News Release
Estimated Taxable Income was $142.9 Million for 2005 Compared to $202.9 Million for 2004
NEWPORT BEACH, Calif., Feb. 21 /PRNewswire-FirstCall/ -- Impac Mortgage Holdings, Inc. ("IMH", "Impac" or "the Company") (NYSE: IMH), a real estate investment trust ("REIT"), today reported net earnings of $270.3 million or $3.35 per diluted common share for 2005, as compared to $257.6 million, or $3.72 per diluted common share for 2004.
Net earnings may fluctuate significantly when comparing year-over-year financial results as the change in the fair value of derivative instruments is recorded as a mark-to-market gain or loss which increases or decreases net earnings. During 2005, net earnings were increased by a change in the fair value of derivative instruments of $144.9 million as compared to $96.6 million for 2004.
Estimated taxable income available to common stockholders was $142.9 million or $1.87 per diluted common share for 2005, as compared to actual taxable income of $202.9 million, or $2.97 per diluted common share for 2004. During 2005, we paid common stock dividends of $147.4 million, or $1.95 per diluted common share, excluding the fourth quarter dividend of $0.20 declared in January of 2006. For differences between net earnings (loss) as determined by generally accepted accounting principles ("GAAP") and estimated taxable income, please refer to the reconciliation schedule included in this news release.
Summary of 2005 Financial and Operating Results:
- Net earnings were $270.3 million for 2005 as compared to $257.6 million for 2004.
- Estimated taxable income per diluted common share was $1.87 as compared to actual taxable income of $2.97 per diluted common share for 2004.
- Cash dividends paid were $1.95 per common share for 2005 as compared to $2.90 per common share for 2004.
- Total assets were $27.7 billion at year-end as compared to $23.8 billion as of prior year-end.
- Book value per common share was $13.24 at year-end compared to $11.80 as of prior year-end primarily as a result of the increase in fair value of derivative instruments.
- Impac Funding Corporation ("IFC"), the mortgage operations, acquired and originated $22.3 billion of primarily non-conforming Alt-A ("Alt-A") mortgages for 2005 as compared to $22.2 billion for 2004. Based on the latest mortgage origination statistics, Impac is the 4th largest Alt-A originator in the nation (Source: National Mortgage News 9/30/2005).
- Impac Multifamily Capital Corporation ("IMCC"), now known as Impac Commercial Capital Corp. ("ICCC"), increased originations of small balance multi-family mortgages ("multi-family mortgages") by 74% to $ 798.5 million for 2005 as compared to $458.5 million for 2004.
- The long-term investment operations retained $12.2 billion of Alt-A mortgages and $798.5 million of small-balance multi-family mortgages for 2005 as compared to $16.9 billion and $458.5 million, respectively, for 2004.
- The Company securitized $14.0 billion of mortgages as collateralized mortgage obligations ("CMOs") and real estate mortgage investment conduit ("REMIC") transactions during 2005, placing Impac 27th worldwide in total of mortgage-backed securitizations (Source Asset Backed Alert 1/13/06).
- During 2005, the Company issued 363,700 shares of common stock which resulted in net proceeds of $4.2 million; 71,200 shares of Series C preferred stock which resulted in net proceeds of $1.6 million, and issued trust preferred securities, which resulted in net proceeds of $93.2 million.
2005 Summary and 2006 Outlook
Mr. Joseph Tomkinson, Chairman and Chief Executive Officer of Impac Mortgage Holdings, Inc. commented, "2005 was a challenging year for mortgage REITs across the board, including our Company. In a difficult environment, Impac continued its strategic focus on acquiring, producing, selling and investing in primarily "A" credit quality non-conforming residential mortgage loans and expanding our wholesale residential and commercial origination platforms. Despite these accomplishments, Impac's earnings came under pressure as the Federal Reserve continued raising short-term interest rates during the year, mortgage prepayments were higher than anticipated and competition in the mortgage industry continued to intensify."
"Although we employ interest rate and investment management strategies to create more consistent income from our investment portfolio, earnings from our long-term investment operations were significantly reduced as the Federal Reserve increased the federal funds rate 200 basis points during 2005 which in turn affected short term borrowing rates, including the London Interbank Offered Rate (LIBOR). As a result, our borrowing costs, which are tied to the one-month LIBOR rate, increased faster than the adjustments on our assets. This decline was not fully offset by increases in net cash receipts from derivative instruments. Furthermore, earnings decreased as the yield on new mortgage loans added to the investment portfolio did not keep pace with the steady increase in borrowing costs. Even faced with prepayment penalties, borrowers took advantage of the flat yield curve and competitive mortgage environment by tapping into housing price appreciation to refinance their mortgages. As a result, earnings were further affected as we increased the rate at which we amortized loan premiums and securitization costs associated with the mortgages."
Mr. Tomkinson further commented, "As part of our strategy to maintain liquidity, during the fourth quarter 2005 we sold $3.6 billion in whole loan sale transactions and completed a $2.0 billion REMIC securitization that was treated as a sale for tax purposes but consolidated on the financial statements for GAAP purposes. However, loans sold on a whole loan basis were less profitable as credit and bond spreads widened in the secondary market. Although the financial results for the fourth quarter reflected a reduction in our common stock dividend, we believe that we have taken the necessary steps to improve overall financial performance by increasing pricing on current mortgage loan production and making the appropriate adjustments to our cost structure to reduce overall expenses."
"As part of the effort to reduce costs and improve profitability, we recently combined our Alt-A wholesale and subprime product offerings under one platform. Our subprime products previously marketed under Novelle Financial Services, Inc., are now offered by our Alt-A wholesale operations, Impac Lending Group. By combining the product offerings under one platform and leveraging off an existing infrastructure and the Impac brand, we should benefit from savings related to marketing, personnel, and facility and technology expenses. In addition, together as one wholesale unit, we believe that our Alt-A and subprime business will benefit from improved capabilities by offering our customers a wider range of loan programs and services."
"The amount of principal reductions from our CMO portfolio, which includes prepayments and scheduled principal payments, declined in January 2006 by approximately 25% from December 2005. We believe that our net interest margins in 2006 should improve if this trend continues, or as increases in short-term interest rates pause and the adjustable rate mortgages in our long-term investment portfolio begin to fully adjust. However, this will be partially offset by prepayments related to the interest rate re-sets on the Hybrid ARMs in our CMO portfolio. We are further encouraged as the Mortgage Banking Association ("MBA") has indicated that refinance activity is expected to continue to slow down in 2006. Additionally, many economists are forecasting a slowdown in housing price appreciation during 2006, and that the Federal Reserve is closer to the end of its tightening cycle."
Mr. William S. Ashmore, President and Chief Operating Officer of Impac Mortgage Holdings, Inc., commented, "The MBA is predicting a decline of approximately 20% in total mortgage originations for 2006 and competition is expected to remain intense. As one of the largest and most experienced Alt-A originators, we plan to capitalize on our liquidity position which should enable us to execute our strategy without having to raise additional capital, and to emphasize our low cost centralized operations and technology platforms to take advantage of opportunities in the marketplace. Our goal is to maintain production levels that are flat, or slightly down from 2005."
"During 2005, we focused on expanding our mortgage operations and made good progress. We successfully expanded our Alt-A wholesale channel to approximately 3,000 approved brokers in 2005, up from approximately 2,750 the year before. To increase our customer base, we expanded our mortgage operations sales force, hired senior marketing professionals in all of our operating divisions and expanded our reach in Northeast, the Southeast, the Midwest and the Pacific Northwest. By year-end, the results were encouraging. In our Alt-A correspondent channel, which represented 85% of loan production in 2005, we increased our client base to approximately 415 approved customers, up from 250 at the end of 2004."
Mr. Ashmore continued, "Also, during 2005, as part of our efforts to expand our commercial operations and to better serve the Midwestern United States, we opened a branch in Chicago. The commercial operations, which now include multi family mortgages and our newly expanded commercial product offerings, grew to approximately 175 approved wholesale customers at the end of 2005, up from approximately 100 at the end of 2004. At year-end, our small-balance multifamily portfolio demonstrated superior performance, with no delinquencies or losses and life-to-date prepayment speeds of approximately 5%. In 2006, we expect to continue to expand this channel and increased our investment in commercial loans on the balance sheet. As part of our effort to expand this operation, we recently began originating under a taxable REIT subsidiary structure and changed the name to Impac Commercial Capital Corporation ("ICCC"), which better represents our expanded menu of commercial products."
Year End Results for 2005 as compared to 2004
Estimated Taxable Income available to IMH Common Stockholders
Estimated taxable income available to IMH common stockholders excludes net earnings from IFC and its subsidiaries and the elimination of intercompany loan sale transactions. The following schedule reconciles net earnings to estimated taxable income available to common stockholders of the REIT.
IMPAC MORTGAGE HOLDINGS, INC. AND SUBSIDIARIES
(in thousands, except per share amounts)
(unaudited)
Reconciliation of Net Earnings to Estimated Taxable Income Available to
Common Stockholders
For the three For the twelve
months ended months ended
December 31, December 31,
2005 2004 2005 2004
Net earnings $25,291 $114,367 $270,258 $257,637
Adjustments to GAAP earnings (1): --
Loan loss provision 5,344 6,149 30,563 30,927
Tax deduction for actual loan
charge-offs net of recoveries (5,400) (1,799) (16,004) (16,252)
Change in fair value of
derivatives (2) (8,782) (76,880) (155,695) (103,724)
Dividends on preferred stock (3,658) (2,135) (14,530) (3,750)
Net (earnings) loss of IFC (3) 1,286 (16,762) (14,968) (42,944)
Dividend from IFC -- 13,000 32,850 37,000
Elimination of inter-company loan
sales transactions (4) 605 14,264 10,429 44,048
Estimated taxable income available
to common stockholders (5) $14,686 $50,204 $142,903 $202,942
Estimated taxable income per
diluted share (5) 0.19 0.68 1.87 2.97
Diluted weighted average shares
outstanding 76,331 73,765 76,277 68,244
(1) Estimated taxable income include estimates of book to tax adjustments
and can differ from actual taxable income as calculated when the
Company files its annual corporate income tax return for 2005. Since
estimated taxable income is a non-GAAP financial measurement, the
reconciliation of estimated taxable income available to common
stockholders to net earnings meets the requirement of Regulation G as
promulgated by the SEC for the presentation of non-GAAP financial
measures.
(2) The mark-to-market change for the valuation of derivatives is income
or expense for GAAP financial reporting but is not included as
an addition or deduction for taxable income calculations.
(3) Represents net earnings of IFC, a taxable REIT subsidiary, which may
not necessarily equal taxable income.
(4) Includes the effects to taxable income associated with the
elimination of gains from inter-company loan sales betweeen IFC and
IMH, net of tax and the related amortization of the deferred charge.
(5) Actual taxable income per the 2004 corporate income tax return filed
in 2005.
Estimated taxable income available to common stockholders decreased to $142.9 million for the year ended 2005 as compared to $202.9 million for the year ended 2004. The decline in estimated taxable income at IMH was mainly attributable to:
- a decline of $33.0 million in adjusted net interest margin which includes the realized gain (loss) from derivative instruments and excludes amortization of intercompany gains;
- an increase in preferred dividends of $10.7 million;
- an increase in operating expenses of $5.5 million;
- a decrease in the dividend from IFC of $4.1 million.
Adjusted net interest margins on mortgage assets declined to 0.58% during 2005 as compared to 1.17% during 2004 primarily due to (1) an increase in short-term interest rates, (2) an increase in the amortization of loan premiums, securitization costs and discounts as a result of higher than expected mortgage prepayments and, to a lesser extent, (3) higher leverage and lower net interest margins on certain CMOs completed during the second half of 2004, and (4) an increasingly competitive environment which impacts margins on newly originated loans. Refer to the "Yield Analysis of Mortgage Assets" table for further information.
During 2005, the Federal Reserve raised the target federal funds rate by 200 basis points which in turn affected the short term borrowing rates, including LIBOR. These borrowing rates rose at a faster pace than coupons on our mortgage assets. Net interest margin compression was partially offset as the realized gain on derivative instruments increased to a realized gain of 9 basis points of average mortgage assets as compared to a realized loss of 55 basis points of average mortgage assets in 2004. The total realized gain on derivative instruments during 2005 was $22.6 million as compared to a realized loss of $91.9 million during 2004.
During the second and third quarters of 2005, mortgage prepayment rates accelerated, which resulted in increased amortization of loan premiums, securitization costs and bond discounts. As such, amortization of loan premiums and securitization expenses increased by 13 basis points to 1.13% of average mortgage assets during 2005 as compared to 1.00% of average mortgages during 2004. A substantial portion of our long-term mortgage investment portfolio consists of mortgages with prepayment penalty features that are primarily designed to help reduce the rate of early mortgage prepayments. However, if mortgages do prepay, a prepayment penalty may be charged which helps to partially offset additional amortization of loan premiums and securitization costs. Although, during 2005, prepayment penalties received from borrowers were recorded as interest income and increased the yield on average mortgage assets by 16 basis points, as compared to 6 basis points during 2004, these prepayment penalties did not effectively discourage prepayments as borrowers were willing to pay these penalties in order to access the new equity in their property that resulted from housing price appreciation.
Estimated taxable income for the year ending 2005 also decreased as dividends on preferred stock increased to $14.5 million as compared to $3.8 million for the year ending 2004, as additional preferred stock was issued during 2004.
To a lesser extent, estimated taxable income was also affected as IFC's cash dividend to IMH, which decreased $4.1 million to $32.9 million as compared to $37.0 million in the previous year. This decrease was primarily due to a $15.3 million decrease in gain (loss) on sale of loans as competition in the industry intensified and credit and bond spreads widened during the second half of 2005.
Estimated taxable income was also affected as non-interest expense increased $45.8 million to $154.5 million as compared to $108.7 million at year end 2004, which represents 69 basis points of total originations for 2005 as compared to 49 basis points for 2004. Total non-interest expense increased primarily as the Company continued to upgrade and expand the staffs of primarily our Information Technology and Internal Audit and Sarbanes Oxley Compliance ("SOX") personnel, and hired additional professionals to support production due to the expansion of our wholesale mortgage operations in the Midwest and on the East Coast.
Acquisitions and Originations
For the year ended 2005, acquisitions and originations at the mortgage operations were $22.3 billion for the year ended 2005, as compared to $22.2 billion for 2004. Our correspondent Alt-A flow acquisitions were $8.4 billion for 2005 as compared to $11.0 billion for 2004, correspondent Alt-A bulk acquisitions were $10.7 billion for 2005 as compared to $8.5 billion for 2004 and Alt-A wholesale originations were $2.4 billion for 2005 as compared to $2.0 billion for 2004. Sub-prime originations were $832.6 million for 2005 as compared to $684.8 million for 2004. Please refer to the "Mortgage Acquisition and Origination Summary" table included in this news release, which is also available on our web site at www.impaccompanies.com.
Long Term Investment Portfolio
As loan acquisitions and originations remained robust, the long-term investment operations completed eight CMO transactions and one REMIC transaction. The long-term investment operations retained $12.2 billion of primarily Alt-A mortgages from the mortgage operations and an additional $798.5 million of multi-family mortgages. Average mortgage assets rose by 56% during 2005 to $26.1 billion as compared to the prior year of $16.7 billion. As a result of increased mortgage prepayments and the Company's strategy to sell more loans for cash gains, the Company's CMO and loans-held-for- investment portfolio for the year ended 2005 increased 13% to $24.7 billion as compared to an increase of 136% to $21.9 billion for the year ended 2004.
At December 31, 2005, the average weighted credit score of mortgages held as CMO collateral was 698 and the original weighted average loan to value ("LTV") was 75%. During 2005, we retained $12.2 billion of primarily Alt-A mortgages with an original weighted average FICO score of 694 and an original weighted average LTV of 76%. In addition to retaining mortgages acquired and originated by our mortgage operations, the long term investment operations originated $798.5 million of multi-family mortgages through IMCC, now known as ICCC, with an original weighted average FICO score of 733, an average debt service coverage ratio of 1.31, and an original weighted average LTV of 67%.
Non-performing assets, which consist of mortgages that are 90 days or more delinquent, including loans in foreclosure and delinquent bankruptcies, increased to 1.73% of total assets as of December 31, 2005, as compared to 1.09% as of December 31, 2004. In order to maintain liquidity, the Company increased the amount of sales to third party investors and retained less new loan production during the latter part of 2005. As a result, a larger proportion of the mortgage portfolio is comprised of seasoned mortgages that are not being offset by as much newly originated loan production which typically has a lower delinquency rate.
We believe that we have adequately provided for loan losses. During 2005, the allowance for loan losses increased $14.5 million (which is net of charge-offs and recoveries of $16.0 million) bringing the year end 2005 balance to $78.5 million as compared to $64.0 million at year end 2004. Included in the allowance at December 31, 2005 was a specific reserve for expected losses from hurricanes of $12.8 million. The allowance for loan losses represents 0.31% of mortgages in the CMO, loans-held-for-investment and non-affiliated finance receivables portfolio as of December 31, 2005 as compared to 0.29% at the end of 2004. During 2005, actual charge-offs net of recoveries increased to $16.0 million compared to $5.6 million for 2004, primarily as the result of the portfolio seasoning as described above.
Fourth Quarter Results for 2005 as compared to 2004
For the fourth quarter of 2005, net earnings were $25.3 million as compared to $114.4 million for the fourth quarter of 2004. Net earnings may fluctuate when comparing quarter-over-quarter financial results as we record the change in the fair value of derivative instruments as a mark-to-market gain or loss which increases or decreases net earnings. The change in fair value of derivatives for the fourth quarter of 2005 was an increase of $3.4 million as compared to an increase of $72.5 million for the fourth quarter of 2004. Excluding these mark-to-market gains from the change in the fair value of derivatives, net earnings were $21.9 million for the fourth quarter 2005, as compared to $41.9 million for the fourth quarter 2004.
Estimated taxable income available to common stockholders for the fourth quarter of 2005 was $14.7 million or $0.19 per diluted common share as compared to $50.2 million, or $0.68 per diluted common share, for the fourth quarter of 2004. This decline is primarily due to (1) an $18.1 million decline in adjusted net interest margins on mortgage assets, including the effect of an increase in amortization of loan premiums, securitization costs and bond discounts, as described earlier, (2) IFC did not pay a dividend to IMH for the fourth quarter of 2005 as profitability on loans sold on a whole loan basis at the mortgage operations was less than anticipated and (3) a $3.6 million increase in actual loan charge-offs net of recoveries. A reconciliation of net earnings to estimated taxable income available to common stockholders is provided in tabular form in this press release for comparative purposes.
Adjusted net interest margins on mortgage assets declined to 0.35% as compared to 0.80% during the fourth quarter of 2004. The 45 basis point decline in adjusted net interest margins during the fourth quarter of 2005 as compared to the fourth quarter 2004 was primarily due to (1) an increase in the one-month LIBOR rate underlying borrowings, only partially offset by net cash receipts from derivative instruments, (2) differences in interest rate adjustment periods on mortgage assets, 3) an increase in the amortization of loan premiums, securitization costs and bond discounts due to higher than expected mortgage prepayments, (4) higher leverage and lower net interest margin on certain CMOs completed during the second half of 2004 and (5) an increasingly competitive environment.
During the fourth quarter of 2005, total loan acquisitions and originations were $6.0 billion as compared to $6.4 billion for the fourth quarter of 2004. Earnings at our mortgage operations declined as price competition and the widening of credit and bond spreads affected our profitability on the sale of mortgage loans throughout the fourth quarter. As a result, we decided not to pay a dividend to IMH in the fourth quarter as IFC had distributed primarily all its current and accumulated estimated earnings and profits. The Company believes that it has made the necessary price adjustments to improve profitability in the future.
To a lesser extent, estimated taxable income decreased as actual losses for the quarter ending December 31, 2005 increased to $5.4 million as compared to $1.8 million for the fourth quarter of 2004, primarily as a result of the portfolio seasoning described herein.
Securities Class Action Lawsuits
Since January 10, 2006, purported class action complaints have been filed against Impac Mortgage Holdings, Inc. and certain of its senior officers and directors. The complaints, which are brought on behalf of persons who acquired common stock during the period of May 13, 2005 through August 9, 2005, generally allege violations of the federal securities laws due to allegedly false and misleading statements or omissions, related to the Company's financial condition and future prospects. Since February 1, 2006 derivative shareholder actions have also been filed against the same officers and directors alleging breach of fiduciary duty, abuse of control, unjust enrichment and other related claims. While we believe the allegations are without merit, we have retained Latham & Watkins as counsel and intend to vigorously defend against the suits. There can be no guarantee as to the ultimate resolution.
2005 Year End Tax Reporting Information
Please see our web site www.impaccompanies.com link to stockholder relations for a copy of the 2005 year end tax reporting information.
Tentative 2006 Common and Preferred Stock Dividend Schedule
We plan to declare common stock dividends on a quarterly basis and at such time the board of directors will declare the amount, the record date and the payment date. The board of directors has the right to change the common stock dividend schedule at any time and without prior notice. For an updated schedule of Common and Preferred Stock dividends please refer to our website at www.impaccompanies.com.
Year End 2005 Conference Call
The Company has announced a conference call and live web cast on Wednesday, February 22, 2006 at 9:00 a.m. Pacific Time (12:00 p.m. Eastern Time). We will discuss results of operations for 2005 and provide a general update followed by a question and answer session. If you would like to participate in the conference call, you may listen by dialing (800) 350-9149, conference ID number 5450072, or access the web cast via our web site at http://www.impaccompanies.com. To participate in the conference call, dial in fifteen minutes prior to the scheduled start time. The conference call will be archived on the Company's web site at www.impaccompanies.com and can be accessed by linking to Stockholder Relations/ Presentations/Audio Archives. You can subscribe to receive instant notification of conference calls, new releases and the monthly unaudited fact sheet by using our e-mail alert feature located at the web site under Stockholder Relations/ Contact Us/Email Alerts.
For additional information, questions or comments call or write to the investor relations group and ask for Tania Jernigan at (949) 475-3600 or e-mail Ms. Jernigan at tjernigan@impaccompanies.com
Note: Safe Harbor "Statement under the Private Securities Litigation Reform Act of 1995." This release contains forward-looking statements including statements relating to the expected performance of the Company's businesses, operations, financial performance, expectations of our net interest margins, our liquidity position and our loan loss reserves. Any forward-looking statements used herein, 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," "will," "believe," "expect," "likely," "should," "anticipate," 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, among other things, failure to achieve projected earnings levels; unexpected increases in credit and bond spreads; the ability to generate sufficient liquidity; the ability to access the equity markets; increased operating expenses and mortgage origination or purchase expenses that reduce current liquidity position more than anticipated; continued increase in price competition; risks of delays in raising, or the inability to raise, additional capital, either through equity offerings, lines of credit or otherwise; the ability to generate taxable income and to pay dividends; interest rate fluctuations on our assets that differ from those on our liabilities; unanticipated interest rate fluctuations; changes in expectations of future interest rates; unexpected increase in prepayment rates on our mortgages; changes in assumption regarding estimated loan losses or an increase in loan losses; the availability of financing and, if available, the terms of any financing; changes in markets which the Company serves, such as mortgage refinancing activity and housing price appreciation; other general market and economic conditions, other factors described in this press release and our filings with the Securities and Exchange Commission, including "Risk Factors" in our Annual Report on Form 10-K/A for the year ended December 31, 2004 and our subsequent Form 10-Q and 10-Q/A filings during 2005. Caution must be exercised in relying on these and other forward-looking statements. Due to known and unknown risks and other factors not presently identified, the Company's results may differ materially from its expectations and projections. We may revise our estimates based on actual conditions experienced, however, it is not practicable to publish all revisions and as a result, no one should assume that results projected in or contemplated by the forward-looking statements included above will continue to be accurate in the future.
IMPAC MORTGAGE HOLDINGS, INC. AND SUBSIDIARIES
(dollar amounts in thousands, except share data)
(unaudited)
Condensed and Consolidated Balance Sheets
At December 31,
2005 2004
ASSETS
Cash and cash equivalents $147,319 $577,711
CMO collateral 24,494,290 21,308,906
Finance receivables 350,217 471,820
Mortgages held-for-investment 160,070 586,686
Allowance for loan losses (78,514) (63,955)
Mortgages held-for-sale 2,052,694 587,745
Accrued interest receivable 123,565 97,617
Derivatives 250,368 95,388
Other assets 220,370 153,849
Total assets $27,720,379 $23,815,767
LIABILITIES
CMO borrowings $23,990,430 $21,206,373
Reverse repurchase
agreements/warehouse borrowings 2,430,075 1,527,558
Other liabilities 132,927 37,761
Total stockholders' equity 1,166,947 1,044,075
Total liabilities and
stockholders' equity $27,720,379 $23,815,767
IMPAC MORTGAGE HOLDINGS, INC. AND SUBSIDIARIES
(in thousands, except per share amounts)
(unaudited)
Condensed and Consolidated Statements of Operations
For the Three Months For the Year
Ended, Ended,
December 31, December 31,
2005 2004 2005 2004
Interest income $340,746 $250,372 $1,251,960 $755,616
Interest expense 326,150 160,683 1,047,209 412,533
Net interest income 14,596 89,689 204,751 343,083
Provision for loan losses 5,344 6,149 30,563 30,927
Net interest income after
provision for loan losses 9,252 83,540 174,188 312,156
Realized gain (loss) from
derivative instruments 26,804 (24,671) 22,595 (91,882)
Change in fair value of
derivative instruments 3,411 72,541 144,932 96,576
Gain on sale of loans 4,052 15,805 39,509 24,729
Other non-interest income 5,224 1,583 13,888 10,948
Total non-interest income 39,491 65,258 220,924 40,371
Personnel expense 18,226 16,673 77,508 60,420
Amortization of deferred charge 7,671 1,346 27,174 16,212
General and administrative and
other expense 11,154 8,986 40,209 28,052
Professional services 2,326 2,705 9,496 4,374
Amortization and impairment of
mortgage servicing rights 429 561 2,006 2,063
Write-down on investment
securities available-for-sale - 1,120 - 1,120
Gain on disposition of real
estate owned (627) (332) (1,888) (3,901)
Total non-interest expense 39,179 31,059 154,505 108,340
Net earnings before taxes 9,564 117,739 240,607 244,187
Income taxes (benefit)
provision (15,727) 3,371 (29,651) (13,450)
Net earnings 25,291 114,368 270,258 257,637
Cash dividends on cumulative
convertible preferred stock (3,658) (2,135) (14,530) (3,750)
Net earnings available to common
stockholders $21,633 $112,233 $255,728 $253,887
Net earnings per share:
Basic 0.28 1.55 3.38 3.79
Diluted 0.28 1.52 3.35 3.72
Dividends declared per common
share - 0.75 1.95 2.90
Weighted average shares
outstanding:
Basic 76,054 72,432 75,594 66,967
Diluted 76,331 73,765 76,277 68,244
Common shares outstanding 76,113 75,154 76,113 75,154
IMPAC FUNDING CORPORATION
(in thousands, except per share amounts)
(unaudited)
Reconciliation of Net Earnings to Estimated Earnings and Profits
For the Year
Ended December
31, 2005
Net earnings $14,968
Tax benefit (3,283)
Net earnings before income tax benefit 11,685
Permanent book to tax differences:
Compensation from exercise of non-qualified
stock options (4,700)
REMIC transaction (5,454)
Other permanent differences 322
Temporary book to tax differences:
Bad debts, repurchases and premium reserves 8,219
Fair value of derivative instruments (2) (760)
Lower of cost or market adjustment to loan inventory (3) 4,465
Depreciation (book to tax differences) 1,963
Mortgage servicing rights (287)
Net miscellaneous adjustments 585
Estimated taxable income
before adjustments (1) 16,038
Adjustments to determine earnings and profits:(4)
Federal income taxes (5,613)
Compensation from qualified and incentive stock options (818)
Other miscellaneous adjustments 400
Estimated current earnings and profits $10,007
Reconciliation of Dividend Distributions:
Dividend distributions paid to IMH from current
earnings and profits $(10,007)
Dividend distributions paid to IMH from accumulated
earnings and profits (22,843)
Total dividend distributions paid to IMH (5) $(32,850)
1) Federal estimated taxable income includes estimates of book to tax
adjustments and can differ from actual taxable income as calculated
when IFC files its annual corporate income tax return for 2005.
2) The mark-to-market change for the valuation of derivative instruments
is income or expense for GAAP but is not included as an addition or
deduction for federal taxable income.
3) The lower of cost or market adjustment to the loans held for sale is
income or expense for GAAP but is not included as an addition or
deduction for federal taxable income.
4) Earnings and Profit ("E&P") is used to determine whether a corporate
distribution is taxed as dividends. The concept of E&P is unique in
the tax law and has no direct relation to either federal taxable income
or net earnings as determined by GAAP. The purpose of E&P is to
determine the Company's net assets in excess of those assets received
from shareholders as contributions to capital and net of liabilities
incurred. Usually, E&P is calculated by adjusting taxable income for
differences in the two methods. For example, the E&P calculation
provides for a deduction for any federal income taxes paid; however,
for federal taxable income purposes, no such deduction is available.
5) Any dividends paid by IFC to IMH are prorated to IMH stockholders based
on total dividends paid by IMH and are taxed at the qualifying dividend
tax rate. The IFC dividend distribution to IMH represents federal
taxable income to IMH as distributions from IFC were from current and
accumulated E&P. Based on estimates as of December 31, 2005, the
cumulative E&P is approximately $1.0 million. Any dividends paid to IMH
by IFC in excess of IFC's cumulative E&P would be recognized as return
of capital by IMH to the extent of IMH's capital investment in IFC. Any
distributions by IFC in excess of IMH's capital investment in IFC would
be taxed as capital gains.
IMPAC MORTGAGE HOLDINGS, INC. AND
SUBSIDIARIES
(in thousands, except per share amounts)
(unaudited)
Quarterly Yield Analysis of Mortgage Assets
For the Three Months Ended,
December 31, 2005 December 31, 2004
Avg Bal Yield Avg Bal Yield
Investment securities available-
for-sale $47,100 4.77% $26,384 6.79%
CMO collateral (1) 23,729,493 4.74% 19,309,936 4.32%
Mortgage loans held-for-
investment and held-for-sale 3,291,872 6.34% 2,282,979 5.91%
Finance receivables 359,200 6.30% 439,090 5.86%
Total Mortgage Assets $27,427,665 4.95% $22,058,389 4.52%
CMO borrowings $23,250,911 4.82% $19,009,339 2.93%
Reverse repurchase agreements 3,417,105 5.10% 2,603,244 3.26%
Total Borrowings on Mortgage
Assets $26,668,016 4.85% $21,612,583 2.97%
Net Interest Spread on Mortgage
Assets (2) 0.10% 1.55%
Net Interest Margin on Mortgage
Assets (3) 0.23% 1.61%
Adjusted Net Interest Margin on
Mortgage Assets (4) 0.35% 0.80%
Effect of Amortization of Net
Loan Premiums and Securitization
Costs (5) -1.16% -1.09%
Effect of Net Cash Flows from
Derivatives (6) 0.39% -0.45%
(1) Interest includes amortization of acquisition costs on mortgages
acquired from the mortgage operations and accretion of loan discounts.
(2) Net interest spread on mortgage assets is calculated by subtracting
the weighted average yield on total borrowings on mortgage assets from
the weighted average yield on total mortgage assets.
(3) Net interest margin on mortgage assets is calculated by subtracting
interest expense on total borrowings on mortgage assets from interest
income on total mortgage assets and then dividing by total mortgage
assets.
(4) Adjusted net interest margin on mortgage assets is calculated by
subtracting interest expense on total borrowings on mortgage assets,
accretion of loan discounts and net cash flows on derivatives from
interest income on total mortgage assets and dividing by total average
mortgage assets. Net cash flows receipts on derivatives are a
component of realized gain (loss) on derivative instruments on the
condensed and consolidated statements of operations. Adjusted net
interest margins on mortgage assets is a non-GAAP financial
measurement, however, the reconciliation provided in this table is
intended to meet the requirements of Regulation G as promulgated by
the SEC for the presentation of non-GAAP financial measurements. We
believe that the presentation of adjusted net interest margin on
mortgage assets is useful information for our investors as it more
closely reflects the true economics of net interest margins on
mortgage assets.
(5) The amortization of net loan premiums and securitization costs are
components of interest income and interest expense, respectively.
Yield represents the cost of amortization of net loan premiums and
securitization costs divided by total average mortgage assets.
(6) Yield represents net cash flows on derivatives divided by total
average mortgage assets.
IMPAC MORTGAGE HOLDINGS, INC. AND SUBSIDIARIES
(in thousands, except per share amounts)
(unaudited)
Yield Analysis of Mortgage Assets
For the Year Ended
December 31, 2005 December 31, 2004
Avg Bal Yield Avg Bal Yield
Investment securities available-
for-sale $39,054 4.24% $27,937 13.47%
CMO collateral (1) $23,132,083 4.59% $14,283,347 4.33%
Mortgage loans held-for-
investment and held-for-sale 2,587,614 6.30% 1,837,347 5.76%
Finance receivables 352,833 5.76% 510,899 4.90%
Total Mortgage Assets $26,111,584 4.77% $16,659,530 4.52%
CMO borrowings $22,721,309 4.05% $14,072,852 2.52%
Reverse repurchase agreements $2,730,805 4.46% $2,175,728 2.66%
Borrowings secured by investment
securities -- -- -- --
Total Borrowings on Mortgage
Assets $25,452,114 4.09% $16,248,580 2.54%
Net Interest Spread on Mortgage
Assets (2) 0.68% 1.98%
Net Interest Margin on Mortgage
Assets (3) 0.79% 2.05%
Adjusted Net Interest Margin on
Mortgage Assets (4) 0.58% 1.17%
Effect of Amortization of Net
Loan Premiums and Securitization
Costs (5) -1.13% -1.00%
Effect of Net Cash Flows from
Derivatives (6) 0.09% -0.55%
(1) Interest includes amortization of acquisition costs on mortgages
acquired from the mortgage operations and accretion of loan discounts.
(2) Net interest spread on mortgage assets is calculated by subtracting
the weighted average yield on total borrowings on mortgage assets from
the weighted average yield on total mortgage assets.
(3) Net interest margin on mortgage assets is calculated by subtracting
interest expense on total borrowings on mortgage assets from interest
income on total mortgage assets and then dividing by total mortgage
assets.
(4) Adjusted net interest margin on mortgage assets is calculated by
subtracting interest expense on total borrowings on mortgage assets,
accretion of loan discounts and net cash flows on derivatives from
interest income on total mortgage assets and dividing by total average
mortgage assets. Net cash flows receipts on derivatives are a
component of realized gain (loss) on derivative instruments on the
condensed and consolidated statements of operations. Adjusted net
interest margins on mortgage assets is a non-GAAP financial
measurement, however, the reconciliation provided in this table is
intended to meet the requirements of Regulation G as promulgated by
the SEC for the presentation of non-GAAP financial measurements. We
believe that the presentation of adjusted net interest margin on
mortgage assets is useful information for our investors as it more
closely reflects the true economics of net interest margins on
mortgage assets.
(5) The amortization of net loan premiums and securitization costs are
components of interest income and interest expense, respectively.
Yield represents the cost of amortization of net loan premiums and
securitization costs divided by total average mortgage assets.
(6) Yield represents net cash flows on derivatives divided by total
average mortgage assets.
IMPAC MORTGAGE HOLDINGS, INC. AND SUBSIDIARIES
(in thousands, except per share amounts)
(unaudited)
Mortgages Acquisition and Origination Summary
For the Three Months Ended,
December 31,
2005 2004
Principal % Principal %
Mortgages by Type:
Fixed rate first trust deeds $1,172,355 19 $361,898 6
Fixed rate second trust deeds 356,270 6 276,398 4
Adjustable rate first trust
deeds:
LIBOR ARM's 664,438 11 852,264 13
LIBOR hybrid ARM's (1) 3,165,012 53 4,870,905 77
Option ARMs 655,622 11 - -
Total adjustable rate
first trust deeds 4,485,072 74 5,723,169 90
Total adjustable rate
second trust deeds 12,672 - - -
Total adjustable rate first &
second trust deeds 4,497,744 75 5,723,169 90
Total mortgage acquisitions and
originations $6,026,369 100 $6,361,465 100
Mortgages by Channel:
Correspondent acquisitions:
Flow acquisitions 2,131,138 35 3,160,346 50
Bulk acquisitions 2,820,241 47 2,539,381 40
Total correspondent
acquisitions 4,951,379 82 5,699,727 90
Wholesale and retail
originations 770,676 13 511,785 8
B/C originations 304,314 5 149,953 2
Total mortgage acquisitions and
originations $6,026,369 100 $6,361,465 100
Mortgage by Credit Quality:
Alt-A mortgages $5,720,749 95 $6,175,604 97
B/C mortgages 305,620 5 185,861 3
Total mortgage acquisitions and
originations $6,026,369 100 $6,361,465 100
Mortgage by purpose:
Purchase $3,533,124 59 $3,754,628 59
Refinance 2,493,245 41 2,606,837 41
Total mortgage acquisitions and
originations $6,026,369 100 $6,361,465 100
Mortgages with Prepayment Penalty:
With prepayment penalty $4,341,283 72 $4,628,521 73
Without prepayment penalty 1,685,086 28 1,732,944 27
Total mortgage acquisitions and
originations $6,026,369 100 $6,361,465 100
For the Year Ended,
December 31,
2005 2004
Principal % Principal %
Mortgages by Type:
Fixed rate first trust deeds $2,914,055 13 $1,968,502 9
Fixed rate second trust deeds 1,189,145 5 755,913 3
Adjustable rate first trust
deeds: - -
LIBOR ARM's 2,776,787 12 3,382,978 15
LIBOR hybrid ARM's (1) 14,437,507 65 16,105,711 73
Option ARMs 838,343 4 - -
Total adjustable rate
first trust deeds 18,052,637 81 19,488,689 88
Total adjustable rate
second trust deeds 154,766 1 - -
Total adjustable rate first &
second trust deeds 18,207,403 82 19,488,689 88
Total mortgage acquisitions and
originations $22,310,603 100 $22,213,104 100
Mortgages by Channel:
Correspondent acquisitions:
Flow acquisitions 8,386,911 38 10,996,260 50
Bulk acquisitions 10,659,756 48 8,537,504 38
Total correspondent
acquisitions 19,046,667 85 19,533,764 88
Wholesale and retail
originations 2,431,382 11 1,994,569 9
B/C originations 832,554 4 684,771 3
Total mortgage acquisitions and
originations $22,310,603 100 $22,213,104 100
Mortgage by Credit Quality:
Alt-A mortgages $21,460,424 96 $21,453,383 97
B/C mortgages 850,179 4 759,721 3
Total mortgage acquisitions and
originations $22,310,603 100 $22,213,104 100
Mortgage by purpose:
Purchase $13,469,872 60 $13,373,840 60
Refinance 8,840,731 40 8,839,264 40
Total mortgage acquisitions and
originations $22,310,603 100 $22,213,104 100
Mortgages with Prepayment Penalty:
With prepayment penalty $16,071,802 72 $15,965,959 72
Without prepayment penalty 6,238,801 28 6,247,145 28
Total mortgage acquisitions and
originations $22,310,603 100 $22,213,104 100
(1) Mortgages are fixed rate for initial two to ten year periods which
subsequently adjust to indicated index plus a margin.
IMPAC MORTGAGE HOLDINGS, INC. AND SUBSIDIARIES
(in thousands, except per share amounts)
(unaudited)
Mortgages Retained for Long-Term Investment (1)
For the Three Months Ended,
December 31,
2005 2004
Principal Principal
Balance % Balance %
Mortgages by Type:
Fixed rate first trust deeds $296,613 11 $421,471 9
Fixed rate second trust deeds 39,491 1 94,865 2
Adjustable rate first trust
deeds:
LIBOR ARMs 385,156 14 566,832 11
LIBOR hybrid ARMs (2) 2,055,060 74 3,860,688 78
Option ARMs 14,391 1 -- --
Total adjustable rate first trust
deeds 2,454,607 88 4,427,520 90
Total mortgage acquisitions and
originations $2,790,711 100 $4,943,856 100
Mortgage by Credit Quality:
Alt-A mortgages $2,583,551 93 $4,788,346 97
Multifamily mortgages 206,671 7 123,421 2
B/C mortgages 489 -- 32,089 1
Total mortgage acquisitions and
originations $2,790,711 100 $4,943,856 100
Mortgage by purpose:
Purchase $1,808,479 65 $2,872,237 58
Refinance 982,232 35 2,071,619 42
Total mortgage acquisitions and
originations $2,790,711 100 $4,943,856 100
Mortgages with Prepayment Penalty:
With prepayment penalty $1,899,510 68 $3,598,947 73
Without prepayment penalty 891,201 32 1,344,909 27
Total mortgage acquisitions and
originations $2,790,711 100 $4,943,856 100
For the Year Ended,
December 31,
2005 2004
Principal Principal
Balance % Balance %
Mortgages by Type:
Fixed rate first trust deeds $1,087,092 8 $1,195,200 7
Fixed rate second trust deeds 69,866 1 244,491 1
Adjustable rate first trust
deeds:
LIBOR ARMs 1,775,892 14 2,754,757 16
LIBOR hybrid ARMs (2) 10,096,987 77 13,173,928 76
Option ARMs 14,391 -- -- --
Total adjustable rate first trust
deeds 11,887,270 91 15,928,685 92
Total mortgage acquisitions and
originations $13,044,228 100 $17,368,376 100
Mortgage by Credit Quality:
Alt-A mortgages $12,232,576 94 $16,846,781 97
Multifamily mortgages 798,463 6 458,532 3
B/C mortgages 13,189 -- 63,063 --
Total mortgage acquisitions and
originations $13,044,228 100 $17,368,376 100
Mortgage by purpose:
Purchase $8,045,595 62 $10,516,622 61
Refinance 4,998,633 38 6,851,754 39
Total mortgage acquisitions and
originations $13,044,228 100 $17,368,376 100
Mortgages with Prepayment Penalty:
With prepayment penalty $9,512,218 73 $12,657,395 73
Without prepayment penalty 3,532,010 27 4,710,981 27
Total mortgage acquisitions and
originations $13,044,228 100 $17,368,376 100
(1) Mortgages are retained for long-term investment which are initially
financed with reverse repurchase agreements and subsequently financed
(2) Mortgages are fixed rate for initial two to ten year periods which
subsequently adjust to indicated index plus a margin.
primarily with CMO borrowings.
SOURCE Impac Mortgage Holdings, Inc. 02/21/2006 CONTACT: Tania Jernigan of Impac Mortgage Holdings, Inc., +1-949-475-3600, tjernigan@impaccompanies.com Web site: http://www.impaccompanies.com
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