from operating activities:
Net income $ 5,914 $ 1,694
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Equity in net income of ICIFC (1,552) (542)
Equity in net loss of ICH 471 -
Equity in net loss of ICCC 64 -
Provision for loan losses 1,464 2,415
Net change in accrued interest on loans and investments (1,896) (3,965)
Net change in other assets and liabilities (2,731) 5,188
----------- ------------
Net cash provided by operating activities 1,734 4,790
Cash flows from investing activities:
Change in CMO collateral 47,788 -
Change in finance receivables 153,723 386,730
Change in mortgage loans held for investment, net (345,481) (313,751)
Net change in other real estate owned, net (2,858) (332)
Purchases of investment securities available-for-sale (7,755) (15,839)
Sales of investment securities available-for-sale 13,379 -
Principal reductions on securities available-for-sale (2,201) -
Net change in lease payment receivables - 635
Contributions to ICI Funding Corporation - (8,128)
Contributions to Imperial Credit Commercial Holdings (15,003) -
Contributions to Imperial Commercial Capital Corporation (500) -
----------- ------------
Net cash provided by (used in) investing activities (158,908) 49,315
Cash flows from financing activities:
Net change in reverse-repurchase agreements 198,544 (38,982)
Net change in CMO borrowings (42,641) -
Dividends paid (5,171) (340)
Proceeds from exercise of stock options 619 -
Advances to purchase common stock, net of principal reductions (814) -
----------- ------------
Net cash provided by (used in) financing activities 150,537 (39,322)
Net change in cash and cash equivalents (6,637) 14,783
Cash and cash equivalents at beginning of period 22,610 2,285
----------- ------------
Cash and cash equivalents at end of period $ 15,973 $ 17,068
=========== ============
Supplementary information:
Interest paid $ 14,327 $ 8,999
See accompanying notes to consolidated financial statements.
5
IMPERIAL CREDIT MORTGAGE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Unless the context otherwise requires, references herein to the "Company"'
refer to Imperial Credit Mortgage Holdings, Inc. ("IMH"), ICI Funding
Corporation ("ICIFC"), ICIFC Secured Assets Corporation ("ICIFC Assets"),
IMH Assets Corporation ("IMH Assets"), and Imperial Warehouse Lending
Group, Inc. ("IWLG"), collectively. References to IMH refer to Imperial
Credit Mortgage Holdings, Inc. as a separate entity from ICIFC, ICIFC
Secured Assets, IMH Assets and IWLG.
1. BASIS OF FINANCIAL STATEMENT PRESENTATION
The accompanying consolidated financial statements have been prepared in
accordance with Generally Accepted Accounting Principals 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
Generally Accepted Accounting Principals for complete financial
statements. In the opinion of management, all adjustments (consisting of
normal recurring adjustments) considered necessary for a fair presentation
have been included. Operating results for the three-month period ended
March 31, 1997 are not necessarily indicative of the results that may be
expected for the year ending December 31, 1997. 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, 1996.
References to financial information of IMH for the three-month period
ended March 31, 1997 reflect financial results of IMH's equity interest in
net income in ICIFC, IMH's equity interest in net loss of Imperial Credit
Commercial Holdings, Inc. ("ICH"), IMH's equity interest in net loss in
Imperial Commercial Capital Corporation ("ICCC"), and results of
operations of IMH, IMH Assets and IWLG as stand-alone entities, subsequent
to the Initial Public Offering ("IPO"). Refer to "The Contribution
Transaction" for additional information.
The results of operations of ICIFC, of which 99% of the economic interest
is owned by IMH, are included in the results of operations for IMH as
"Equity in net income of ICI Funding Corporation." The results of
operations of ICH, of which 49.9% of the economic interest is owned by
IMH, are included in the results of operations for IMH as "Equity in net
loss of Imperial Credit Commercial Holdings, Inc."
2. SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
The Company is a mortgage Real Estate Investment Trust ("REIT") which
invests primarily in non-conforming, high-yielding mortgages which,
together with its subsidiaries and related companies, operates three
businesses: (1) the Long-Term Investment Operations, (2) the Conduit
Operations, and (3) the Warehouse Lending Operations. The Long-Term
Investment Operations invests primarily in non-conforming residential
mortgage loans and securities backed by such loans. The Conduit Operations
purchases and sells or securitizes primarily non-conforming mortgage
loans, and the Warehouse Lending Operations provides warehouse and
repurchase financing to originators of mortgage loans. These latter two
businesses include certain ongoing operations contributed to the Company
in 1995 by Imperial Credit Industries, Inc. ("ICII"), a leading specialty
finance company. IMH is organized as a REIT for federal income tax
purposes, which generally allows it to pass through qualified income to
stockholders without federal income tax at the corporate level.
Long-Term Investment Operations. The Long-Term Investment Operations,
conducted by IMH, invests primarily in non-conforming residential mortgage
loans and mortgage-backed securities secured by or representing interests
in such loans and, to a lesser extent, in second mortgage loans.
Non-conforming residential mortgage loans are residential mortgages that
do not qualify for purchase by government-sponsored agencies such as the
Federal National Mortgage Association ("FNMA") and the Federal Home Loan
Mortgage Corporation ("FHLMC"). Such loans generally provide higher yields
than conforming loans. The principal differences between conforming loans
and non-conforming loans include the applicable loan-to-value ratios, the
credit and income histories of the mortgagors, the documentation required
for approval of the mortgagors, the type of properties securing the
mortgage loans, the loan sizes, and the
6
mortgagors' occupancy status with respect to the mortgaged properties.
Second mortgage loans are higher yielding mortgage loans secured by a
second lien on the property and made to borrowers owning single-family
homes for the purpose of debt consolidation, home improvements, education
and a variety of other purposes. At March 31, 1997, IMH's mortgage loan
and securities investment portfolio consisted of $454.0 million of
mortgage loans held in trust as collateral for Collateralized Mortgage
Obligations ("CMOs"), $346.4 of mortgage loans held for investment, which
the Company anticipates securitizing as a CMO in May 1997, and $60.3
million of mortgage-backed or other collateralized securities.
Conduit Operations. The Conduit Operations, conducted by ICIFC, purchases
primarily non-conforming mortgage loans and, to a lesser extent, second
mortgage loans from its network of third party correspondents and
subsequently securitizes or sells such loans to permanent investors,
including the Long-Term Investment Operations. ICIFC's ability to design
non-conforming mortgage loans which suit the needs of its correspondent
loan originators and their borrowers while providing sufficient credit
quality to investors, as well as its efficient loan purchasing process,
flexible purchase commitment options and competitive pricing, enable it to
compete effectively with other non-conforming mortgage loan conduits. In
addition to earnings generated from ongoing securitizations and sales to
third party investors, ICIFC supports the Long-Term Investment Operations
of the Company by supplying IMH with non-conforming mortgage loans and
securities backed by such loans. For the three months ended March 31, 1997
and the year ended December 31, 1996, ICIFC acquired $505.9 million and
$1.5 billion, respectively, of mortgage loans and sold or securitized
$314.5 million and $1.6 billion, respectively, of mortgage loans. During
the first quarter of 1997 and the year ended December 31, 1996, the
Long-Term Investment Operations acquired $333.7 million and $591.6
million, respectively, of such loans from ICIFC as well as $97,000 and
$32.5 million, respectively, of securities created by ICIFC. Prior to the
Contribution Transaction, ICIFC was a division or subsidiary of ICII since
1990. IMH owns 99% of the economic interest in ICIFC, while certain
officers and directors of IMH are holders of all the outstanding common
voting stock of ICIFC, representing 1% of the economic interest in ICIFC,
as ICII divested itself of its interest in ICIFC by granting 100% of
ICIFC's common stock to certain officers and directors of the Company.
Warehouse Lending Operations. The Warehouse Lending Operations, conducted
by IWLG, provide warehouse and repurchase financing to ICIFC and to
approved mortgage banks, most of which are correspondents of ICIFC, to
finance mortgage loans during the time from the closing of the loans to
their sale or other settlement with pre-approved investors. At March 31,
1997, the Warehouse Lending Operations had $208.6 million in finance
receivables outstanding, of which $169.2 million was outstanding with
ICIFC.
In June 1996, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 125 (SFAS 125), "Accounting for
Transfers and Servicing of Financial Assets and Extinguishment of
Liabilities," which supersedes SFAS 122. SFAS 125 provides accounting and
reporting standards for transfers and servicing of financial assets and
extinguishments of liabilities. These standards are based on consistent
application of a financial components approach that focuses on control.
Under that approach, after a transfer of financial assets, an entity
recognizes the financial and servicing assets it controls and the
liabilities it has incurred, derecognizes financial assets when control
has been surrendered and derecognizes liabilities when extinguished. SFAS
125 provides consistent standards for distinguishing transfers of
financial assets that are sales from transfers that are secured
borrowings. SFAS 125 requires that liabilities and derivatives incurred or
obtained by transferors as part of a transfer of financial assets be
initially measured at fair value, if practicable. It also requires that
servicing assets and other retained interests in the transferred assets be
measured by allocating the previous carrying amount between the assets
sold, if any, and retained interest, if any, based on their relative fair
values at the date of the transfers. SFAS 125 includes specific provisions
to deal with servicing assets or liabilities. SFAS 125 will be effective
for transactions occurring after December 31, 1996 except for certain
transactions which according to Statement of Financial Accounting
Standards No. 127, "Deferral of the Effective Date of Certain Provisions
of FASB 125," will be effective if occurring after December 31, 1997. The
Company adopted SFAS 125 on January 1, 1997 and there was no impact on the
Company's financial position or results of operations.
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128 ("SFAS 128"),
"Earnings per Share". SFAS 128 supersedes APB Opinion No. 15 ("APB 15"),
"Earnings per Share and specifies the computation, presentation, and
disclosure requirements for earnings per share (EPS) for entities with
publicly held common stock or potential common stock. SFAS 128 will
replace the presentation of primary EPS with a presentation of basic EPS,
and fully diluted EPS with diluted EPS. SFAS 128 will also require dual
presentation of basic and diluted EPS on the face of the income statement
for all entities with complex capital structures and requires a
reconciliation of the numerator and denominator of the basic EPS
computation the numerator of the diluted EPS
7
computation. This statement shall be effective for financial statements
for both interim and annual periods ending after December 15, 1997.
Earlier application is not permitted. The Company has determined that this
statement will have no significant impact on the financial position or
results of operations.
3. INVESTMENT IN ICI FUNDING CORPORATION
The Company records its investment in ICIFC on the equity method. On March
31, 1997, ownership of all of the common stock of ICIFC was transferred
from ICII to certain directors and officers of IMH who are entitled to 1%
of the earnings or losses of ICIFC. The Company is entitled to 99% of the
earnings or losses of ICIFC through its ownership of all of the non-voting
preferred stock in ICIFC. Gains or losses on the sale of loans or
securities by ICIFC to IMH are deferred and amortized or accreted for gain
or loss on sale over the estimated life of the loans or securities using
the interest method.
Summarized financial information for ICIFC (in thousands):
BALANCE SHEETS
(unaudited)
March 31, 1997 December 31, 1996
-------------- -----------------
ASSETS
------
Cash
Residual interests in securitizations $ 1,107 $ 4,395
Mortgage loans held for sale, net 44,782 46,949
Mortgage servicing rights 177,441 334,104
Servicing advances 2,565 1,583
Premises and equipment, net 1,038 834
Accrued interest receivable 1,145 1,845
Other assets 771 676
-------- --------
$239,346 $399,171
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Borrowings from IWLG $169,232 $327,422
Due to affiliates 45,790 54,803
Other liabilities 7,007 2,876
Deferred revenue 3,386 1,393
Accrued interest expense 2,367 2,681
-------- --------
Total liabilities 227,782 389,175
Shareholders' Equity:
Preferred Stock 9,143 9,143
Common Stock 92 92
Retained earnings 2,329 761
-------- --------
Total shareholders' equity 11,564 9,996
-------- --------
$239,346 $399,171
======== ========
8
STATEMENTS OF OPERATIONS
(unaudited)
Three Months Ended March 31,
--------------------------------
1997 1996
-------- --------
Revenues
- --------
Interest income $ 9,784 $11,119
Gain on sale of loans 3,922 2,614
Loan servicing income 638 32
------- -------
14,344 13,765
Expenses:
- ---------
Interest on borrowings from IWLG 7,144 11,219
Interest on borrowings from affiliates 1,440 -
Personnel expense 1,870 835
Provision for repurchases 288 400
Amortization of mortgage servicing rights 407 14
General and administrative expense 481 365
------- -------
11,630 12,833
Income before income taxes 2,714 932
Income tax expense 1,147 384
------- -------
Net income $ 1,567 $ 548
======= =======
4. INVESTMENT IN IMPERIAL CREDIT COMMERCIAL HOLDINGS, INC.
ICH is a recently formed specialty commercial property finance company
which will elect to be taxed at the corporate level as a REIT for federal
income tax purposes. ICH was incorporated in February 1997 for the purpose
of investing in commercial mortgages and commercial mortgage-backed
securities. The Company records its investment in ICH on the equity
method. As of March 31, 1997, the Company owned 299,000 shares of ICH
common stock and is entitled to 49.9% of the earnings or losses of ICH
while certain officers and directors of the Company own 300,000 shares of
ICH common stock and are entitled to 50.1% of the earnings or losses of
ICH. For additional information regarding ICH, see Item 2. "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Significant Transactions").
9
Summarized financial information for ICH (in thousands):
BALANCE SHEET
March 31, 1997
--------------
ASSETS
------
Cash and cash equivalents $ 4,400
Commercial mortgages held for investment, net 17,522
Residual interest in securitization 10,025
Other assets 303
-------
$32,250
=======
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Borrowings from IWLG $16,563
Other affiliated borrowings 520
Accrued interest expense 150
-------
Total liabilities 17,233
Stockholders' equity:
Preferred Stock 30
Common Stock 6
Additional paid-in-capital 14,970
Contributed capital 957
Accumulated deficit (946)
-------
Total stockholders' equity 15,017
-------
$32,250
=======
STATEMENTS OF OPERATIONS
For the period from
January 15, 1997
(commencement of
operations through
March 31, 1997
-------------------
Revenues
- --------
Interest income $ 366
Expenses:
- ---------
Interest on borrowings from IWLG 150
Interest on other affiliated borrowings 129
Stock compensation expense 957
General and administrative 63
Provision for loan losses 13
-------
1,312
-------
Net loss $ (946)
=======
10
5. INVESTMENT SECURITIES AVAILABLE-FOR-SALE
The Company classifies investment and mortgage-backed securities as
held-to-maturity, available-for-sale, and/or trading securities.
Held-to-maturity investment and mortgage-backed securities are reported at
amortized cost, available-for-sale securities are reported at fair value
with unrealized gains and losses as a separate component of stockholders'
equity, and trading securities are reported at fair value with unrealized
gains and losses reported in income. Discounts obtained on investment
securities are amortized to interest income over the estimated life of the
investment securities using the interest method.
At March 31, 1997, IMH's investment securities available-for-sale included
$55.0 million of subordinated securities collateralized by mortgages and
$5.3 million of subordinated securities collateralized by other loans. In
general, subordinated classes of a particular series of securities bear
all losses prior to the related senior classes.
The Company's investment securities are held as available-for-sale,
reported at fair value with unrealized gains and losses reported as a
separate component of stockholders' equity. As the Company qualifies as a
REIT and no income taxes are paid, the unrealized gains and losses are
reported gross in stockholders' equity.
6. STOCKHOLDERS' EQUITY
In January 1997, additional stock options totaling 90,000 were granted to
executive officers of IMH at an exercise price of $23.125 per share. The
90,000 stock options become excercisable on the first anniversary of the
date of grant and expire ten years from the date they were granted.
In March 1997, Director's of Imperial Credit Advisors, Inc. ("ICAI") and
ICII exercised 55,000 shares of common stock at $11.25 per share or
$619,000 in proceeds. In conjunction with the exercise of these shares,
the Company approved loans totaling $827,000 to the Director's of ICAI and
ICII under the terms and conditions of the Company's stock option loan
program. As of March 31, 1997, total notes receivable from common stock
sales was $1.5 million.
In March 1997, the Board of Directors declared a $0.58 cash dividend be
paid on April 15, 1997 to stockholders of record on April 1, 1997.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
References to financial information reflect the financial operations of
IMH and its subsidiaries, IWLG and IMH Assets, and IMH's equity interests
in ICIFC and ICH.
SIGNIFICANT TRANSACTIONS
In February 1997, the officers and directors of the Company, as a group,
and IMH purchased 300,000 and 299,000 shares of the Common Stock of ICH,
respectively. In addition, IMH purchased all of the non-voting preferred
stock of Imperial Commercial Capital Corporation ("ICCC"), which represent
95% of the economic interest in ICCC, for $500,000, and certain of the
Company's officers purchased all of the outstanding shares of common stock
of ICCC, which represent 5% of the economic interest in ICCC. ICCC
brokered ICH's purchase of $7.3 million and $10.2 million of condominium
conversion loans which were financed with $16.6 million in borrowings
under a warehouse lending facility provided by a subsidiary of IMH, and
$900,000 in borrowings from IMH.
In March 1997, IMH lent ICH $15.0 million evidenced by a promissory note
convertible into shares of non-voting preferred stock of ICH (the "ICH
Preferred Stock") at the rate of one share of ICH Preferred Stock for each
$5.00 principal amount of said note (the "Conversion Rate"). IMH converted
the aforementioned $15.0 million principal amount promissory note into an
aggregate of 3,000,000 shares of ICH Preferred Stock. All ICH Preferred
Stock is automatically convertible upon the closing of ICH's Offering into
shares of ICH Common Stock determined by multiplying the number of shares
of ICH Preferred Stock to be converted by a fraction, the numerator of
which is $5.00 and the denominator of which is the Subscription Price.
Notwithstanding the foregoing, consistent with IMH's
11
classification as a REIT, IMH shall not be entitled to have converted into
ICH Common Stock more than that number of shares of ICH Preferred Stock
whereby IMH would own, immediately after such conversion, greater than
9.8% of ICH's outstanding Common Stock. Any shares of ICH Preferred Stock
not converted into ICH Common Stock upon the closing of the Offering shall
on such date automatically convert into shares of ICH non-voting Class A
Common Stock (the "ICH Class A Stock") at the same rate as the ICH
Preferred Stock converted into Common Stock on said date. Shares of ICH
Class A Stock convert into shares of Common Stock on a one-for-one basis
and each such class of Common Stock is entitled to cash dividends on a pro
rata basis. Upon any subsequent issuances of Common Stock by ICH or sale
of ICH Common Stock held by IMH, shares of ICH Class A Stock shall
automatically convert into additional shares of the Common Stock of ICH,
subject to said 9.8% limitation. In addition, ICH purchased $10.1 million
in mortgage-backed securities from ICIFC which was financed with a
promissory note. The promissory note was repaid with cash from IMH's
above-referenced $15.0 million investment. Concurrently, ICH repaid the
$900,000 owed to IMH in connection with its purchase of condominium
conversion loans.
HISTORICAL TRENDS
During the year ended December 31, 1996, ICIFC's mortgage loan
acquisitions increased 35% to $1.5 billion as compared to $1.1 billion for
the same period in 1995. Excluding the acquisition of mortgage loans from
ICII or its affiliated mortgage banking operations, ICIFC's mortgage loan
acquisitions increased 110% to $1.3 billion during 1996 as compared to
$624.5 million during 1995. The increase in mortgage loan acquisitions for
1996 as compared to 1995 was primarily the result of the Company's
increased marketing and sales efforts subsequent to the IPO, increased
concentration on identifying and servicing productive conduit sellers
under master commitment programs and significantly increased sales
activity from two conduit sellers. ICIFC's outstanding master commitment
programs with various sellers to purchase mortgages increased to $826.5
million with 68 sellers at December 31, 1996 as compared to $241.0 million
with 18 sellers at December 31, 1995. Additionally, in September 1996
ICIFC introduced it's Progressive ExpressTM loan program which resulted in
ICIFC funding $22.0 million in mortgages during 1996. The benefits of this
program include less paperwork for the borrower, express credit approval
and attractive rates and terms. At December 31, 1996, the Progressive
ExpressTM program represented 47% of the $826.5 million in outstanding
master commitments. In conjunction with the increase in flow
(loan-by-loan) acquisitions, as opposed to bulk loan acquisitions,
subsequent to the Contribution Transaction, and the continued growth of
ICIFC, ICIFC added personnel in 1996. At December 31, 1996, ICIFC employed
104 employees, an increase of 189% from 36 employees at December 31, 1995.
During the first quarter ended March 31, 1997, ICIFC's mortgage loan
acquisitions increased 86% to $521.8 million as compared to $280.7 million
during the first quarter of 1996. Excluding mortgages acquired from
affiliated companies, mortgage acquisitions during the first quarter of
1997 increased 356% to $521.8 million as compared to $114.4 million during
the first quarter of 1996. The increase in mortgage loan acquisitions
during the first quarter of 1997 as compared to the same period of 1996
was the result of mortgages funded under the Progressive ExpressTM loan
program, outstanding master commitment programs with various conduit
sellers to purchase mortgage loans and an improved real estate market,
particularly in California where the Company acquired 35.0% of it's loans
during the first quarter of 1997. Under the Progressive ExpressTM loan
program, ICIFC funded $151.3 million during the first quarter of 1997, or
29.9% of total loan acquisitions, as compared to none during the first
quarter of 1996 as the program was introduced in September 1996.
Additionally, as of March 31, 1997, ICIFC had outstanding master
commitments with 83 sellers to purchase mortgage loans in the aggregate
principal amount of $956.0 million as compared to 28 sellers to purchase
mortgage loans in the aggregate principal amount of $595.0 million as of
March 31, 1996. Due to the continued growth of ICIFC during the first
quarter of 1997, ICIFC added personnel. At March 31, 1997, there were 132
employees with ICIFC, a 27% increase from 104 employees as of December 31,
1996.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1997 AS COMPARED TO THREE MONTHS ENDED
MARCH 31, 1996
Net income for the quarter ended March 31, 1997 increased 249% to $5.9
million or $0.62 per share as compared to $1.7 million or $0.39 per share
for the quarter ended March 31, 1996. Revenues for the quarter ended March
31, 1997 increased 82% to $24.9 million as compared to $13.7 million for
the quarter ended March 31, 1996. The increase in revenue was primarily
the result of increases in interest income, equity in net income of ICI
Funding Corporation and gain on sale of securities.
12
Interest income increased 77% to $23.1 million during the first quarter of
1997 as compared to $13.0 million during the same period in 1996. Interest
income increased due to an increase in gross average loan receivables
during the quarter ended March 31, 1997 to $1.0 billion as compared to
$570.5 million during the same period in the prior year. Additionally,
interest income was higher during the first quarter of 1997 as average
investment securities available-for-sale increased to $60.6 million as
compared to $21.6 million during the first quarter of the prior year.
Revenues also increased as IMH's equity in net income of ICI Funding
Corporation increased 186% to $1.6 million during the first quarter of
1997 as compared to $542,000 during the first quarter of 1996. ICIFC's
earnings increased primarily as ICIFC securitized or sold $314.5 million
of mortgage loans resulting in gains of $3.9 million during the first
quarter of 1997 as compared to $278.6 million of mortgage loans
securitized or sold resulting in gains of $2.6 million during the first
quarter of 1996. Additionally, revenues from loan servicing income
increased to $638,000 for the first quarter of 1997 as compared to $32,000
for the same period in 1996. The Company also recorded a gain on sale of
securities of $648,000 during the first quarter of 1997 as compared to
none during the same period in 1996 as ICII redeemed from IMH $5.0 million
of ICII's senior notes.
Revenues were negatively affected by IMH's equity in net loss of Imperial
Credit Commercial Holdings, Inc. of $(471,000) primarily due to a one-time
charge of $957,000 that was recorded by ICH as compensation expense
related to the purchase of founder's stock by directors and officers of
ICH. The compensation expense represents the difference between the price
at which ICH issued 300,000 shares of common stock and the estimated fair
value of such shares determined by the Company's management based on an
independent valuation. Excluding the one-time compensation expense, IMH's
equity interest in net income of Imperial Credit Commercial Holdings, Inc.
would have been $5,000.
Expenses for the quarter ended March 31, 1997 increased 58% to $19.0
million as compared to $12.0 million for the quarter ended March 31, 1996
primarily as a result of increases in interest expense. Interest expense
increased 70% as average interest bearing liabilities increased during the
first quarter of 1997 to $990.3 million as compared to $571.0 million
during the same period of the prior year. Average interest bearing
liabilities, which includes reverse repurchase agreements and CMO
financing, increased to provide financing for the Company's growth in
mortgage loans held for sale, investment securities available-for-sale and
finance receivables.
All other expenses, excluding interest expense, increased 22% to $3.7
million during the first quarter of 1997 as compared to $3.0 million
during the first quarter of 1996. The components of the net change in
other expenses include an increase in management advisory fees, a decrease
in provision for loan losses and an increase in other operating costs.
Management advisory fees increased 244% to $1.5 million during the first
quarter of 1997 as compared to $426,000 during the first quarter of 1996
as the Company's earnings and assets increased during the first quarter of
1997 as compared to the same period in 1996. Provision for loan losses
decreased to $1.5 million during the first quarter of 1997 as compared to
$2.4 million during the first quarter of 1996 as the Company continues to
maintain loan loss reserves which management feels are sufficient. While
the Company believes that it has adequately provided for any future credit
losses, the Company may have to add to its loan loss allowance based upon
actual loan loss experience or an increase in the Company's loan
receivables. Other operating costs increased to $763,000 during the first
quarter of 1997 as compared to $180,000 during the first quarter of 1996.
Professional services represented the largest increase in other operating
costs as accounting, tax and legal fees required to operate the Company
increased to $494,000 during the first quarter of 1997 as compared to
$44,000 during the first quarter of 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal liquidity requirements result from mortgage loans
and mortgage-backed and other collateralized securities acquired by the
Long-Term Investment Operations, the Conduit Operations acquisition of
mortgage loans held for sale and the funding of finance receivables by the
Warehouse Lending Operations. The Long-Term Investment Operations is
funded by CMO financing, reverse repurchase borrowings on securities
available-for-sale and proceeds from the issuance of common stock. The
Warehouse Lending Operations is primarily funded by reverse repurchase
borrowings with major investment banking firms. The Conduit Operations is
primarily funded by the securitization and sale of mortgage loans and
mortgage-backed securities and by reverse repurchase borrowings with the
Warehouse Lending Operations.
During the three months ended March 31, 1997 and 1996 net cash provided by
operating activities was $1.7 million and $4.8 million, respectively. Net
cash flows were negatively affected during the three months ended March
31, 1997 as
13
compared to the three months ended March 31, 1996 primarily as
balances due to affiliates decreased while accrued interest on interest
earning assets increased over those periods. Net cash flows were
positively affected by increases in taxable income for the three months
ended March 31, 1997 and 1996.
Net cash provided by (used in) investing activities for the three months
ended March 31, 1997 and 1996 was $(158.9) million and $49.3 million,
respectively. Net cash flows were positively affected for the quarter
ended March 31, 1997 as compared to the quarter ended March 31, 1996
primarily due to decreased finance receivables outstanding with ICIFC. Net
cash flows were negatively affected for the three months ended March 31,
1997 and 1996 as mortgage loans held for investment increased.
Net cash provided by (used in) financing activities for the three months
ended March 31, 1997 and 1996 was $150.5 million and $(39.3) million,
respectively. Net cash flows were positively affected for the quarter
ended March 31, 1997 as reverse repurchase borrowings used to finance the
increase in mortgage loans held for investment and securities
available-for-sale increased. Net cash flows were negatively affected for
the quarter ended March 31, 1997 as CMO borrowings decreased due to loan
payoffs and principal reductions.
On the date of the Contribution Transaction, ICIFC entered into a $600
million reverse repurchase agreement with the Warehouse Lending Operations
for the purpose of providing ICIFC mortgage loan financing during the
period that ICIFC accumulates mortgage loans and when the mortgage loans
are securitized and sold. The margins on the reverse repurchase agreements
are based on the type of collateral used and generally range from 95% to
100% of the fair market value of the collateral. By securitizing and
selling loans on a periodic and consistent basis, the reverse repurchase
facility was sufficient to handle liquidity needs during the first three
months of 1997 and 1996. On December 31, 1996, ICIFC purchased residual
interests in securitizations from ICII. At March 31, 1997, the residual
interests total $44.8 million and are financed by a promissory note with
ICII at an annual interest rate of 12%. The promissory note requires six
monthly interest only payments of $288,152 beginning on July 1, 1997, and
continuing on the same day of each succeeding month thereafter; followed
by one hundred and fourteen monthly installments of $424,775 each.
At March 31, 1997, the Company had $431.9 million of CMO borrowings used
to finance $454.0 million of CMO collateral held by the Long-Term
Investment Operations. The Company uses CMO borrowings to finance
substantially all of its mortgage loan investment portfolio as a means of
eliminating certain risks associated with 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 the mortgages be held by an independent third party custodian, with
the interest rate on the borrowings ranging from 32 basis points to 50
basis points over one-month LIBOR. 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 the rating agencies. Total credit
loss exposure to the Company is limited to the equity invested in the CMOs
at any point in time.
At March 31, 1997, the Company had a $250 million committed financing
facility as well as additional uncommitted facilities to provide financing
for the Company's three businesses. Terms of the reverse repurchase
agreements require that the 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 outstanding principal balance. The
borrowing rates quoted vary from 65 basis points to 100 basis points over
one-month LIBOR, depending on the type of collateral provided by the
Company. The margins on the reverse repurchase agreements are based on the
type of mortgage collateral used and generally range from 90% to 98% of
the fair market value of the collateral.
ICH's principal liquidity requirements result from the need to fund the
origination or purchase of Commercial Mortgages held for sale by ICCC, and
the investment in commercial mortgages and commercial mortgage-backed
securities by ICH. Prior to March 31, 1997, ICH was funded by a $25.0
million warehouse facility with IWLG and $15.0 million in investments and
$900,000 in borrowings by IMH. In April 1997, ICH entered into a warehouse
line agreement to provide a $200 million uncommitted financing facility to
finance ICH's businesses. Terms of the warehouse line of credit require
that the commercial mortgages be held by an independent third party
custodian, which gives ICH 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 one-month LIBOR,
depending on the type of collateral provided by ICH. The margins on the
warehouse line agreement are based on the type of mortgage collateral used
and generally range from 85% to 88% of the fair market value of the
collateral. The warehouse line agreement is guaranteed by IMH until ICH
reaches $50.0 million in stockholders' equity.
14
PART II. OTHER INFORMATION
--------------------------
ITEM 1. - ITEM 5: NOT APPLICABLE
ITEM 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
27 Financial Data Schedule
(b) Reports on Form 8-K:
None.
15
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.
IMPERIAL CREDIT MORTGAGE HOLDINGS, INC.
By: /s/ Richard J. Johnson
--------------------------
Richard J. Johnson
Senior Vice President
and Chief Financial Officer
Date: May 12, 1997
16
9
3-MOS 3-MOS
DEC-31-1996 DEC-31-1995
JAN-01-1997 JAN-01-1996
MAR-31-1997 MAR-31-1996
15,973 17,068
0 0
0 0
0 0
0 0
0 0
60,268 33,243
1,008,940 509,941
(5,176) (2,415)
1,125,950 582,180
0 0
556,259 528,745
8,200 6,819
431,872 0
0 0
0 0
95 43
129,724 46,573
1,125,950 582,180
23,080 13,010
0 0
0 0
23,080 13,010
0 0
15,322 9,009
7,758 4,001
1,464 2,415
648 0
1,228 606
5,914 1,694
5,914 1,694
0 0
0 0
5,914 5,914
.58 .39
.58 .39
0 0
0 0
0 0
0 0
0 0
0 0
0 0
0 0
0 0
0 0
0 0
0 0
