Impac Mortgage Holdings, Inc. (NYSE MKT:IMH) announces the
financial results for the quarter ended March 31, 2017.
For the first quarter of 2017, the Company reported GAAP net
earnings of $4.6 million, or $0.29 per diluted common share, and
Adjusted Operating Income (as defined below) of $2.2 million, or
$0.12 per diluted common share, as compared to GAAP net earnings of
$981 thousand, or $0.08 per diluted common share, and Adjusted
Operating Income of $7.0 million, or $0.60 per diluted common share
for the first quarter of 2016.
Operating income, excluding the changes in contingent
consideration (“Adjusted Operating Income”), is considered a
non-GAAP financial measurement; see the discussion and
reconciliation on non-GAAP financial measures below.
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Results of Operations |
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For the Three Months
Ended |
(in thousands, except share data) |
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March 31, |
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December 31, |
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March 31, |
(unaudited) |
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2017 |
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2016 |
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2016 |
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Revenues: |
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Gain on
sale of loans, net |
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$ |
37,319 |
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$ |
65,168 |
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$ |
53,869 |
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Real
estate services fees, net |
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1,633 |
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1,622 |
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|
2,100 |
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Servicing
income, net |
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7,320 |
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5,054 |
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|
2,088 |
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(Loss)
gain on mortgage servicing rights, net |
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(977 |
) |
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4,808 |
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(10,910 |
) |
Other |
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47 |
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598 |
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|
152 |
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Total
revenues |
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45,342 |
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77,250 |
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47,299 |
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Expenses: |
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Personnel
expense |
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24,919 |
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31,534 |
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23,965 |
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Business
promotion |
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10,231 |
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11,742 |
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9,191 |
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General,
administrative and other |
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8,023 |
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10,030 |
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7,162 |
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Accretion
of contingent consideration |
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|
845 |
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1,753 |
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|
1,895 |
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Change in
fair value of contingent consideration |
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|
539 |
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(4,424 |
) |
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2,942 |
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Total
expenses |
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44,557 |
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50,635 |
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45,155 |
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Operating income: |
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785 |
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26,615 |
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2,144 |
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Other income (expense): |
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Net
interest income (expense) |
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446 |
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754 |
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(101 |
) |
Change in
fair value of long-term debt |
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(2,497 |
) |
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(7,150 |
) |
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— |
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Change in
fair value of net trust assets |
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6,319 |
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(2,913 |
) |
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(627 |
) |
Total
other (expense) income |
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4,268 |
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(9,309 |
) |
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(728 |
) |
Net
earnings before income taxes |
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5,053 |
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17,306 |
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1,416 |
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Income
tax expense |
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426 |
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|
365 |
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|
435 |
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Net
earnings |
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$ |
4,627 |
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$ |
16,941 |
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$ |
981 |
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Diluted
weighted average common shares |
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17,422 |
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17,479 |
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11,668 |
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Diluted
earnings per share |
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$ |
0.29 |
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$ |
1.00 |
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$ |
0.08 |
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Net earnings include certain fair value adjustments, which are
non-cash items and are not related to current operating
results. Although we are required by GAAP to record these
fair value adjustments, management believes Adjusted Operating
Income as defined above is more useful to discuss the ongoing and
future operations of the Company, shown in the table below:
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Adjusted Operating Income |
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For the Three Months
Ended |
(in thousands, except share data) |
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March 31, |
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December 31, |
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March 31, |
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2017 |
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2016 |
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|
2016 |
Net earnings: |
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$ |
4,627 |
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$ |
16,941 |
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$ |
981 |
Total
other (income) expense |
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(4,268 |
) |
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9,309 |
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|
728 |
Income
tax expense |
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|
426 |
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|
365 |
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|
435 |
Operating income: |
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$ |
785 |
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$ |
26,615 |
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$ |
2,144 |
Accretion
of contingent consideration |
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|
845 |
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|
1,753 |
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|
1,895 |
Change in
fair value of contingent consideration |
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|
539 |
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(4,424 |
) |
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2,942 |
Adjusted operating income |
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$ |
2,169 |
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$ |
23,944 |
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$ |
6,981 |
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Diluted
weighted average common shares |
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17,422 |
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17,479 |
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11,668 |
Diluted adjusted operating income per share |
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$ |
0.12 |
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$ |
1.37 |
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$ |
0.60 |
Adjusted Operating Income decreased to $2.2 million, or $0.12
per diluted common share, for the first quarter of 2017 as compared
to $7.0 million, or $0.60 per diluted common share, in in the first
quarter of 2016. The decrease in operating income was
primarily due to a decrease in gain on sale of loans of $16.6
million resulting from a 33% decrease in total originations volume
(as discussed below). With the higher interest rate
environment subsequent to the U.S. Presidential election in
mid-November, the previously anticipated drop in refinance volume
was the primary reason for the decline in operating income in the
first quarter of 2017. However, as a result of a higher volume of
NonQM and government loans, gain on sale margins increased by 7
basis points (“bps”) to 236 bps in the first quarter of 2017, as
compared to 229 basis points in the first quarter of 2016. In
the first quarter of 2017, NonQM and government originations
represented approximately 39% of total originations, as compared to
just 20% of total originations in the first quarter of 2016.
Selected
Operational Data |
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(in millions) |
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3/31/2017 |
12/31/2016 |
% Change |
3/31/2016 |
% Change |
Mortgage Servicing
Portfolio (UPB) |
$ |
13,241.9 |
$ |
12,351.5 |
7% |
$ |
5,161.0 |
157 |
% |
As a result of the retention of servicing starting in 2016, the
unpaid principal balance (“UPB”) of the Company’s mortgage
servicing portfolio increased 157% to $13.2 billion as of March 31,
2017 from March 31, 2016. The servicing portfolio generated
net servicing income of $7.3 million in the first quarter of 2017,
a 251% increase over the net servicing income of $2.1 million in
the first quarter of 2016. Additionally, delinquencies within
the servicing portfolio remain low at 0.27% for 60+ delinquencies
as of March 31, 2017.
The loss on mortgage servicing rights in the first quarter was
primarily due to mark-to-market (“MTM”) changes from amortization
of mortgage servicing rights (“MSR”) in the first quarter.
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Selected
Operational Data |
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(in millions) |
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Q1 2017 |
Q4 2016 |
% Change |
Q1 2016 |
% Change |
Retail
Originations |
$ |
1,066.2 |
$ |
2,250.4 |
-53 |
% |
$ |
1,653.0 |
-35 |
% |
Correspondent
Originations |
$ |
271.2 |
$ |
539.9 |
-50 |
% |
$ |
376.9 |
-28 |
% |
Wholesale
Originations |
$ |
242.6 |
$ |
320.3 |
-24 |
% |
$ |
319.3 |
-24 |
% |
Total Originations |
$ |
1,580.0 |
$ |
3,110.6 |
-49 |
% |
$ |
2,349.2 |
-33 |
% |
During the first quarter of 2017, total originations decreased
33% to $1.6 billion as compared to $2.3 billion in the first
quarter of 2016. This decrease was caused by the previously
anticipated drop in refinance volume as a result of rising interest
rates at the end of last year and into the first quarter of
2017.
During the first quarter of 2017, the origination volume of
NonQM loans increased to $184.3 million, as compared to just $289.6
million of NonQM production for all of 2016, and $86.3 million in
the fourth quarter of 2016. There was an increase in NonQM
origination volume across all channels in the first quarter of 2017
with 40% of the volume from the retail channel and 60% from the
wholesale and correspondent channels. In the fourth quarter
of 2016, retail originations only accounted for 12% of NonQM
production, while wholesale and correspondent originations
accounted for nearly 88% of NonQM production.
Additionally, in the first quarter of 2017, the Company’s
government loan production increased to $428.4 million, as compared
to $394.0 million in the first quarter of 2016. NonQM
mortgages are typically a higher margin product for the
Company.
As of March 31, 2017, our locked pipeline, which represents
mortgages we expect to close in the near future, was $553.1
million. However, as of March 31, 2017, our NonQM pipeline
had increased to approximately $201.8 million as compared to $147.9
million at December 31, 2016.
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Summary Balance
Sheet |
March 31, |
December
31, |
(in thousands) |
|
2017 |
|
2016 |
ASSETS |
|
|
Cash |
$ |
19,531 |
$ |
40,096 |
Mortgage
loans held-for-sale |
|
434,322 |
|
388,422 |
Finance
receivables |
|
37,556 |
|
62,937 |
Mortgage
servicing rights |
|
141,586 |
|
131,537 |
Securitized mortgage trust assets |
|
3,911,676 |
|
4,033,290 |
Goodwill
and intangibles |
|
129,667 |
|
130,716 |
Deferred
tax asset |
|
24,420 |
|
24,420 |
Other
assets |
|
52,600 |
|
52,316 |
Total assets |
$ |
4,751,358 |
$ |
4,863,734 |
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LIABILITIES & STOCKHOLDERS' EQUITY |
|
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Warehouse
borrowings |
$ |
441,832 |
$ |
420,573 |
Debt |
|
110,144 |
|
102,082 |
Securitized mortgage trust liabilities |
|
3,892,668 |
|
4,017,603 |
Contingent consideration |
|
24,498 |
|
31,072 |
Other
liabilities |
|
46,019 |
|
61,364 |
Total liabilities |
|
4,515,161 |
|
4,632,694 |
Total stockholders’equity |
|
236,197 |
|
231,040 |
Total liabilities and stockholders’
equity |
$ |
4,751,358 |
$ |
4,863,734 |
In April 2017, the Company completed a successful $56 million
common stock registered direct offering. The estimated net
proceeds to the Company from the sale of the shares of common stock
in the registered direct offering were approximately $55.4
million. The Company intends to use the net proceeds to
continue to expand its servicing portfolio and assist with the
Company’s anticipated return to the securitization market with its
rapidly growing NonQM production. Additionally, the net
proceeds provide the Company the ability to continue to expand into
diversified income platforms and take advantage of strategic
opportunities as they arise.
Mr. Joseph Tomkinson, Chairman and CEO of Impac Mortgage
Holdings, Inc., commented, “We continue to see increased interest
in NonQM loan products from both our investors and consumers.
Currently, with a pipeline of over $225 million of NonQM
production, we have reached a monthly run rate of nearly $100
million. We also continue to see more opportunities for
increased efficiencies and process improvement through proprietary
technology we are developing. ”
Non-GAAP Financial Measures
This release contains operating income excluding changes in
contingent consideration (Adjusted Operating Income) and per share
as performance measures, which are considered non-GAAP financial
measures, to further aid our investors in understanding and
analyzing our core operating results and comparing them among
periods. Adjusted Operating Income and Adjusted Operating
Income per share exclude certain items that we do not consider part
of our core operating results. These non-GAAP financial measures
are not intended to be considered in isolation or as a substitute
for net earnings before income taxes, net earnings or diluted EPS
prepared in accordance with GAAP. The table below shows
operating income per share excluding these items:
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For the Three Months
Ended |
|
|
March 31, |
|
December 31, |
|
March 31, |
|
|
2017 |
|
|
2016 |
|
|
2016 |
Diluted earnings per share |
|
$ |
0.29 |
|
|
$ |
1.00 |
|
|
$ |
0.08 |
Adjustments: |
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|
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Total
other (expense) income (1) |
|
|
(0.27 |
) |
|
|
0.50 |
|
|
|
0.07 |
Income
tax expense |
|
|
0.02 |
|
|
|
0.02 |
|
|
|
0.04 |
Accretion
of contingent consideration |
|
|
0.05 |
|
|
|
0.10 |
|
|
|
0.16 |
Change in
fair value of contingent consideration |
|
|
0.03 |
|
|
|
(0.25 |
) |
|
|
0.25 |
Diluted adjusted operating income per share |
|
$ |
0.12 |
|
|
$ |
1.37 |
|
|
$ |
0.60 |
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(1) Includes the add back of interest expense on the convertible
notes, net of tax used to calculate diluted earnings using the
if-converted method.
Conference Call
The Company will hold a conference call on May 10, 2017, at 9:00
a.m. Pacific Time (12:00 p.m. Eastern Time) to discuss the
Company’s financial results and business outlook and to answer
investor questions. After the Company’s prepared remarks,
management will host a live Q&A session. To submit
questions via email, please email your questions to
Justin.Moisio@ImpacMail.com. Investors may participate in the
conference call by dialing (844) 265-1560 conference ID number
18688383, or access the web cast via our web site at
http://ir.impaccompanies.com. To participate in the conference
call, dial in 15 minutes prior to the scheduled start time. The
conference call will be archived on the Company's web site at
http://ir.impaccompanies.com.
Forward-Looking Statements
This press release contains certain forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. Forward-looking
statements, some of which are based on various assumptions and
events that are beyond our control, may be identified by reference
to a future period or periods or by the use of forward looking
terminology, such as “may,” “capable,” “will,” “intends,”
“believe,” “expect,” “likely,” “potentially” ”appear,”
“should,” “could,” “seem to,” “anticipate,” “expectations,” “plan,”
“ensure,” or similar terms or variations on those terms or the
negative of those terms. The forward-looking statements are based
on current management expectations. Actual results may differ
materially as a result of several factors, including, but not
limited to the following: failure to achieve the benefits
expected from the acquisition of the CCM operations, including an
increase in origination volume generally, increase in each of our
origination channels and ability to successfully use the marketing
platform to expand volumes of our other loan products; successful
development, marketing, sale and financing of new and existing
financial products, including expansion of non-Qualified Mortgage
originations and conventional and government loan programs; ability
to successfully diversify our mortgage products; volatility in the
mortgage industry; unexpected interest rate fluctuations and margin
compression; our ability to manage personnel expenses in relation
to mortgage production levels; our ability to successfully use
warehousing capacity; increased competition in the mortgage lending
industry by larger or more efficient companies; issues and system
risks related to our technology; ability to successfully create
cost and product efficiencies through new technology; more than
expected increases in default rates or loss severities and mortgage
related losses; ability to obtain additional financing through
lending and repurchase facilities, debt or equity funding,
strategic relationships or otherwise; the terms of any
financing, whether debt or equity, that we do obtain and our
expected use of proceeds from any financing; increase in loan
repurchase requests and ability to adequately settle repurchase
obligations; failure to create brand awareness; the outcome,
including any settlements, of litigation or regulatory actions
pending against us or other legal contingencies; and our compliance
with applicable local, state and federal laws and regulations and
other general market and economic conditions.
For a discussion of these and other risks and uncertainties that
could cause actual results to differ from those contained in the
forward-looking statements, see the annual and quarterly reports we
file with the Securities and Exchange Commission. This document
speaks only as of its date and we do not undertake, and
specifically disclaim any obligation, to release publicly the
results of any revisions that may be made to any forward-looking
statements to reflect the occurrence of anticipated or
unanticipated events or circumstances after the date of such
statements.
About the Company
Impac Mortgage Holdings, Inc. (IMH or Impac) provides innovative
mortgage lending and warehouse lending solutions, as well as real
estate solutions that address the challenges of today’s economic
environment. Impac’s operations include mortgage and
warehouse lending, servicing, portfolio loss mitigation and real
estate services as well as the management of the securitized
long-term mortgage portfolio, which includes the residual interests
in securitizations.
For additional information, questions or comments, please call
Justin Moisio, VP Business Development & Investor Relations at
(949) 475-3988 or email Justin.Moisio@ImpacMail.com. Web site:
http://ir.impaccompanies.com or www.impaccompanies.com