Securities and Exchange Commission
Washington, D.C. 20549
Form 10-Q
[X] Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the quarterly period ended September 30, 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
November 10, 1997 on the American Stock Exchange was approximately $359.1
million.
The number of shares of Common Stock outstanding as of
November 10, 1997: 13,541,522
Documents incorporated by reference
None
IMPERIAL CREDIT MORTGAGE HOLDINGS, INC.
1997 FORM 10-Q QUARTERLY REPORT
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS - IMPERIAL CREDIT MORTGAGE HOLDINGS, INC. Page #
------
Consolidated Balance Sheets, September 30, 1997 and December 31, 1996...................... 3
Consolidated Statements of Operations, Three-and Nine-Months Ended September 30, 1997
and 1996................................................................................... 4
Consolidated Statements of Cash Flows, Nine-Months Ended September 30, 1997 and 1996 5
Selected Notes to Consolidated Financial Statements........................................ 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS 14
PART II. OTHER INFORMATION
ITEM 1. - 5. NOT APPLICABLE 21
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 21
SIGNATURES 23
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)
September 30, 1997 December 31, 1996
---------------------- ----------------------
ASSETS
Cash and cash equivalents $ 35,907 $ 22,610
Investment securities available-for-sale 71,371 63,506
Loan Receivables:
CMO collateral 694,387 501,744
Finance receivables 301,370 362,312
Mortgage loans held for investment 106,158 914
Allowance for loan losses (5,720) (4,384)
---------------------- ----------------------
Net loan receivables 1,096,195 860,586
Investment in ICI Funding Corporation 24,938 9,896
Investment in IMH Commercial Holdings, Inc. 18,185 -
Accrued interest receivable 12,231 7,263
Due from affiliates 26,732 7,709
Other real estate owned 5,536 332
Other assets 5,052 453
---------------------- ----------------------
$ 1,296,147 $ 972,355
====================== ======================
LIABILITIES AND STOCKHOLDERS' EQUITY
CMO Borrowings $ 645,145 $ 474,513
Reverse-repurchase and warehouse line agreements 399,292 357,715
Accrued dividends payable 6,699 5,170
Due to affiliates 3,359 27
Other liabilities 2,979 5,739
---------------------- ----------------------
Total Liabilities 1,057,474 843,164
---------------------- ----------------------
Stockholders' Equity:
Preferred Stock; $.01 par value; 10 million shares authorized;
none issued or outstanding at September 30, 1997
and at December 31, 1996 - -
Common Stock; $.01 par value; 50 million shares authorized;
20,303,805 shares issued and outstanding at September
30, 1997 and 14,100,000 shares issued and outstanding
at December 31, 1996 203 141
Additional paid-in-capital 243,989 135,474
Investment securities valuation allowance (1,616) (2,458)
Cumulative dividends declared (33,555) (15,441)
Notes receivable from common stock sales (1,276) (720)
Retained earnings 30,928 12,195
---------------------- ----------------------
Total Stockholders' Equity 238,673 129,191
---------------------- ----------------------
$ 1,296,147 $ 972,355
====================== ======================
See accompanying notes to consolidated financial statements.
IMPERIAL CREDIT MORTGAGE HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(in thousands, except earnings per share data)
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
-----------------------------------------------------------------
1997 1996 1997 1996
------------- ---------------- ---------------- ----------------
Revenues
Interest income $ 29,557 $ 17,356 $ 76,709 $ 44,338
Equity in net earnings of ICI
Funding Corporation 2,429 101 6,132 718
Equity in net earnings (loss) of
IMH Commercial Holdings 403 - (778) -
Gain on sale of securities - - 648 -
Fees and other income 378 280 788 607
------------- ---------------- ---------------- ----------------
32,767 17,737 83,499 45,663
Expenses
Interest on CMO borrowings and
reverse-repurchase and
and warehouse line agreements 21,790 11,920 54,816 31,372
Provision for loan losses 1,868 835 4,243 3,739
Advisory fee 1,485 986 4,313 2,157
General and administrative expense 227 94 530 265
Professional services 212 220 758 433
Personnel expense 135 117 227 303
Gain on sale of other real
estate owned (144) - (121) -
------------- ---------------- ---------------- ----------------
25,573 14,172 64,766 38,269
------------- ---------------- ---------------- ----------------
Net earnings $ 7,194 $ 3,565 $ 18,733 $ 7,394
============= ================ ================ ================
Weighted average shares and
share equivalents outstanding (1) 15,836,082 10,303,143 14,947,452 7,934,225
============= ================ ================ ================
Net earnings per common and
common equivalent share $ 0.45 $ 0.35 $ 1.25 $ 0.93
============= ================ ================ ================
Dividends declared per common
share $ 0.43 $ 0.35 $ 1.22 $ 0.96
============= ================ ================ ================
(1) Share amounts reflect a 3 for 2 stock split effective to shareholders of
record November 3, 1997 payable on November 24, 1997
See accompanying notes to consolidated financial statements.
IMPERIAL CREDIT MORTGAGE HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
For the Nine Months Ended September 30,
1997 1996
------------------------ --------------------
Cash flows from operating activities:
Net earnings $ 18,733 $ 7,394
Adjustments to reconcile net earnings to net cash provided by
(used in) operating activities:
Equity in net earnings of ICI Funding Corporation (6,132) (718)
Equity in net loss of IMH Commercial Holdings, Inc. 778 -
Provision for loan losses 4,243 3,739
Net change in accrued interest on loans and investments (4,968) (5,342)
Net change in other assets and liabilities (23,050) 385
------------------------ --------------------
Net cash (used in) provided by operating activities (10,396) 5,458
Cash flows from investing activities:
Net change in CMO collateral (192,643) (544,213)
Net change in finance receivables 60,942 399,594
Net change in mortgage loans held for investment (105,244) (1,238)
Net change in other real estate owned, net (8,111) -
Purchase of investment securities available-for-sale (19,295) (31,579)
Sale of investment securities available-for-sale 9,637 -
Net of principal reductions on investment securities
available-for-sale 2,635 -
Net change in lease payment receivables - 8,441
Contributions to ICI Funding Corporation (8,910) (8,128)
Contributions to IMH Commercial Holdings, Inc. (15,123) -
------------------------ --------------------
Net cash used in investing activities (276,112) (177,123)
Cash flows from financing activities:
Net change in reverse-repurchase and warehouse line agreements 41,578 (376,599)
Net change in CMO borrowings 170,632 517,875
Dividends paid (16,585) (3,910)
Proceeds from exercise of stock options 701 -
Proceeds from dividend reinvestment and stock purchase plan 20,970 -
Proceeds from public stock offering, net 83,065 36,742
Proceeds from sale of additional common shares - 261
Advances to purchase common stock, net of principal reductions (556) -
------------------------ --------------------
Net cash provided by financing activities 299,805 174,369
Net change in cash and cash equivalents 13,297 2,704
Cash and cash equivalents at beginning of period 22,610 2,284
======================== ====================
Cash and cash equivalents at end of period $ 35,907 $ 4,988
======================== ====================
Supplementary information:
Interest paid $ 53,626 $ 31,347
Non-cash transactions:
Adjustment to investment in IMH Commercial Holdings, Inc. due to sale 3,840 -
of stock
See accompanying notes to consolidated financial statements
IMPERIAL CREDIT MORTGAGE HOLDINGS, INC. and SUBSIDIARIES
Notes to Consolidated Financial Statements
(unaudited)
Unless the context otherwise requires, references herein to the "Company"'
refer to Imperial Credit Mortgage Holdings, Inc. ("IMH"), and its
subsidiaries IMH Assets Corporation ("IMH Assets"), Imperial Warehouse
Lending Group, Inc. ("IWLG"), IMH/ICH Dove St., LLC ("Dove"), and ICI
Funding Corporation (together with its wholly-owned subsidiary, ICIFC
Secured Assets Corp., "ICIFC"), collectively.
1. Basis of Financial Statement Presentation
The accompanying consolidated financial statements have been prepared in
accordance with Generally Accepted Accounting Principles and with the
instructions to Form 10-Q. Accordingly, they do not include all of the
information and footnotes required by Generally Accepted Accounting
Principles 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 nine-month period ended September 30, 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 the Company for the three- and
nine-month periods ended September 30, 1997 reflect financial results of
IMH's equity interest in net earnings of ICIFC, IMH's equity interest in
net earnings (loss) of IMH Commercial Holdings, Inc. ("ICH"), IMH's equity
interest in net loss of Imperial Commercial Capital Corporation ("ICCC")
prior to ICH's IPO ("ICH IPO") on August 8, 1997, and results of
operations of IMH, IMH Assets, IWLG and Dove as stand-alone entities,
subsequent to the Company's Initial Public Offering ("IPO"). See Item 2.
"Management's Discussion and Analysis of Financial Condition and Results
of Operations--Significant Transactions" for additional information on the
ICH IPO. The results of operations of ICIFC, of which 99% of the economic
interest is owned by IMH, are included in the results of operations of the
Company as "Equity in net income of ICI Funding Corporation." The results
of operations of ICH, of which 17.4% of the economic interest is owned by
IMH, are included in the results of operations of IMH as "Equity in net
income (loss) of IMH Commercial Holdings, Inc.
Weighted average shares and share equivalents outstanding and earnings per
share calculations give effect to a 3 for 2 stock split payable November
24, 1997 to stockholders of record on November 3, 1997.
2. Summary of Business and Significant Accounting Policies
The Company is a specialty finance company 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. (NASDAQ - "ICII"), a leading specialty finance company
(the "Contribution Transaction"). IMH is organized as a real estate
investment trust ("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 mortgagors' occupancy status with
respect to the mortgaged properties. Second mortgage loans are generally
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 September 30, 1997, IMH's mortgage loan and securities
investment portfolio consisted of $694.4 million of mortgage loans held in
trust as collateral for Collateralized Mortgage Obligations ("CMOs"),
$106.2 million of mortgage loans held to maturity, which will be used as
CMO collateral, and $71.4 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 other
sellers 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 the Company
with non-conforming mortgage loans and securities backed by such loans.
For the nine months ended September 30, 1997 and the year ended December
31, 1996, ICIFC acquired $1.8 billion and $1.5 billion, respectively, of
mortgage loans and sold to third party investors or securitized $1.0
billion and $1.0 billion, respectively, of mortgage loans. The Long-Term
Investment Operations acquired $533.4 million and $591.6 million,
respectively, of loans from ICIFC as well as $12.6 million and $32.5
million, of securities created by ICIFC for the nine months ended
September 30, 1997 and the year ended December 31, 1996, respectively.
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
Joseph R. Tomkinson, Chief Executive Officer of IMH and ICIFC, William S.
Ashmore, President of IMH and ICIFC, and Richard J. Johnson, Chief
Financial Officer of IMH and ICIFC, are the holders of all the outstanding
voting stock of, and 1% of the economic interest in, ICIFC.
Warehouse Lending Operations. The Warehouse Lending Operations, conducted
by IWLG, provides 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 September
30, 1997, the Warehouse Lending Operations had $301.4 million in finance
receivables outstanding, of which $236.5 million, $8.3 million and $2.5
million was outstanding with ICIFC, ICCC and ICH, respectively.
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 Joseph R. Tomkinson, Chief Executive Officer of IMH and
ICIFC, William S. Ashmore, President of IMH and ICIFC, and Richard J.
Johnson, Chief Financial Officer of IMH and ICIFC, 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 of 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
September 30, 1997 December 31, 1996
------------------------------- ----------------------------
ASSETS
Cash $ 7,334 $ 4,395
Residual interests in securitizations 50,059 46,949
Mortgage loans held for sale 588,834 334,104
Mortgage servicing rights 15,615 8,785
Accrued interest receivable 6,734 1,845
Premises and equipment, net 2,262 834
Servicing advances 1,306 1,583
Other assets 5,556 676
--------------------------------- ============================
$ 677,700 $ 399,171
================================= ============================
LIABILITIES AND SHAREHOLDERS' EQUITY
Borrowings from IWLG $ 236,544 $ 327,422
Other borrowings 339,713 -
Due to affiliates 55,972 54,803
Other liabilities 8,588 2,876
Deferred revenue 6,220 1,393
Accrued interest expense 5,473 2,681
--------------------------------- ----------------------------
Total liabilities 652,510 389,175
Shareholders' Equity:
Preferred Stock 18,053 9,143
Common Stock 182 92
Retained earnings 6,955 761
--------------------------------- ----------------------------
Total shareholders' equity 25,190 9,996
================================= ============================
$ 677,700 $ 399,171
================================= ============================
STATEMENTS OF OPERATIONS
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
--------------------------------- ----------------------------------
1997 1996 1997 1996
-------------- -------------- -------------- -------------------
Revenues
Interest income $ 14,839 $ 8,725 $ 32,004 $ 26,535
Gain on sale of loans 5,280 1,593 14,378 5,555
Loan servicing income 1,081 353 3,018 622
Other income 211 - 505 -
--------------- -------------- --------------- --------------------
21,411 10,671 49,905 32,712
Expenses:
Interest on borrowings from IWLG 11,192 8,081 25,041 25,557
Interest on borrowings from affiliates 1,310 - 3,495 -
Personnel expense 1,496 1,449 5,277 3,521
Provision for repurchases 1,131 152 1,548 728
Amortization of mortgage servicing rights 947 176 1,896 286
General and administrative expense 1,090 628 1,930 1,354
--------------- -------------- --------------- --------------------
17,166 10,486 39,187 31,446
Income before income taxes 4,245 185 10,718 1,266
Income tax expense 1,792 83 4,525 540
--------------- ------------- --------------- -------------------
Net income $ 2,453 $ 102 $ 6,193 $ 726
=============== ============== =============== ====================
4. Investment in IMH Commercial Holdings, Inc.
(formerly Imperial Credit Commercial Holdings, Inc.)
The Company records its investment in ICH on the equity method. ICH is a
recently formed specialty commercial property finance company which elects
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. In March 1997, the Company capitalized ICH with $15.0 million
in cash evidenced by a promissory note which was converted into an
aggregate of 3,000,000 shares of ICH Preferred Stock (the "ICH Preferred
Stock"). On August 8 1997, the closing date of the ICH IPO, the Preferred
Stock converted into shares of ICH Common Stock and non-voting Class A
Common Stock. Prior to the ICH IPO, the Company owned 299,000 shares of
ICH non-voting Class A Stock and 3,000,000 million shares of ICH Preferred
Stock and was entitled to 49.92% of the earnings or losses of ICH while
certain officers and directors of IMH and ICIFC, owned 300,000 shares of
ICH Common Stock and were entitled to 50.08% of the earnings or losses of
ICH. As of September 30, 1997, IMH owns 719,789 shares, or 9.8%, of ICH
Common Stock and 674,211 shares, or 100%, of ICH non-voting Class A Stock.
ICH was formed to seek opportunities in the commercial mortgage market.
Commercial mortgage assets include mortgage loans on
condominium-conversions and mortgage loans on commercial properties, such
as industrial and warehouse space, office buildings, retail space and
shopping malls, hotels and motels, nursing homes, hospitals, multifamily,
congregate care facilities and senior living centers. ICH will also
purchase mortgage-backed securities on commercial properties, such as
pass-through certificates and REMICs.
ICCC was formed in January 1997. The Company purchased all of the
non-voting Preferred Stock of ICCC, which represented 95% of the economic
interest in ICCC, for $500,000. On the closing date of the ICH IPO, the
Company contributed (the "Contribution") 100% of the outstanding shares of
non-voting Preferred Stock of ICCC in exchange for 95,000 shares of ICH
Common Stock. ICCC operates three divisions: the Condominium Division, the
Retail Division, and the Correspondent and Bulk Purchase Division. The
Condominium Division offers, on a retail basis, adjustable rate financing
to developers and project owners who have completed the development of a
condominium complex or the conversion of an apartment complex to a
condominium complex on property with a typical loan amount of $3.0 million
to $10.0 million. The Retail Division originates commercial mortgages for
properties including general retail property such as shopping centers,
super markets and department stores, light industrial property, and office
buildings with loan amounts between $500,000 to $1.5 million. The
Correspondent and Bulk Purchase Division originates commercial mortgages
on a retail basis and purchases commercial mortgages on a bulk and flow
basis. This division offers larger principal balance loans ($1.5 million
and $10.0 million) for commercial projects than those funded by the Retail
Division.
On August 8, 1997, ICH completed an IPO of 6,325,000 shares of common
stock at $15.00 per share at which time 299,000 shares of ICH Class A
Stock and 3,000,000 shares of ICH Preferred Stock held by the Company
converted into 719,789 shares, or 9.8%, of ICH Common Stock in addition to
674,211 shares, or 100%, of ICH Class A Stock. For additional information
regarding the ICH IPO, see Item 2. "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Significant
Transactions." Summarized financial information for ICH (in thousands):
BALANCE SHEETS
September 30, 1997 March 31, 1997
---------------------- ----------------------
ASSETS
Cash and cash equivalents $ 18,847 $ 4,400
Investment securities available for sale 12,390 -
Residual interest in securitization, held for trading 9,999 10,025
Loan receivables:
Finance receivables 42,662 -
Commercial Mortgages held for investment 34,559 17,535
Allowance for loan losses (55) (13)
---------------------- ----------------------
Net loan receivables 77,166 17,522
Property and equipment 3,901 -
Due from affiliates 3,465 134
Investment in ICCC 3,115 -
Accrued interest receivable 465 128
Other assets 373 41
---------------------- ----------------------
$ 129,721 $ 32,250
====================== ======================
LIABILITIES AND STOCKHOLDERS' EQUITY
Warehouse facilities $ 12,984 $ -
Borrowings from IWLG 2,526 16,563
Due to affiliates 9,347 520
Accrued interest expense 70 150
Other liabilities 50 -
---------------------- ----------------------
Total Liabilities $ 24,977 $ 17,233
---------------------- ----------------------
Stockholders' Equity:
Preferred stock - 30
Common stock 73 6
Class A common stock 7 -
Additional paid-in-capital 104,918 17,667
Investment securities valuation allowance 16 -
Accumulated deficit (270) (2,686)
---------------------- ----------------------
Total Stockholders' Equity 104,744 15,017
---------------------- ----------------------
$ 129,721 $ 32,250
====================== ======================
STATEMENTS OF OPERATIONS
For the period from
January 15, 1997
For the Three Months (commencement of operations)
Ended September 30, 1997 through September 30, 1997
------------------------------- ---------------------------------
Revenues
Interest income $ 2,457 $ 3,810
Equity in net income of Imperial
Commercial Capital Corporation 627 627
Rental and other income 58 58
------------------------------- --------------------------------
3,142 4,495
Expenses
Interest expense on borrowings 463 788
Interest expense on affiliated borrowings 282 759
Professional services 202 373
General and administrative expense 75 92
Provision for loan losses 22 55
Advisory fee 1 1
Stock compensation expense - 2,697
-------------------------------- -------------------------------
1,045 4,765
-------------------------------- -------------------------------
Net income (loss) $ 2,097 $ (270)
================================ ===============================
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 September 30, 1997,
IMH's investment securities available-for-sale included $66.0 million of
subordinated securities collateralized by mortgages and $5.4 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 July 1997, stock options totaling 4,000 shares were exercised at
an exercise price of $20.625 per share, or $82,500.
In August 1997, the Company recorded an adjustment to equity of $3.8
million as a result of the ICH IPO.
In September 1997, the Board of Directors declared a cash dividend of
$0.65 per share, or $0.43 per share after having given effect to the 3 for
2 stock split, payable October 15, 1997 to stockholders of record on
September 15, 1997.
During the third quarter of 1997, the Company raised additional capital of
$93.3 million, net of offering expenses, as 3.2 million shares of common
stock were issued through a public stock offering and 401,944 were
purchased under the Company's Dividend Reinvestment and Stock Purchase
Plan. After giving effect to the 3 for 2 stock split, the additional
shares of common stock issued through the public stock offering and the
Company's Dividend Reinvestment and Stock Purchase Plan were 4.8 million
and 602,916, respectively. Proceeds from the sale of securities were used
for general corporate purposes including, without limitation, funding the
Long-Term Investment Operations, the Conduit Operations and the Warehouse
Lending Operations, repayment of maturing obligations, redemption of
outstanding indebtedness, financing future acquisitions, capital
expenditures and working capital.
In October 1997, the Board of Directors approved a 3 for 2 stock split
payable on November 24, 1997 to stockholders of record on
November 3, 1997.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following Management's Discussion and Analysis of Financial Condition
and Results of Operations contains forward-looking statements which
involve risks and uncertainties. The Company's actual results could differ
materially from those anticipated in these forward-looking statements as a
result of certain factors
References to financial information of the Company for the three- and
nine-month periods ended September 30, 1997 reflect financial results of
IMH's equity interest in net income of ICIFC, IMH's equity interest in net
income (loss) of ICH, IMH's equity interest in net loss of ICCC, prior to
ICH's IPO on August 8, 1997, and results of operations of IMH, IMH Assets,
IWLG and Dove as stand-alone entities, subsequent to the Company's IPO.
See Item 2. "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Significant Transactions" for additional
information on the ICH IPO. The results of operations of ICIFC, of which
99% of the economic interest is owned by IMH, are included in the results
of operations of IMH as "Equity in net income of ICI Funding Corporation."
The results of operations of ICH, of which 17.4% of the economic interest
is owned by IMH, are included in the results of operations of IMH as
"Equity in net income (loss) of IMH Commercial Holdings, Inc."
Significant Transactions
In February 1997, certain 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 ICCC, which represents 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 represents 5% of the
economic interest in ICCC. In addition, 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 loaned ICH $15.0 million evidenced by a promissory note
convertible into shares of non-voting preferred stock of ICH at the rate
of one share of ICH Preferred Stock for each $5.00 principal amount of
said note. IMH converted the aforementioned $15.0 million principal amount
promissory note into an aggregate of 3,000,000 shares of ICH Preferred
Stock. All shares of ICH Preferred Stock were automatically converted upon
the closing of ICH's IPO 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 IPO Price. Notwithstanding the foregoing, consistent with IMH's
classification as a REIT, IMH was not entitled to convert 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
at the same rate as the ICH Preferred Stock converted into Common Stock.
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 a 9.8% limitation. In addition, ICH purchased
$10.1 million in Commercial Mortgage-Backed Securities ("CMBS") from ICIFC
which was financed with a promissory note. The promissory note was repaid
to ICIFC 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. Subsequently, ICH entered into a
borrowing agreement with ICII for $7.9 million secured by $10.1 million
CMBS.
In April 1997, IMH exchanged the 299,000 shares of ICH Common Stock held
by it for an equivalent number of shares of ICH Class A Stock.
Upon the closing of the ICH IPO in August 1997, IMH contributed to ICH
100% of the outstanding shares of non-voting preferred stock of ICCC in
exchange for 95,000 shares of ICH Class A Stock. As of September 30, 1997,
IMH owns 719,789 shares, or 9.8%, of ICH Common Stock in addition to
674,211 shares, or 100%, of ICH Class A Stock.
In August 1997, IMH/ICH Dove Street, LLC, a California limited liability
company, of which each of IMH and ICH own a 50% interest, purchased an
office building for $7.8 million plus related closing costs. IMH and ICH
intend to relocate their headquarters to the building over the next
two-year period.
During the third quarter of 1997, the Company raised additional capital of
$93.3 million, net of offering expenses, as 3.2 million shares of common
stock were issued through a public stock offering and 401,944 were
purchased under the Company's Dividend Reinvestment and Stock Purchase
Plan. After giving effect to the 3 for 2 stock split, the additional
shares of common stock issued through the public stock offering and the
Company's Dividend Reinvestment and Stock Purchase Plan were 4.8 million
and 602,916, respectively. Proceeds from the sale of securities were used
for general corporate purposes including, without limitation, funding the
Long-Term Investment Operations, the Conduit Operations and the Warehouse
Lending Operations, repayment of maturing obligations, redemption of
outstanding indebtedness, financing future acquisitions, capital
expenditures and working capital.
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 Express 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
Express 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 nine months ended September 30, 1997, ICIFC's mortgage loan
acquisitions increased 57% to $1.8 billion as compared to $1.2 billion
during the first nine months of 1996. Excluding mortgages acquired from
affiliated companies, mortgage acquisitions during the first nine months
of 1997 increased 93% to $1.8 billion as compared to $957.3 million during
the first nine months of 1996. The increase in mortgage loan acquisitions
during the first nine months of 1997 as compared to the same period of
1996 was the result of mortgages funded under the Progressive Express 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 32.6% of it's loans
during the first nine months of 1997. Under the Progressive Express loan
program, ICIFC funded $557.9 million during the first nine months of 1997,
or 30.2% of total loan acquisitions, as compared to $1.9 million during
the first nine months of 1996 as the program was introduced in September
1996. Additionally, as of September 30, 1997, ICIFC had outstanding master
commitments with 78 sellers to purchase mortgage loans in the aggregate
principal amount of $1.2 billion as compared to 62 sellers to purchase
mortgage loans in the aggregate principal amount of $774.0 million as of
September 30, 1996. At September 30, 1997, the Progressive Express program
represented 51.2% of the $1.2 billion in outstanding master commitments.
Due to the continued growth of ICIFC during the first nine months of 1997,
ICIFC added personnel. At September 30, 1997, there were 143 employees
with ICIFC, a 37.5% increase from 104 employees as of December 31, 1996.
Results of Operations
Three Months Ended September 30, 1997 as Compared to Three Months
Ended September 30, 1996
Net income for the third quarter of 1997 increased 102% to $7.2
million, or $0.45 per share, as compared to $3.6 million, or $0.35 per
share, for the third quarter of 1996. Earnings per share for both periods
are stated after giving effect to the 3 for 2 stock split.
Revenues for the quarter ended September 30, 1997 increased 85% to
$32.8 million as compared to $17.7 million for the quarter ended September
30, 1996. Revenues increased during the third quarter of 1997 as compared
to the third quarter of 1996 primarily due to increased interest income and
equity in net income of ICIFC and ICH. Interest income increased 70% to
$29.6 million during the third quarter of 1997 as compared to $17.4 million
during the third quarter of 1996 as total average Mortgage Assets increased
66% to $1.4 billion as compared to $841.6 million during the third quarter
of 1996. Average Mortgage Assets are comprised of CMO collateral, mortgage
loans held for investment, warehouse financing and securities
available-for-sale. Interest income on CMO collateral and loans held for
investment increased 102% to $16.2 million during the third quarter of 1997
as compared to $8.0 million during the same period of 1996 as average CMO
collateral and mortgage loans held for investment increased 105% to $782.3
million as compared to $381.5 million, respectively. Average CMO collateral
and loans held for investment increased as the Company issued CMO's
totaling $348.1 million since the end of the third quarter of 1996.
Interest income from warehouse financing increased 44% to $12.7 million
during the third quarter of 1997 as compared to $8.8 million during the
same period of 1996 as average finance receivables increased 33% to $567.5
million as compared to $425.9 million, respectively, primarily due to
increased warehouse financing with ICIFC. The increase in ICIFC's
borrowings with the Company were the result of increased loan acquisitions
during the three months ended September 30, 1997 which increased 76% to
$918.2 million as compared to $520.5 million during the third quarter of
1996. Loan acquisitions by ICIFC during the third quarter of 1997 includes
$351.8 million of second trust deed mortgages purchased in bulk from one
seller and $230.9 million of Progressive Express loans as compared to none
and $1.9 million, respectively, of loans acquired during the third quarter
of 1996. Additionally, interest income on investment securities
available-for-sale increased 43% to $2.0 million during the third quarter
of 1997 as compared to $1.4 million during the third quarter of 1996 as
average investment securities available-for-sale increased 48% to $61.5
million as compared to $41.5 million, respectively. The increase in
securities available-for-sale is primarily the result of the Company
purchasing and retaining in portfolio mortgage-backed securities issued by
ICIFC's REMIC securitizations.
Revenues also increased as IMH's equity in net income of ICI Funding
Corporation increased to $2.4 million during the third quarter of 1997 as
compared to $101,000 for the third quarter of 1996 while IMH's equity in
net income of ICH increased to $403,000 during the third quarter of 1997.
ICIFC's earnings increased as ICIFC securitized or sold $481.6 million of
mortgages during the third quarter of 1997 as compared to $307.3 million
during the third quarter of 1996. The securitization and sale of mortgages
during the third quarter of 1997 resulted in gains of $5.3 million, or 110
basis points, as compared to $1.6 million, or 52 basis points, during the
same period of 1996. The increase in gain on sale of loans is the result
of increased profits from whole loan sales and the securitization of loans
funded under the Progressive Express program, which was introduced in
September 1996. Progressive Express is a loan program with a one-page loan
application that includes less paperwork for the borrower, express credit
approval and attractive rates and terms. Additionally, revenues from loan
servicing income increased to $1.1 million for the third quarter of 1997
as compared to $353,000 for the same period in 1996 as ICIFC's loan
servicing portfolio increased to $2.4 billion at September 30, 1997 as
compared to $1.2 billion at September 30, 1996. Equity in net income of
IMH Commercial Holdings, Inc. increased to $403,000 during the third
quarter of 1997 as compared to none during the third quarter of 1996 as
ICH was formed in February of 1997.
Expenses for the third quarter of 1997 increased 80% to $25.6 million as
compared to $14.2 million for the third quarter of 1996 primarily due to
increases in interest expense, management advisory fees and provision for
loan losses. Interest expense increased 83% to $21.8 million during the
third quarter of 1997 as compared to $11.9 million during the third
quarter of 1996 as average borrowings, which includes CMO financing and
reverse-repurchase and warehouse line agreements, increased 65% to $1.3
billion as compared to $787.3 million, respectively. These borrowings
provide funding for CMO collateral, mortgage loans held for investment,
warehouse financing and investment securities available-for-sale which
increased during the third quarter of 1997 as compared to the third
quarter of 1996 as previously discussed. Management advisory fees
increased 51% to $1.5 million during the third quarter of 1997 as compared
to $1.0 million during the third quarter of 1996 primarily due to
increases in total Mortgage Assets and net income which are used in the
calculation of the management advisory fee. Provision for loan losses
increased 124% to $1.9 million during the third quarter of 1997 as
compared to $835,000 during the third quarter of 1996 as loan receivables
increased during the respective periods. Loan receivables include CMO
collateral, mortgage loans held for sale and warehouse financing. The
Company maintained an allowance for loan losses expressed as a percentage
of loan receivables of 0.52% at September 30, 1997 as compared to 0.50% at
December 31, 1996 and 0.53% at September 30, 1996. As the Company
experiences increases in loan receivables and corresponding increases in
delinquencies, the Company expects to continue to add to the allowance for
loan losses. The Company maintains a policy of reducing the carrying
amount on all foreclosed property to 70% of it's appraised value or
brokers price opinion which resulted in gain on sale or disposition of
real estate owned of $144,000 during the third quarter of 1997 as compared
to none during the third quarter of 1996. The company reserves the right
to modify this policy as market change and residual values increase on
disposition of REO's There was no real estate owned which was sold or
disposed during the third quarter of 1996. Other operating expenses, which
includes professional services, general and administrative expense and
personnel expense, increased 33% to $574,000 during the third quarter of
1997 as compared to $431,000 during the third quarter of 1996. However, as
a percentage of total expense, other operating expenses decreased to 2.2%
during the third quarter of 1997 as compared to 3.0% during the third
quarter of 1996.
Nine Months Ended September 30, 1997 as Compared to Nine Months
Ended September 30, 1996
Net income for the nine months ended September 30, 1997 increased 153% to
$18.7 million, or $1.25 per share, as compared to $7.4 million, or $0.93
per share, for the nine months ended September 30, 1996. Earnings per
share for both periods are stated after giving effect to the 3 for 2 stock
split.
Revenues for the nine months ended September 30, 1997 increased 83% to
$83.5 million as compared to $45.7 million for the nine months ended
September 30, 1996. Revenues increased during the nine months ended
September 30, 1997 as compared to the same period of 1996 primarily due to
increased interest income and equity in net income of ICIFC. Interest
income increased 73% to $76.7 million during the nine months of 1997 as
compared to $44.3 million during the same period of 1996 as total average
Mortgage Assets increased 70% to $1.2 billion as compared to $705.0
million, respectively. Average Mortgage Assets are comprised of CMO
collateral, mortgage loans held for investment, warehouse financing and
securities available-for-sale. Interest income on CMO collateral and loans
held for investment increased 187% to $39.2 million during the nine months
of 1997 as compared to $13.7 million during the same period of 1996 as
average CMO collateral and mortgage loans held for investment increased
222% to $752.2 million as compared to $233.9 million, respectively. Average
CMO collateral and loans held for investment increased as the Company
issued CMO's totaling $348.1 million since the end of the third quarter of
1996. Interest income from warehouse financing decreased 5% to $27.5
million during the nine months ended September 30, 1997 as compared to
$28.9 million during the same period of 1996 as average finance receivables
decreased 3% to $426.6 million as compared to $439.8 million, respectively,
primarily due to decreased warehouse financing with ICIFC. The decrease in
ICIFC's average borrowings with the Company were the result of increased
whole loan sales to third parties and the Long-Term Investment Operations
and REMIC securitizations which offset an increase of 54% to $1.8 billion
of loan acquisitions during the nine months ended September 30, 1997 as
compared to $1.2 billion during the same period of 1996. Loan acquisitions
by ICIFC during the nine months ended September 30, 1997 includes $351.8
million of second trust deed mortgages purchased in bulk from one seller
and $557.9 million of Progressive Express loans as compared to none and
$1.9 million, respectively, of loans acquired during the same period of
1996. Additionally, interest income on investment securities
available-for-sale increased 74% to $6.1 million during the nine months
ended September 30, 1997 as compared to $3.5 million during the same period
of 1996 as average investment securities available-for-sale increased 89%
to $59.2 million as compared to $31.3 million, respectively. The increase
in securities available-for-sale is primarily the result of the Company
purchasing and retaining in portfolio mortgage-backed securities issued by
ICIFC's REMIC securitizations.
Revenues also increased as IMH's equity in net income of ICI Funding
Corporation increased to $6.1 million during the nine months ended
September 30, 1997 as compared to $718,000 for the same period of 1996.
ICIFC's earnings increased as ICIFC securitized or sold $1.4 billion of
mortgages during the nine months of 1997 as compared to $1.5 billion
during the same period of 1996. The securitization and sale of mortgages
during the nine months ended September 30, 1997 resulted in gains of $14.4
million, or 103 basis points, as compared $5.6 million, or 37 basis
points, during the same period of 1996. The increase in gain on sale of
loans is the result of increased profits from whole loan cash sales and
the securitization of loans funded under the Progressive Express program,
which was introduced in September 1996. Progressive Express is a loan
program with a one-page loan application that includes less paperwork for
the borrower, express credit approval and attractive rates and terms.
Additionally, revenues from loan servicing income increased to $3.0
million for the nine months ended September 30, 1997 as compared to
$622,000 for the same period in 1996 as ICIFC's loan servicing portfolio
increased to $2.4 billion at September 30, 1997 as compared to $1.2
billion at September 30, 1996.
Expenses for the nine months ended September 30, 1997 increased 69% to
$64.8 million as compared to $38.3 million for the same period of 1996
primarily due to increases in interest expense, management advisory fees
and provision for loan losses. Interest expense increased 75% to $54.8
million during the nine months of 1997 as compared to $31.4 million during
the same period of 1996 as average borrowings, which includes CMO
financing and reverse-repurchase and warehouse line agreements, increased
65% to $1.1 billion as compared to $668.5 million, respectively. These
borrowings provide funding for CMO collateral, mortgage loans held for
investment, warehouse financing and investment securities
available-for-sale which increased during the nine months of 1997 as
compared to the same period of 1996 as previously discussed. Management
advisory fees increased 100% to $4.3 million during the nine months ended
September 30, 1997 as compared to $2.2 million during the same period of
1996 primarily due to increases in total Mortgage Assets and net income
which are used in the calculation of the management advisory fee.
Provision for loan losses increased 13% to $4.3 million during the nine
months of 1997 as compared to $3.7 million during the same period of 1996
as loan receivables increased during the respective periods. Loan
receivables include CMO collateral, mortgage loans held for sale and
warehouse financing. The Company maintained an allowance for loan losses
expressed as a percentage of loan receivables of 0.52% at September 30,
1997 as compared to 0.51% at December 31, 1996 and 0.53% at September 30,
1996. As the Company experiences increases in loan receivables and
corresponding increases in delinquencies, the Company expects to continue
to add to the allowance for loan losses. The Company maintains a policy of
reducing the carrying amount on all foreclosed property to 70% of it's
appraised value or brokers price opinion which resulted in gain on sale or
disposition of real estate owned of $120,000 during the nine months ended
September 30, 1997 as compared to none during the same period of 1996.
There was no real estate owned which was sold or disposed during the nine
months ended September 30, 1996. Other operating expense, which includes
professional services, general and administrative expense and personnel
expense increased 51% to $1.5 million during the nine months ended
September 30, 1997 as compared to $1.0 million during the same period of
1996. However, as a percentage of total expense, other operating expenses
decreased to 2.3% during the nine months ended September 30, 1997 as
compared to 2.6% during the same period 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
primarily funded by CMO financing, warehouse 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
warehouse line agreements 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 warehouse line agreements with
the Warehouse Lending Operations.
During the nine months ended September 30, 1997 and 1996, net cash (used
in) or provided by operating activities was $(10.4) million and $5.5
million, respectively. Net cash flows were negatively affected during the
first nine months of 1997 as compared to the first nine months of 1996
primarily as due from affiliates and other assets increased. Due from
affiliates and other assets increased to $26.7 million and $5.1 million,
respectively, during the nine months ended September 30, 1997 as compared
$7.7 million and $453,000, respectively, during the same period of 1996.
The increase in balances due from affiliates is attributable to an
increase in balances due from ICIFC which increased to $26.7 million at
September 30, 1997 as compared to none at December 31, 1996. Other assets
increased primarily due to the Company's 50% investment in the purchase of
a commercial building of $3.9 million during the third quarter of 1997.
Net cash used in investing activities for the nine months ended September
30, 1997 and 1996 was $(276.1) million and $(177.1) million, respectively.
Net cash flows were negatively affected during the first nine months of
1997 as compared to the first nine months of 1996 primarily due to
increases in outstanding finance receivables, primarily with ICIFC,
mortgage loans held for investment and contributions to fund ICH. Net cash
flows were positively affected during the first nine months of 1997 as
compared to the first nine months of 1996 from increases of
mortgage-backed securities and loans held in trust as CMO collateral.
Net cash provided by financing activities for the nine months ended
September 30, 1997 and 1996 was $299.8 million and $174.4 million,
respectively. Net cash flows were positively affected for the first nine
months of 1997 as warehouse line agreements used to fund finance
receivables, primarily to ICIFC, decreased. Cash flows were positively
affected as the Company raised additional capital from the Company's stock
offering, which closed in the third quarter of 1997, and from the
Company's dividend reinvestment and stock purchase plan. Net cash flows
were negatively affected during the first nine months of 1997 as compared
to the first nine months of 1996 as CMO financing decreased and dividends
paid increased.
Warehouse Lending Operations
At September 30, 1997, the Company had $645.1 million of CMO borrowings
used to finance $694.4 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 22 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.
Terms of the Company's 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 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. The
following represents the available warehouse line agreements (dollars in
thousands):
Commitment Amount
Borrower Lender Amount Outstanding Interest rate
- -------------------------------------------------------------------------------------------------
IWLendor A 100,000 16,424 Eurodollar + .75%
IWLendor B 250,000 22,614 Libor + .65% - .95%
IWLendor C 333,454 333,454 Libor + .75%
============================================
Total $ 683,454 372,492
============================================
In August 1997, ICH agreed to provide to IMH a $15.0 million revolving
line of credit expiring on August 8, 1998 at an interest rate to be
determined at the time of each advance with interest and principal paid
monthly. As of September 30, 1997, there was no balance outstanding on the
line of credit.
During the third quarter of 1997, the Company raised additional capital of
$93.3 million, net of offering expenses, as 3.2 million shares of common
stock were issued through a public stock offering and 401,944 were
purchased under the Company's Dividend Reinvestment and Stock Purchase
Plan. After giving effect to the 3 for 2 stock split, the additional
shares of common stock issued through the public stock offering and the
Company's Dividend Reinvestment and Stock Purchase Plan were 4.8 million
and 602,916, respectively. Proceeds from the sale of securities were used
for general corporate purposes including, without limitation, funding the
Long-Term Investment Operations, the Conduit Operations and the Warehouse
Lending Operations, repayment of maturing obligations, redemption of
outstanding indebtedness, financing future acquisitions, capital
expenditures and working capital.
Conduit Operations
On the date of the Contribution Transaction, ICIFC entered into a 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. Additionally, in September 1997, ICIFC entered into warehouse line
agreements with two investment banking firms to provide warehouse
financing. The margins on the reverse repurchase agreements are based on
the type of collateral used and generally range from 85% 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 nine months of 1997
and 1996. The following represents the available warehouse line agreements
(dollars in thousands):
Commitment Amount
Borrower Lender Amount Outstanding Interest rate
- ---------------------------------------------------------------------------------------------------
ICIWLG $ 600,000 236,544 Prime
ICLendor A 200,000 199,964 Libor + .75% - 1.25%
ICLendor B 300,000 139,749 Libor + .75%
=============================================
Total $ 1,100,000 576,257
=============================================
On June 24, 1997, the Company contributed $8.9 million in cash to ICIFC to
repay borrowed funds to ICH and to increase liquidity on ICIFC's warehouse
line with IWLG.
On December 31, 1996, ICIFC purchased residual interests in
securitizations from ICII. At September 30, 1997, the residual interests
in securitizations total $37.4 million and are financed by a promissory
note with ICII at an annual interest rate of 10%. The promissory note
requires six monthly interest only payments of $246,180 beginning on July
1, 1997, and continuing on the same day of each succeeding month
thereafter; followed by one hundred and eleven monthly installments of
$408,974 each. As of September 30, 1997, the current principal balance of
the promissory note was $28.9 million.
In October 1997, ICH agreed to provide to ICIFC a $15.0 million revolving
line of credit expiring on December 31, 1997 at an interest rate of Prime
plus 1% with interest and principal paid monthly. As of October 31, 1997,
there was $2.0 million outstanding on the line of credit.
PART II. OTHER INFORMATION
ITEM 1 - 5: NOT APPLICABLE.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
Exhibit 10.17. Revolving Credit and Term
Loan Agreement, dated August 21,
1997, between the Registrant and IMH
Commercial Holdings, Inc.
Imperial Credit Mortgage Holdings, Inc., a Maryland
corporation ("IMH"), and IMH Commercial Holdings, Inc. a Maryland
corporation ("ICH") agree as follows:
ARTICLE I
AMOUNTS AND TERMS OF THE ADVANCES
SECTION 1.01. The Advances. ICH agrees, on the terms and conditions
hereinafter set forth, to make advances (the "Advances") to IMH from time
to time during the period from the date hereof to and including August 8,
1997 (the "Termination Date") in an aggregate amount not to exceed at any
time outstanding $15,000,000 (the "Commitment"). Each Advance shall be in
an amount not less than $10,000. Within the limits of the Commitment, IMH
may borrow and repay pursuant to Section 1.06 and reborrow under this
Section 1.01.
SECTION 1.02. Making the Advances. Each Advance shall be made on at least
twenty-four hours notice from IMH to ICH specifying the date and amount
thereof. Not later than 11:00 a.m. (Los Angeles time) on the date of such
Advance and upon fulfillment of the applicable conditions set forth in
Article II, ICH will make such Advance available to IMH in same day funds
at IMH's address referred to in Section 6.02.
SECTION 1.03. Interest and Repayment. IMH shall repay, and shall pay
interest on, the aggregate unpaid principal amount of all Advances in
accordance with an unsecured promissory note of IMH, in substantially the
form of Exhibit A hereto (the "Note" and collectively with this Agreement,
the "Loan Documents"), evidencing the indebtedness resulting from such
Advances and delivered to ICH pursuant to Article II.
SECTION 1.04. Optional Prepayments. IMH may prepay the Note in whole or in
part with accrued interest to the date of such prepayment on the amount
prepaid, provided, that each partial prepayment shall be in a principal
amount not less than $10,000 and, if made after the Termination Date, shall
be applied to the principal installments of the Note in the inverse order
of their maturities.
SECTION 1.05. Payments and Computations. IMH shall make each payment under
any Loan Document not later than 12:00 noon (Los Angeles time) on the day
when due in lawful money of the United States of America to ICH at its
address referred to in Section 6.02 in same day funds. All computations of
interest under the Note and commitment fee hereunder shall be made by ICH
on the basis of a year of 365 or 366 days, as the case may be, for the
actual number of days (including the first day but excluding the last day)
elapsed.
SECTION 1.06. Payment on Non-Business Days. Whenever any payment to be made
hereunder or under the Note shall be stated to be due on a Saturday, Sunday
or a public or bank holiday or the equivalent for banks generally under the
laws of the State of California (any other day being a "Business Day"),
such payment may be made on the next succeeding Business Day, and such
extension of time shall in such case be included in the computation of
payment of interest or commitment fee, as the case may be.
SECTION 1.07. Final Repayment. All advances made under this Commitment
shall become due and payable in full with accrued interest, without demand
by ICH, by not later than the Termination Date.
ARTICLE II
CONDITIONS OF LENDING
SECTION 2.01. Additional Conditions Precedent to All Advances. The
obligation of ICH to make each Advance (including the initial Advance)
shall be subject to the further conditions precedent that on the date of
such Advance (a) the following statements shall be true and ICH shall have
received a certificate signed by a duly authorized officer of each Loan
Party (as to each Loan Document to which it is a party), dated the date of
such Advance, stating that:
(i) The representations and warranties contained in Section 3.01 of this
Agreement are correct on and as of the date of such Advance as though made
on and as of such date, and
(ii) No event has occurred and is continuing, or would result from such
Advance, which constitutes an Event of Default or would constitute an Event
of Default but for the requirement that notice be given or time elapse or
both.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
SECTION 3.01. Representations and Warranties of IMH. IMH
represents and warrants as follows:
(a) IMH is a corporation duly incorporated, validly existing and in good
standing under the laws of Maryland.
(b) The execution, delivery and performance by IMH of each Loan Document to
which it is or will be a party are within IMH's corporate powers.
(c) No authorization or approval or other action by, and no notice to or
filing with, any governmental authority or regulatory body is required for
the due execution, delivery and performance by IMH of any Loan Document to
which it is or will be a party.
(d) This Agreement is, and each other Loan Document to which IMH will be a
party when delivered hereunder will be, legal, valid and binding
obligations of IMH enforceable against IMH in accordance with their
respective terms.
(e) There is no pending or threatened action or proceeding affecting IMH or
any of its subsidiaries before any court, governmental agency or
arbitrator, which may materially adversely affect the financial condition
or operations of IMH or any subsidiary.
(f) IMH is not engaged in the business of extending credit for the purpose
of purchasing or carrying margin stock (within the meaning of Regulation U
issued by the Board of Governors of the Federal Reserve System), and no
proceeds of any Advance will be used to purchase or carry any margin stock
or to extend credit to others for the purpose of purchasing or carrying any
margin stock.
ARTICLE IV
EVENTS OF DEFAULT
SECTION 4.01. Events of Default. If any of the following
events ("Events of Default") shall occur and be continuing:
(a) Failure to Make Payments When Due. Failure of IMH to
pay any principal, interest or other amount due under the Note when due,
whether at stated maturity, by demand or otherwise; or
(b) Breach of Covenants. Failure of IMH to perform or observe any other
term, covenant or agreement on its part to be performed or observed
pursuant to this Agreement or the Note; or
(c) Breach of Representation or Warranty. Any representation or warranty
made by IMH to ICH in connection with this Agreement or the Note shall
prove to have been false in any material respect when made; or
(d) Dissolution of IMH. Any order, judgment or decree shall be entered
against IMH decreeing the dissolution or split-up of IMH; or
(e) Suspension of Business; Liquidation. Suspension of
the usual business activities of IMH or the complete or partial liquidation
of IMH's business; or
(f) Involuntary Bankruptcy, etc. (i) A court having jurisdiction in the
premises shall enter a decree or order for relief in respect of IMH or any
of its subsidiaries in an involuntary case under Title 11 of the United
States Code entitled "Bankruptcy" (as now and hereinafter in effect, or any
successor thereto, the "Bankruptcy Code") or any applicable bankruptcy,
insolvency or other similar law now or hereafter in effect, which decree or
order is not stayed; or any other similar relief shall be granted under any
applicable federal or state law; or (ii) an involuntary case shall be
commenced against IMH or any of its subsidiaries under any applicable
bankruptcy, insolvency or other similar law now or hereafter in effect; or
a decree or order of a court having jurisdiction in the premises for the
appointment of a receiver, liquidator, sequestrator, trustee, custodian or
other officer having similar powers over IMH or any of its subsidiaries or
over all or a substantial part of its property shall have been entered; or
the involuntary appointment of an interim receiver, trustee or other
custodian of IMH or any of its subsidiaries for all or a substantial part
of its property shall have occurred; or a warrant of attachment, execution
or similar process shall have been issued against any substantial part of
the property of IMH or any of its subsidiaries, and, in the case of any
event described in this clause (ii), such event shall have continued for 60
days unless dismissed, bonded or discharged; or
(g) Voluntary Bankruptcy, etc. An order for relief shall be entered with
respect to IMH or any of its subsidiaries or IMH or any of its subsidiaries
shall commence a voluntary case under the Bankruptcy Code or any applicable
bankruptcy, insolvency or other similar law now or hereafter in effect, or
shall consent to the entry of an order for relief in an involuntary case,
or to the conversion of an involuntary case to a voluntary case, under any
such law, or shall consent to the appointment of or taking possession by a
receiver, trustee or other custodian for all or a substantial part of its
property; or IMH or any of its subsidiaries shall make an assignment for
the benefit of creditors; or IMH or any of its subsidiaries shall be unable
or fail, or shall admit in writing its inability, to pay its debts as such
debts become due; or the Board of Directors of IMH or any of its
subsidiaries (or any committee thereof) shall adopt any resolution or
otherwise authorize action to approve any of the foregoing;
then, and in any such event, ICH may, by notice to IMH, (i) declare its
obligation to make Advances to be terminated, whereupon the same shall
forthwith terminate, and (ii) declare the Note, all interest thereon and
all other amounts payable under this Agreement to be forthwith due and
payable, whereupon the Note, all such interest and all such amounts shall
become and be forthwith due and payable, without presentment, demand,
protest or further notice of any kind, all of which are hereby expressly
waived by IMH.
ARTICLE V
MISCELLANEOUS
SECTION 5.01. Amendments, Etc. No amendment or waiver of any provision of
this Agreement or the Note, nor consent to any departure by IMH therefrom,
shall in any event be effective unless the same shall be in writing and
signed by ICH and then such waiver or consent shall be effective only in
the specific instance and for the specific purpose for which given.
SECTION 5.02. Notices, Etc. All notices and other communications provided
for hereunder shall be in writing (including facsimile, electronic
transmission and telegraphic communication) and mailed or telegraphed or
delivered, if to IMH, at its address at 20371 Irvine Avenue, Santa Ana
Heights, California 92707, Attention: Richard J. Johnson, Chief Financial
Officer and if to ICH, at the same address, attention William S. Ashmore,
President or, as to each party, at such other address as shall be
designated by such party in a written notice to the other party. All such
notices and communications shall, when mailed, be effective when deposited
in the mails, respectively, addressed as aforesaid, except that notices to
ICH pursuant to the provisions of Article I shall not be effective until
received by ICH.
SECTION 5.03. No Waiver; Remedies. No failure on the part of ICH to
exercise, and no delay in exercising, any right under any Loan Document
shall operate as a waiver thereof; nor shall any single or partial exercise
of any right under any Loan Document preclude any other or further exercise
thereof or the exercise of any other right. The remedies provided in the
Loan Documents are cumulative and not exclusive of any remedies provided by
law.
SECTION 5.04. Accounting Terms. All accounting terms not
specifically defined herein shall be construed in accordance with generally
accepted accounting principles consistently applied, except as
otherwise stated herein.
SECTION 5.05. Costs, Expenses and Taxes. IMH agrees to pay on demand all
costs and expenses in connection with the preparation, execution, delivery,
filing, recording and administration of the Loan Documents and the other
documents to be delivered under the Loan Documents, including, without
limitation, the reasonable fees and out-of-pocket expenses of counsel for
ICH, and local counsel who may be retained by said counsel, with respect
thereto and with respect to advising ICH as to its rights and
responsibilities under the Loan Documents, and all costs and expenses, if
any (including reasonable counsel fees and expenses), in connection with
the enforcement of the Loan Documents and the other documents to be
delivered under the Loan Documents. In addition, IMH shall pay any and all
stamp and other taxes and fees payable or determined to be payable in
connection with the execution, delivery, filing and recording of the Loan
Documents and the other documents to be delivered under the Loan Documents,
and agrees to save ICH harmless from and against any and all liabilities
with respect to or resulting from any delay in paying or omission to pay
such taxes and fees.
SECTION 5.06. Binding Effect; Governing Law. The Agreement shall be binding
upon and inure to the benefit of IMH and ICH and their respective
successors and assigns, except that IMH shall not have the right to assign
its rights hereunder or any interest herein without the prior written
consent of ICH. THIS AGREEMENT AND THE NOTE SHALL BE GOVERNED BY, AND SHALL
BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE
STATE OF CALIFORNIA, WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES, EXCEPT
TO THE EXTENT THAT THE CODE PROVIDES THAT THE VALIDITY OR PERFECTION OF THE
SECURITY INTEREST HEREUNDER, OR REMEDIES HEREUNDER, IN RESPECT OF ANY
PARTICULAR COLLATERAL ARE GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN
THE STATE OF CALIFORNIA. Unless otherwise defined herein or the Note, terms
used in Articles 8 and 9 of the Uniform Commercial Code in the State of
California are used herein as therein defined.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized, as of the
21st day of August 1997.
IMPERIAL CREDIT MORTGAGE HOLDINGS, INC.
By: /s/ Richard J. Johnson
Name: Richard J. Johnson
Title: Chief Financial Officer
IMH COMMERCIAL HOLDINGS, INC.
By: /s/ William S. Ashmore
Name: William S. Ashmore
Title: President
EXHIBIT A
IMPERIAL CREDIT MORTGAGE HOLDINGS, INC.
UNSECURED PROMISSORY NOTE
$_____________ Santa Ana Heights, California
FOR VALUE RECEIVED, the undersigned, IMPERIAL CREDIT MORTGAGE HOLDINGS,
INC., a Maryland corporation (the "Borrower"), HEREBY PROMISES TO PAY to
the order of IMH COMMERCIAL HOLDINGS, INC.("ICH") the principal sum of
__________________________Dollars ($_____________) or, if less, the
aggregate unpaid principal amount of all Advances made by ICH to Borrower
pursuant to the Credit Agreement (as hereinafter defined) outstanding on or
before the Termination Date (as defined in the Credit Agreement), together
with interest on any and all principal amounts remaining unpaid hereunder
from time to time outstanding from the date hereof until said principal
amounts are paid in full, payable during the term hereof and on the final
day when said principal amounts become due and payable, at an interest rate
per annum equal at all times to 10% per annum.
Interest accruing under this Note shall be payable monthly at the first of
each month. All advances made by ICH pursuant to the Credit Agreement shall
be due and payable with accrued interest, without demand by ICH, by not
later than the Termination Date.
Both principal and interest are payable in lawful money of the United
States of America to ICH at 20371 Irvine Avenue, Santa Ana Heights,
California 92707, in same day funds. All Advances made by ICH to Borrower
pursuant to the Credit Agreement and all payments made on account of
principal hereof shall be recorded by ICH, and, prior to any transfer
hereof, endorsed on the grid attached hereto which is part of this
Promissory Note.
This Promissory Note is the Note referred to in, and is entitled to the
benefits of, the Revolving Credit and Term Loan Agreement dated as of
August _____, 1997 (the "Credit Agreement") between Borrower and ICH
referred to therein and entered into pursuant thereto. The Credit
Agreement, among other things, contains provisions for acceleration of the
maturity hereof upon the happening of certain stated events and also for
prepayments on account of principal hereof prior to the maturity hereof
upon the terms and conditions therein specified.
IN WITNESS WHEREOF, Borrower has caused this Note to be executed and
delivered by its duly authorized officer as of August ___, 1997.
IMPERIAL CREDIT MORTGAGE HOLDINGS, INC.
By:__________________________
Name: Richard J. Johnson
Title: Chief Financial Officer
Dated: August ___, 1997
Exhibit 11. Statement Regarding Computation of Earnings per Share
IMPERIAL CREDIT MORTGAGE HOLDINGS, INC.
Statement Regarding Computation of Earnings per share
(dollars in thousands, except per share data)
For the Three Months For the Three Months
Ended September 30, 1997 Ended September 30, 1996
--------------------------- --------------------------
Net income $ 7,194 $ 3,565
--------------------------- --------------------------
Average number of shares outstanding(a) 15,621 10,151
Net effect of dilutive stock options-
Based on treasury stock method using
Average market price(a) 215 152
Total average shares 15,836 10,303
--------------------------- --------------------------
Net income per share $ 0.45 $ 0.35
=========================== ==========================
For the Nine Months For the Nine Months
Ended September 30, 1997 Ended September 30, 1996
--------------------------- --------------------------
Net income $ 18,733 $ 7,394
--------------------------- --------------------------
Average number of shares outstanding(a) 14,738 7,812
Net effect of dilutive stock options-
Based on treasury stock method using
Average market price(a) 209 122
Total average shares 14,947 7,934
--------------------------- --------------------------
Net income per share $ 1.25 $ 0.93
=========================== ==========================
(a) Adjusted for a 3 for 2 stock split payable on November 24, 1997 to stockholders of record on November 3, 1997.
27 Financial Data Schedule
Reports on Form 8-K:
Current Report on Form 8-K for September 22, 1997 reporting Items 5
and 7.
Current Report on Form 8-K filed on August 8, 1997 reporting Item
5.
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: November 14, 1997
9
1,000
9-MOS 9-MOS
DEC-31-1996 DEC-31-1995
JAN-01-1997 JAN-01-1996
SEP-30-1997 SEP-30-1996
35,907 4,988
0 0
0 0
0 0
0 0
0 0
71,371 47,942
1,104,507 728,878
(5,720) (3,839)
1,296,147 795,442
0 0
399,292 191,129
6,338 1,732
645,145 517,875
0 0
0 0
135 68
238,538 81,119
1,296,147 795,442
76,709 44,338
0 0
0 0
0 0
0 0
54,816 31,372
21,893 12,966
4,243 3,739
648 0
5,707 3,158
18,733 7,394
18,733 7,394
0 0
0 0
18,733 7,394
1.25 .93
1.25 .93
0 0
0 0
0 0
0 0
0 0
8,613 100
2,893 0
0 0
5,720 3,839
5,720 3,839
0 0
0 0
