Imperial Holdings, Inc. Announces Third Quarter 2012 Results

BOCA RATON, Fla.--()--Imperial Holdings, Inc. (NYSE: IFT) ("Imperial" or the "Company"), a specialty finance company with a focus on providing liquidity solutions to owners of illiquid financial assets, today announced financial results for its third quarter ended September 30, 2012.

“To that end, in our Structured Settlements business segment, we have better aligned our expenses with revenues and expect to operate that business segment near breakeven or better starting with the first quarter of 2013”

Total income (loss) was ($14.2 million) for the three months ended September 30, 2012, compared to total income (loss) of ($1.8 million) for the three months ended September 30, 2011, an increase of $12.4 million. Total expenses were $17.3 million for the three months ended September 30, 2012, compared to $18.6 million for the three months ended September 30, 2011, a decrease of $1.3 million. A significant portion of the Company’s expenses during third quarter of 2012 is attributable to the proposed settlements of the class action and related litigation that arose in the wake of the now settled federal investigation of the Company's legacy premium finance business. The Company established a reserve for the settlements with a corresponding receivable for insurance recoveries. The net expense of $5.1 million is included in the Company’s total expenses for the three months ended September 30, 2012. Included in this amount is a non-cash charge of $3.1 million associated with the future issuance of 2 million warrants and $500,000 associated with the future issuance of common stock, as contemplated in the proposed settlement terms. The final value of the warrants will be determined at issuance. The Company posted a net loss of $31.5 million or $1.48 per fully diluted share for the three ended September 30, 2012, compared to a net loss of $12.6 million, or $0.59 per fully diluted share, for the three months ended September 30, 2011.

In our life finance segment, income (loss) was ($17.0 million) during the third quarter of 2012 compared to income (loss) of ($5.5 million) for the third quarter of 2011, an increase of $11.5 million. Income (loss) was driven by a ($17.5 million) aggregate decline in the fair value of the Company's portfolio of 212 life insurance policies to $102.3 million. This decline resulted from applying updated life expectancy reports, which the Company began procuring in anticipation of a capital raising transaction. At September 30, 2012, however, the Company only applied updated reports with respect to 143 of the 212 lives represented in its portfolio and believes that insureds who have deteriorated in health are generally less likely to be responsive to requests for updated medical information. As such, any deteriorations in the health of unresponsive insureds are not reflected in the fair value calculation for the third quarter. For the year ago quarter, the life finance segment posted income (loss) of ($5.5 million), inclusive of a $14.1 decline, to $92 million, in the fair value of the Company's then portfolio of 170 life insurance policies. Fair value of the Company's investment in life settlements compared to the prior year period was also negatively impacted by the increase in weighted average discount rate used in the Company's fair value model to 24.61% at September 30, 2012 from 19.51% at September 30, 2011. Segment expenses were $3.7 million during the three months ended September 30, 2012 compared to $11.2 million during the three months ended September 30, 2011, a decline of $7.5 million. Segment operating loss was $20.7 million during the three months ended September 30, 2012, an increase of $4.0 million over segment operating loss of $16.7 million recorded during the three months ended September 30, 2011.

In our Structured Settlement business segment, income was $2.8 million for the three months ended September 30, 2012 compared to $3.4 million for the three months ended September 30, 2011. Segment expenses decreased by $1.6 million to $5.3 million during the third quarter of 2012 compared to $6.9 million in the year ago period, driven by a decrease in advertising expenses of $720,000 and payroll and related costs of $516,000 attributable to a reduction of head count. Segment operating loss was $2.5 million during the three months ended September 30, 2012 compared to segment operating losses of $3.5 million recorded during the three months ended September 30, 2011. The Company originated 253 transactions during the third quarter of 2012 compared to 211 during the same period of 2011, a 19.9% increase.

As of September 30, 2012, the Company had $40.6 million of cash and cash equivalents, and marketable securities. The Company has subsequently reported it has cash and cash equivalents, and marketable securities of $20.3 million at December 31, 2012. The aggregate face value of the Company's portfolio of life insurance policies was $1.1 billion and the book value of the company at September 30, 2012 was $6.14 per share.

Antony Mitchell, Chief Executive Officer, commented, “Our financial results during the quarter were impacted adversely by non-cash adjustments to the fair value of our investments in life settlements. The decrease in portfolio value resulted from updating certain life expectancy reports in anticipation of a potential financing transaction. Moving forward, we are keenly focused on our cash position and are pursuing financing opportunities to ensure the preservation and maximization of the value of our balance sheet assets.”

“To that end, in our Structured Settlements business segment, we have better aligned our expenses with revenues and expect to operate that business segment near breakeven or better starting with the first quarter of 2013,” concluded Mr. Mitchell.

About Imperial Holdings, Inc.

Imperial is a leading specialty finance company that, through its operating subsidiaries, provides customized liquidity solutions to owners of illiquid financial assets. Imperial’s primary operating units are Life Finance and Structured Settlements. In its Life Finance unit, Imperial purchases and sells life insurance policies. In its Structured Settlements unit, Imperial purchases from individuals long-term annuity payments issued by highly rated U.S. insurance companies. More information about Imperial can be found at www.imperial.com.

Safe Harbor Statement

This press release may contain certain "forward-looking statements" relating to the business of Imperial Holdings, Inc. and its subsidiary companies. All statements, other than statements of historical fact included herein are "forward-looking statements." These forward-looking statements are often identified by the use of forward-looking terminology such as "believes," "expects" or similar expressions, and involve known and unknown risks and uncertainties. Although Imperial believes that the expectations reflected in these forward-looking statements are reasonable, they do involve assumptions, risks and uncertainties, and these expectations may prove to be incorrect. Investors should not place undue reliance on these forward-looking statements, which speak only as of the date of this press release. Imperial's actual results could differ materially from those anticipated in these forward-looking statements as a result of a variety of factors, including the Company’s ability to resolve the previously disclosed issues relating to the delay in its ability to complete and file its periodic reports; unanticipated issues that require additional efforts, procedures or review; ability of the Company or its independent registered public accounting firm to confirm relevant information or data; the Company’s ability to design or improve internal controls to address identified issues; the impact upon operations of legal compliance matters or internal controls review; the investigation by the Securities and Exchange Commission, and potential adverse outcomes associated with the investigations, including payments or fines the Company may be required to make, restrictions placed upon the Company and legal proceedings that may relate to these matters; the possibility that payments due to the Company under certain policies may be delayed; the amount of legal expenses for which the Company is reimbursed under its directors and officers insurance policy; the accuracy of actuarial assumptions underlying the Company’s models; the effect of policy premium payments on the Company’s liquidity; the Company’s continued ability to pay policy premiums; unanticipated accounting issues or audit issues regarding the financial data for the affected periods and future periods; and expenses associated with the foregoing, including costs of legal compliance matters or matters relating to the ongoing internal investigation and additional matters discussed in Imperial's periodic reports that are filed with the Securities and Exchange Commission and available on its website at www.sec.gov. All forward-looking statements attributable to Imperial or persons acting on its behalf are expressly qualified in their entirety by these factors. Other than as required under the securities laws, Imperial does not assume a duty to update these forward-looking statements.

Structured Settlements Business Segment Data

       
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
2012   2011   2012   2011  
Period Originations:
Number of transactions 253 211 756 618
Number of transactions from repeat customers 94 78 263 218
Average purchase discount rate 18.9 % 17.6 % 18.8 % 18.0 %
Face value of undiscounted future payments purchased $ 34,186 $ 26,033 $ 99,565 $ 67,749
Amount paid for settlements purchased $ 5,604 $ 5,774 $ 17,519 $ 14,425
Marketing costs $ 1,034 $ 1,806 $ 4,481 $ 4,266
Selling, general and administrative (excluding marketing costs) $ 4,226 $ 5,095 $ 12,392 $ 10,969
Average Per Origination During Period:
Face value of undiscounted future payments purchased $ 135 $ 123 $ 132 $ 110
Amount paid for settlement purchased $ 22 $ 27 $ 23 $ 23
Time from funding to maturity (months) 121.9 147.9 129.2 151.9
Marketing cost per transaction $ 4 $ 9 $ 6 $ 7
Segment selling, general and administrative
(excluding marketing costs) per transaction $ 17 $ 24 $ 16 $ 18
Period Sales:
Number of transactions originated and sold 252 178 692 586
Realized gain on sale of structured settlements $ 2,187 $ 2,243 $ 7,796 $ 5,460
Average sale discount rate 10.7 % 10.6 % 10.7 % 10.3 %
End of Period Portfolio:
Number of transactions on balance sheet 130 115 130 115

Life Finance Business Segment Data

       
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
2012   2011   2012   2011  
 
Period Acquisitions — Policies Owned
Number of policies acquired 9 52 29 131
Average age of insured at acquisition 76.1 78.4 75.1 78.2
Average life expectancy - Calculated LE (Years) 12.7 10.1 13.4 10.1
Average death benefit $ 4,817 $ 5,547 $ 5,206 $ 5,056
Aggregate purchase price $ 2,255 $ 24,451 $ 5,034 $ 50,155
 
End of Period — Policies Owned
Number of policies owned 212 170 212 170
Average Life Expectancy - Calculated LE (Years) 10.5 10.5 10.5 10.5
Aggregate Death Benefit $ 1,058,156 $ 853,492 $ 1,058,156 $ 853,492
Aggregate fair value $ 102,328 $ 91,967 $ 102,328 $ 91,967
Monthly premium — average per policy $ 10.9 $ 11.0 $ 10.9 $ 11.0
 
End of Period Loan Portfolio
Loans receivable, net $

5,394

$ 46,446 $

5,394

$ 46,446
Number of policies underlying loans receivable 31 179 31 179
Aggregate death benefit of policies underlying loans receivable $ 135,725 $ 868,752 $ 135,725 $ 868,752
Number of loans with insurance protection 11 121 11 121
Loans receivable, net (insured loans only) $ 1,821 $ 29,923 $ 1,821 $ 29,923
Average Per Loan:
Age of insured in loans receivable 75.8 75.2 75.8 75.2
Life expectancy of insured (years) 15.2 15.2 15.2 15.2
Monthly premium $ 6 $ 6 $ 6 $ 6
Loan receivable, net $ 186 $ 259 $ 186 $ 259
Interest rate 12.9 % 12.2 % 12.9 % 12.2 %
 
Period Originations:
Number of loans originated (by type):
Type 1* - 6 - 44
Type 2** - 2 - 11
Principal balance of loans originated $ - $ 2,549 $ - $ 18,385
Aggregate death benefit of policies underlying loans originated $ - $ 38,000 $ - $ 311,850
Average Per Origination During Period:
Age of insured at origination - 76.0 - 75.7
Life expectancy of insured (years) - 13.8 - 14.5
Monthly premium (year of origination) $ - $ 7 $ - $ 11
Death benefit of policies underlying loans originated $ - $ 4,750 $ - $ 5,377
Principal balance of the loan $ - $ 319 $ - $ 334
Interest rate charged - 14.0 % - 14.0 %
Agency fee $ - $ 118 $ - $ 110
Agency fee as % of principal balance
Type 1* - 43.4 % - 39.0 %
Type 2** - 29.1 % - 20.7 %
Origination fee $ - $ 80 $ - $ 80
Annualized origination fee as % of principal balance - 18.9 % - 24.3 %
 
 
* We define Type 1 loans as loans that are collateralized by life insurance policies that have been in force less than two years.
 
** We define Type 2 loans as loans that are collateralized by life insurance policies that have been in force longer than two years.

Imperial Holdings, Inc. and Subsidiaries
CONSOLIDATED AND COMBINED BALANCE SHEETS
     
 
September 30, December 31,
2012   2011  
(Unaudited)
(In thousands except share data)
ASSETS
Assets
Cash and cash equivalents $ 16,455 $ 16,255
Restricted cash 1,148 691
Certificate of deposit - restricted - 891
Investment securities available for sale, at estimated fair value 24,173 57,242
Deferred costs, net 123 1,874
Prepaid expenses and other assets 14,634 3,277
Deposits - other 2,078 761
Interest receivable, net 1,356 5,758
Loans receivable, net 5,394 29,376
Structured settlement receivables at estimated fair value, net 2,496 12,376
Structured settlement receivables at cost, net 1,783 1,553
Investment in life settlements, at estimated fair value 102,328 90,917
Fixed assets, net 289 585
Other receivable   2,062     1,043  
Total assets $ 174,319   $ 222,599  
 
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Accounts payable and accrued expenses $ 11,237 $ 16,336
Other liabilities 24,993

4,279

Interest payable 358 5,505
Notes payable 1,222 19,277
Income taxes payable   6,295     6,295  
Total liabilities 44,105 51,692
Commitments and contingencies (Note 16)
Stockholders' Equity
Common stock (par value $0.01 per share 80,000,000 and 80,000,000 authorized;

21,206,121 and 21,202,614 issued and outstanding as of September 30, 2012 and December 31, 2011, respectively)

212 212
Additional paid-in-capital 237,960 237,755
Accumulated other comprehensive (loss) 7 (66 )
Accumulated deficit   (107,965 )   (66,994 )
Total stockholders' equity   130,214     170,907  
Total liabilities and stockholders' equity $ 174,319   $ 222,599  

Imperial Holdings, Inc. and Subsidiaries
CONSOLIDATED AND COMBINED STATEMENTS OF OPERATIONS (UNAUDITED)
         
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
  2012     2011     2012     2011  
(in thousands, except per share data)
 

Income

Agency fee income $ - $ 937 $ - $ 6,564
Interest income 252 2,289 1,856 7,031
Interest and dividends on investment securities available for sale 72 247 332 441
Origination fee income 45 1,753 483 5,858
Realized gain on sale of structured settlements 2,187 2,240 7,796 5,457
Realized gain on sale of life settlements - - 291 5
Gain on forgiveness of debt - 198 - 4,880
Unrealized change in fair value of life settlements (17,530 ) (14,074 ) (8,401 ) 14,811
Unrealized change in fair value of structured settlements 409 928 1,587 2,145
Servicing fee income 271 376 955 1,447
Gain on maturities of life settlements with subrogation rights, net - 3,188 6,090 3,188
Other income   123     155     989     481  
 
Total income (14,171 ) (1,763 ) 11,978 52,308
 
 

Expenses

Interest expense 141 1,660 1,219 7,431
Provision for losses on loans receivable - 3,583 441 3,712
(Gain) loss on loan payoffs and settlements, net (139 ) 261 14 3,927
Loss on life settlement write off 140 - 140 -
Amortization of deferred costs 254 1,409 1,751 4,913
Personnel costs 3,595 4,836 12,317 14,158
Marketing costs 1,034 1,754 4,481 4,185
Legal fees 9,328 1,821 22,918 4,187
Professional fees 1,559 1,452 5,272 4,238
Insurance 626 186 1,712 548
Other selling, general and administrative expenses   771     1,652     2,730     4,173  
Total expenses   17,309     18,614     52,995     51,472  
(Loss) income before income taxes (31,480 ) (20,377 ) (41,017 ) 836
(Benefit) provision for income taxes   (5 )   (7,827 )   (46 )   1,352  
Net loss $ (31,475 ) $ (12,550 ) $ (40,971 ) $ (516 )
 
Loss per share:
Basic $ (1.48 ) $ (0.59 ) $ (1.93 ) $ (0.03 )
Diluted $ (1.48 ) $ (0.59 ) $ (1.93 ) $ (0.03 )
Weighted average shares outstanding:
Basic   21,206,121     21,202,614     21,205,622     18,728,435  
Diluted   21,206,121     21,202,614     21,205,622     18,728,435  

Contacts

Imperial Holdings, Inc.
David Sasso, 561-672-6114
Director-Investor Relations
IR@imperial.com
www.imperial.com

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