Impac Mortgage Holdings, Inc. (NYSE American: IMH) (the
“Company”) announces its financial results for the quarter ended
September 30, 2020.
For the third quarter of 2020, the Company reported net earnings
of $1.6 million, or $0.08 per diluted common share, as compared to
net earnings of $1.4 million, or $0.07 per diluted common share,
for the third quarter of 2019.
For the third quarter of 2020, the Company reported core
earnings of $4.4 million, or $0.21 per diluted common share, as
compared to core earnings of $7.9 million, or $0.37 per diluted
common share, for the third quarter of 2019.
Core earnings (loss) is not considered an accounting principle
generally accepted in the United States of America (“non-GAAP”).
Core earnings (loss) is a financial measurement that is calculated
by adjusting generally accepted accounting principles (“GAAP”)
operating income to exclude certain non-cash items, such as fair
value adjustments and mark-to-market of mortgage servicing rights
(“MSRs”), and non-recurring expenses. The Company believes core
earnings (loss) more accurately reflects the Company’s current
business operations of mortgage originations. Core earnings (loss)
adjusts GAAP operating income by excluding non-cash items that
fluctuate due to market rates, inputs or assumptions rather than
management’s determination of fundamental operating income (loss)
that reflects the Company’s current business operations. See the
discussion and reconciliation of non-GAAP core earnings (loss)
further below under “Non-GAAP Financial Measures.”
Results of Operations
For the Three Months
Ended
For the Nine Months
Ended
(in thousands, except share data)
September 30,
June 30,
September 30,
September 30,
September 30,
(unaudited)
2020
2020
2019
2020
2019
Revenues: Gain (loss) on sale of loans, net $
19,261
$
1,451
$
31,073
$
(7,451
)
$
72,759
Servicing fees, net
(125
)
1,352
3,465
3,733
9,970
Loss on mortgage servicing rights, net
(133
)
(8,443
)
(9,755
)
(26,885
)
(25,264
)
Real estate services fees, net
332
293
921
1,018
2,534
Other
143
1,289
71
1,495
258
Total revenues
19,478
(4,058
)
25,775
(28,090
)
60,257
Expenses: Personnel expense
11,186
7,774
18,725
39,624
47,186
Business promotion
104
74
1,292
3,307
6,228
General, administrative and other
4,828
6,617
5,619
18,418
16,126
Total expenses
16,118
14,465
25,636
61,349
69,540
Operating earnings (loss):
3,360
(18,523
)
139
(89,439
)
(9,283
)
Other income (expense): Net interest income
720
781
2,490
4,429
6,829
Change in fair value of long-term debt
(1,127
)
(4,208
)
304
3,701
958
Change in fair value of net trust assets
(1,349
)
(864
)
(1,724
)
(4,596
)
(5,866
)
Total other (expense) income
(1,756
)
(4,291
)
1,070
3,534
1,921
Earnings (loss) before income taxes
1,604
(22,814
)
1,209
(85,905
)
(7,362
)
Income tax expense (benefit)
4
15
(230
)
55
(62
)
Net earnings (loss ) $
1,600
$
(22,829
)
$
1,439
$
(85,960
)
$
(7,300
)
Other comprehensive earnings (loss): Change in fair value of
mortgage-backed securities
—
—
107
—
120
Change in fair value of instrument specific credit risk
362
2,186
72
(525
)
436
Total comprehensive earnings (loss) $
1,962
$
(20,643
)
$
1,618
$
(86,485
)
$
(6,744
)
Diluted weighted average common shares
21,256
21,230
21,259
21,249
21,179
Diluted earnings (loss) per share $
0.08
$
(1.08
)
$
0.07
$
(4.05
)
$
(0.34
)
The third quarter of 2020 results continued to be significantly
impacted by the effects of the pandemic, which ultimately led to a
temporary suspension of our lending activities during the second
quarter. While we undertook a number of efforts to substantially
reduce leverage and improve liquidity during the second quarter, we
did not re-engage lending activities until June 2020, which
resulted in a challenging re-engagement. As a result of the
historically low interest rate environment, the competition for
talent has continued to be a binding constraint not only for us as
we re-engage in lending, but also industry wide.
While we continue to maintain a defensive posture due to the
significant risks still present in the marketplace, we announced on
June 4, 2020, that we re-engaged lending activities, initially
focusing on government-sponsored enterprises (“GSEs”), Federal
Housing Administration (“FHA”) and Veterans Affairs (“VA”) lending.
During the fourth quarter of 2020, we have re-engaged lending
activities in the Non-Agency jumbo and non-qualified mortgage
(“NonQM”) product market.
Net earnings for the three months ended September 30, 2020,
increased as compared to the three months ended September 30, 2019,
as a result of a reduction in operating expenses, partially offset
by a reduction of revenues as a result of a decrease in gain on
sale of loans, net. During the three months ended September 30,
2020, operating expenses (personnel, business promotion and
general, administrative and other) decreased to $16.1 million from
$25.6 million as compared to the same period in 2019, as a result
of our temporary suspension of lending activities during the second
quarter of 2020. Gain on sale of loans, net for the third quarter
of 2020 declined significantly as compared to the third quarter of
2019, as a result of a decrease in mortgage loans originated and
sold. For the three months ended September 30, 2020, we originated
and sold $418.5 million and $303.1 million of loans, respectively,
as compared to $1.6 billion and $1.0 billion of loans originated
and sold, respectively, during the same period in 2019. Despite the
decline in mortgage origination volumes during the third quarter of
2020, margins increased to approximately 460 basis points (“bps”)
as compared to 190 bps for the same period in 2019. The increase in
margins was a result of the historically low mortgage interest rate
environment during the third quarter of 2020 which led to wider
gain on sale margins as compared to 2019. Additionally, other
income decreased due to a decrease in net interest spread as a
result of the current interest rate environment and an increase in
fair value losses on our long-term debt due to an increase in
forward LIBOR, partially offset by a decrease in loss on change in
fair value of net trust assets, including REO trust losses.
Total expenses decreased by $9.5 million, or 37%, to $16.1
million for the three months ended September 30, 2020, compared to
$25.6 million for the comparable period in 2019. Personnel expense
decreased by $7.5 million to $11.2 million for the three months
ended September 30, 2020 as compared to the same period in 2019.
The decrease is primarily related to the aforementioned temporary
pause in lending during the three months ended June 30, 2020. In
mid-March, we undertook a series of actions to help ensure the
safety and productivity of our employees and help prevent the
spread of COVID-19 among our workforce. Substantially all of our
employees have been working remotely since March 16, 2020. As a
result of the temporary pause in lending, we furloughed a
significant amount of our workforce, which resulted in average
headcount decreasing 41% for the three months ended September 30,
2020 as compared to the same period in 2019. Although personnel
expense decreased during the three months ended September 30, 2020,
it increased to 267 bps of fundings as compared to 114 bps for the
comparable 2019 period. This increase is the result of competition
for talent, which has continued to be a binding constraint not only
for us as we re-engage in lending, but also industry wide.
Business promotion decreased $1.2 million to $104 thousand for
the three months ended September 30, 2020 as compared to $1.3
million for the same period in the prior year. Business promotion
decreased as a result of the aforementioned temporary pause in
lending during the three months ended June 30, 2020. As we have
re-engaged lending, business promotion has remained low as compared
to prior periods as a result of the current interest rate
environment, which requires significantly less business promotion
to source leads. We will continue to source leads through digital
campaigns, which allow for a more cost effective approach,
increasing the ability to be more price and product competitive to
more specific target geographies.
General, administrative and other expenses decreased to $4.8
million for the three months ended September 30, 2020, compared to
$5.6 million for the same period in 2019. The decrease was
primarily related to: (1) $242 thousand decrease in data processing
as compared to the third quarter of 2019 as a result of the
reduction in origination volume; (2) occupancy expense decreased
$154 thousand as compared to the third quarter of 2019 as a result
of the consolidation of one floor of our corporate office in the
first quarter of 2020; and (3) general, administrative and other
expenses as well as legal and professional fees decreased $311
thousand and $84 thousand, respectively, as a result of the
reduction in origination volume due to our temporary pause in
lending as compared to the third quarter of 2019.
Origination Data (in millions)
Total
Originations
Q3 2020
Q2 2020
% Change
Q3 2019
% Change
Retail
$412.3
$1.9
21600%
$1,386.1
-70%
Correspondent
$0.0
$0.2
-100%
$57.9
-100%
Wholesale
$6.2
$0.0
n/a
$192.3
-97%
Total Originations
$418.5
$2.1
19829%
$1,636.3
-74%
During the third quarter of 2020, total originations were $418.5
million as compared to $2.1 million in the second quarter of 2020
and $1.6 billion in the third quarter of 2019. The overall
reduction in originations as compared to the third quarter of 2019
was the result of our temporary suspension of lending activities
due to the uncertainty caused by the COVID-19 pandemic.
We entered 2020 building on the strong momentum gained over the
past year repositioning the Company and focusing on our core NonQM
lending business. During the first quarter of 2020, prior to the
disruption caused by the pandemic, we originated $261.6 million in
NonQM loans and were on pace to exceed our fourth quarter 2019
NonQM originations. As financial markets became dislocated in March
2020, spreads widened substantially on credit assets due to
potential COVID-19 pandemic related payment delinquencies and
forbearances, causing a severe decline in the values assigned by
investors and counterparties for NonQM assets. As a result, we
ceased originating NonQM loans in the beginning of April 2020 as
the decline in value of NonQM loans increased the cost and
liquidity to finance the product, reduced the ability to finance
additional NonQM loans with lenders as well as diminished stable
capital markets distribution exits.
Despite our current pause originating NonQM loans, we still
believe there is an underserved mortgage market for borrowers with
good credit who may not meet the qualified mortgage (QM) guidelines
set out by the Consumer Financial Protection Bureau. The third
quarter of 2020 saw the reemergence of the NonQM market including
capital markets distribution exits for the product. During the
fourth quarter of 2020, we have re-engaged lending activities in
the NonQM product market. The reemergence of the NonQM market has
been defined by products that fit within a much tighter credit box,
which is where our NonQM originations have been historically. We
believe the historical quality, consistency and performance of our
loans has been demonstrated through the issuance of four
securitizations since 2018. All four securitizations were 100%
backed by Impac NonQM collateral with the senior tranches receiving
AAA ratings.
The mortgage servicing portfolio decreased to $824 thousand at
September 30, 2020 as compared to $4.9 billion at December 31, 2019
and $6.2 billion at September 30, 2019. The decrease in the
mortgage servicing portfolio was primarily due to the sale of $4.2
billion in UPB of Freddie Mac and GNMA MSRs in the second and third
quarters of 2020. Throughout 2019 and into 2020, we continued to
selectively retain mortgage servicing as well as increase whole
loan sales on a servicing released basis to investors.
The servicing portfolio generated net servicing expense of $125
thousand in the third quarter of 2020, a 104% decrease over the net
servicing fees of $3.5 million in the third quarter of 2019, as a
result of the aforementioned servicing sale as well as a portfolio
runoff caused by the decrease in mortgage interest rates which
began in 2019. The sale of MSRs during 2020 will result in net
servicing expense going forward as a result of a small balance
servicing portfolio as well as interim servicing costs. For the
three months ended September 30, 2020, loss on sale of MSRs, net
was $133 thousand compared to a loss of $9.8 million in the
comparable 2019 period. As previously discussed, in the third
quarter of 2020, we sold $136.7 million in UPB of GNMA MSRs and
recorded a $128 thousand loss on the sale of MSRs slightly offset
by a reduction in expenses associated with the previous Freddie Mac
servicing sale. Additionally, for the three months ended September
30, 2020, we recorded an $18 thousand loss from a change in fair
value of MSRs primarily due to changes in fair value associated
with changes in voluntary prepayments as a result of the current
interest rate environment.
Summary Balance Sheet
September 30,
December 31,
(in thousands, except per share data)
2020
2019
ASSETS
Cash
$
55,439
$
24,666
Mortgage loans held-for-sale
147,294
782,143
Mortgage servicing rights
-
41,470
Securitized mortgage trust assets
2,206,953
2,634,746
Other assets
59,622
63,254
Total assets
$
2,469,308
$
3,546,279
LIABILITIES &
STOCKHOLDERS' EQUITY
Warehouse borrowings
$
142,236
$
701,563
Debt
67,795
70,430
Securitized mortgage trust liabilities
2,190,796
2,619,210
Other liabilities
51,299
50,839
Total liabilities
2,452,126
3,442,042
Total equity
17,182
104,237
Total liabilities and stockholders’ equity
$
2,469,308
$
3,546,279
Book value per share
$
0.81
$
4.90
Tangible Book value per share
$
0.81
$
4.90
Mr. George A. Mangiaracina, Chairman and CEO of Impac Mortgage
Holdings, Inc., stated, “The results for the third quarter of 2020
evidence the resiliency of our business model, as the Company
achieved positive GAAP and Core Earnings for the first time since
the third quarter of 2019. The aggressive deleverage of the
Company’s balance sheet in the second quarter of this year, in
response to market dislocations attendant with the COVID-19
pandemic, protected liquidity and permitted the Company to
successfully recreate positive cash flow and to organically grow
book value. The momentum we carry into the fourth quarter is a
tribute to the dedication of our work force and to the continued
support of our stakeholders.”
Non-GAAP Financial Measures
This release contains core earnings (loss) 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. Core earnings (loss) and core earnings (loss) 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 earnings per
share (EPS) prepared in accordance with GAAP.
Net earnings (loss) includes certain fair value adjustments and
mark-to-market of MSRs, which are non-cash items, and non-recurring
expense that are not related to current operating results. Core
earnings (loss) is considered a non-GAAP financial measurement.
Although we are required by GAAP to record these fair value
adjustments and mark-to-market values, management believes core
earnings (loss) is more useful to discuss the ongoing and future
operations of the Company because by excluding non-cash items that
fluctuate due to market rates, inputs or assumptions, this
financial metric reflects the Company’s current business operations
of mortgage originations. The tables below provide a reconciliation
of non-GAAP core earnings (loss) and per share non-GAAP core
earnings (loss) to GAAP net earnings (loss):
For the Three Months
Ended
For the Nine Months
Ended
Core Earnings (Loss)
September 30,
June 30,
September 30,
September 30,
September 30,
(in thousands, except per share data)
2020
2020
2019
2020
2019
Net earnings (loss) before tax: $
1,604
$
(22,814
)
$
1,209
$
(85,905
)
$
(7,362
)
Change in fair value of mortgage servicing rights
115
7,200
5,264
22,608
15,853
Change in fair value of long-term debt
1,127
4,208
(304
)
(3,701
)
(958
)
Change in fair value of net trust assets, including trust REO gains
1,349
864
1,724
4,596
5,866
Legal settlements and professional fees, for legacy matters
—
—
—
—
50
Legacy corporate-owned life insurance
251
176
—
427
—
Severance
—
—
—
—
539
Core earnings (loss) before tax $
4,446
$
(10,366
)
$
7,893
$
(61,975
)
$
13,988
Diluted weighted average common shares
21,256
21,230
21,259
21,249
21,179
Diluted core earnings (loss) per common share before tax $
0.21
$
(0.49
)
$
0.37
$
(2.92
)
$
0.66
For the Three Months
Ended
For the Nine Months
Ended
September 30,
June 30,
September 30,
September 30,
September 30,
(in thousands, except per share data)
2020
2020
2019
2020
2019
Diluted earnings (loss) per common share $
0.08
$
(1.08
)
$
0.07
$
(4.05
)
$
(0.34
)
Adjustments: Income tax benefit
—
—
(0.01
)
—
—
Change in fair value of mortgage servicing rights
0.01
0.34
0.24
1.06
0.75
Change in fair value of long-term debt
0.05
0.20
(0.01
)
(0.17
)
(0.05
)
Change in fair value of net trust assets, including trust REO gains
0.06
0.04
0.08
0.22
0.27
Legal settlements and professional fees, for legacy matters
—
—
—
—
—
Legacy corporate-owned life insurance
0.01
0.01
—
0.02
—
Severance
—
—
—
—
0.03
Diluted core earnings (loss) per common share before tax $
0.21
$
(0.49
)
$
0.37
$
(2.92
)
$
0.66
Conference Call
The Company will hold a conference call on November 5, 2020, at
2:00 p.m. Pacific Time (5:00 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
3043369, 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,”
“desire,” 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: impact on the U.S. economy and financial
markets due to the outbreak of the novel coronavirus, and any
adverse impact or disruption to the Company’s operations;
successful development, marketing, sale and financing of new and
existing financial products, including NonQM products; ability to
successfully re-engage in lending activities; ability to
successfully sell loans to third-party investors; volatility in the
mortgage industry; unexpected interest rate fluctuations and margin
compression; performance of third-party sub-servicers; our ability
to manage personnel expenses in relation to mortgage production
levels; our ability to successfully use warehousing capacity and
satisfy financial covenants; 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
including cyber risk and data security risk; 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 of any claims we are subject
to, including any settlements of litigation or regulatory actions
pending against us or other legal contingencies; 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 our latest Annual Report on Form
10-K and Quarterly Reports on Form 10-Q we file with the Securities
and Exchange Commission and in particular the discussion of “Risk
Factors” therein. 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 except as required by law.
About the Company
Impac Mortgage Holdings, Inc. (IMH or Impac) provides innovative
mortgage lending and real estate solutions that address the
challenges of today’s economic environment. Impac’s operations
include mortgage 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, Chief Administrative Officer at (949) 475-3988 or
email Justin.Moisio@ImpacMail.com. Web site:
http://ir.impaccompanies.com or www.impaccompanies.com
View source
version on businesswire.com: https://www.businesswire.com/news/home/20201105006026/en/
Justin Moisio, Chief Administrative Officer (949) 475-3988
Justin.Moisio@ImpacMail.com
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