Impac Mortgage Holdings Inc., a Maryland corporation, has reported earnings of $10.8 million (excluding preferred stock dividend of $7.4 million) during the year ended 2009, as compared to a loss of $44.7 million in 2008. Also, in 2009, the company completed a purchase of 4.4 million shares of its preferred stock. As part of the purchase, which is considered a redemption for purposes of determining earnings per common share under GAAP, the company paid $1.3 million plus the dividends referred to above. Our diluted net earnings per common share before redemption during 2009 was $0.44 as compared with a loss of $7.34 during 2008. The effect of the preferred stock redemption was significantly accretive to common shareholders as we purchased preferred stock with a carrying value of $106.1 million for $1.3 million resulting in a benefit to common shareholders of $104.8 million. However, because of the special nature of the preferred stock redemption (which the Company considers an infrequently occurring item), management believes that earnings per common share excluding such transaction are more meaningful from an operations standpoint.
The economy continued to contract during 2009 before showing modest signs of improvement toward the end of the year. The current economic environment, considered the worst recession on record since the Great Depression, continues to adversely affect the credit performance of the Company’s long-term mortgage portfolio. The economy remains weak, as evidenced by many key economic indicators. Notably, the national unemployment rate increased to 10.1% in October 2009 before declining to 10.0% at the end of the fourth quarter and 9.7% at January 2010. Higher unemployment and weaker overall economic conditions have led to a significant increase in the number of loan defaults, while continued weak housing prices have driven a significant increase in loan loss severities. Activity in the housing sector increased, with new home construction picking up for the first time in three and a half years. Home price appreciation, housing starts and home sales began to exhibit some modest signs of recovery during the second half of the year. Inflation has remained low, and the Federal Reserve indicated that the federal funds rate would likely remain low for an “extended period,” reiterating its intent to continue to use a wide range of tools to promote economic recovery and maintain price stability.
During 2009, the company continued to implement steps to restructure its debt obligations and establish new lines of business in building an integrated mortgage services platform that provides solutions to the mortgage and real estate markets. The company continued to improve its liquidity by successfully restructuring its debt obligations in 2009 by both settling and exchanging several significant liabilities, including:
►The company purchased and canceled $28.5 million in outstanding trust preferred securities for $4.3 million. Additionally, the company exchanged an aggregate of $51.3 million in trust preferred securities for junior subordinated notes with an aggregate principal balance of $62.0 million. Under the terms of the exchange, the interest rate for each note was reduced from the original 8.01 percent to 2.00 percent through 2013 with increases of 1.00 percent per year through 2017, at which point they become variable at 3-month LIBOR plus 375 basis points. Through December 31, 2009, the company has successfully settled or restructured $87.8 million of the original $96.3 million in trust preferred securities issued, reducing its annual interest expense obligation from $7.8 million to approximately $2.0 million.
►The company completed the aforementioned purchase of 4.4 million shares of its preferred stock, representing a liquidation value of $109.5 million, for $1.3 million plus $7.4 million in accumulated but unpaid dividends. In connection with the purchase, the Company eliminated its $14.9 million annual preferred dividend obligation.
►The company entered into a settlement agreement (the Settlement Agreement) with its remaining reverse repurchase facility lender to settle its remaining restructured reverse repurchase line. The agreement retired this facility and removed any further exposure associated with the line or the loans that secured the line. Pursuant to the terms of the settlement agreement, the company (i) settled the $140.0 million balance of the restructured reverse repurchase line by transferring the loans securing the line to the lender at their approximate carrying values, (ii) made a cash payment of $20.0 million and (iii) entered into a credit agreement (the Credit Agreement) with the lender for a $33.9 million term loan, which is to be paid over 18 months.
►The company also initiated various mortgage and real estate fee-based business activities, including loss mitigation, real estate disposition, monitoring and surveillance services, real estate brokerage and lending services and title and escrow services. The Company has been able to develop and enhance its service offerings in providing services to investors, servicers and individual borrowers primarily by focusing on loss mitigation and performance of our own long-term mortgage portfolio. These services have currently generated fees primarily from the Company’s long-term mortgage portfolio and to a lesser extent from the marketplace, but we intend to expand service offerings to the marketplace. The development of these business activities focuses on vertical integration of a centralized platform which we believe we can operate synergistically to maximize their success.
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