Impac Mortgage Holdings, Inc. (NYSE American: IMH) (the
“Company” or “we”) announces its financial results for the quarter
ended June 30, 2022.
For the second quarter of 2022, the Company reported a net
(loss) of $(13.5) million, or $(0.64) per diluted common share, and
an adjusted (loss) of $(15.4) million or $(0.71) per diluted common
share, as compared to a net (loss) of $(8.9) million, or $(0.42)
per diluted common share, and an adjusted (loss) of $(6.9) million,
or $(0.32) per diluted common share, for the second quarter of
2021.
Adjusted earnings (loss) is not considered an accounting
principle generally accepted in the United States of America
(“non-GAAP”). Adjusted earnings (loss) is a financial measurement
calculated by adjusting GAAP earnings before tax to exclude certain
non-cash items, such as fair value adjustments and mark-to-market
of mortgage servicing rights (MSRs), and legacy non-recurring
expenses. The Company believes adjusted earnings (loss) more
accurately reflects the Company’s current business operations of
mortgage originations. Adjusted 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 adjusted earnings (loss) further below
under “Non-GAAP Financial Measures.”
Results of Operations For the Three Months Ended
For the Six Months Ended (in thousands, except share
data) June 30, March 31, June 30, June
30, June 30, (unaudited)
2022
2022
2021
2022
2021
Revenues: Gain on sale of loans, net $
179
$
5,955
$
10,693
$
6,134
$
30,824
Servicing expense, net
7
(12
)
(150
)
(5
)
(269
)
Gain (loss) on mortgage servicing rights, net
45
111
(37
)
155
1
Real estate services fees, net
257
185
478
442
688
Other
7
951
(4
)
959
320
Total revenues, net
495
7,190
10,980
7,685
31,564
Expenses: Personnel expense
8,024
11,921
11,964
19,945
26,888
Business promotion
1,319
2,301
1,770
3,620
2,963
General, administrative and other
5,323
5,135
5,882
10,458
11,063
Total expenses
14,666
19,357
19,616
34,023
40,914
Operating loss:
(14,171
)
(12,167
)
(8,636
)
(26,338
)
(9,350
)
Other income (expense): Net interest income
(1,260
)
116
558
(1,144
)
1,218
Change in fair value of long-term debt
1,980
1,642
1,417
3,622
2,442
Change in fair value of net trust assets
—
9,248
(2,141
)
9,248
(3,814
)
Total other income, net
720
11,006
(166
)
11,726
(154
)
Loss before income taxes
(13,451
)
(1,161
)
(8,802
)
(14,612
)
(9,504
)
Income tax expense
16
23
62
39
43
Net loss $
(13,467
)
$
(1,184
)
$
(8,864
)
$
(14,651
)
$
(9,547
)
Other comprehensive loss: Change in fair value of instrument
specific credit risk
10,037
(2,269
)
(538
)
7,768
(2,205
)
Total comprehensive loss $
(3,430
)
$
(3,453
)
$
(9,402
)
$
(6,883
)
$
(11,752
)
Diluted weighted average common shares
21,509
21,417
21,344
21,463
21,319
Diluted loss per share $
(0.64
)
$
(0.07
)
$
(0.42
)
$
(0.72
)
$
(0.45
)
Net loss for the three months ended June 30, 2022 increased to
$13.5 million as compared to $8.9 million for the three months
ended June 30, 2021. The quarter over quarter increase in net loss
was primarily due to a $10.5 million decrease in gain on sale of
loans, net, partially offset by a $5.0 million decrease in
operating expenses and a $886 thousand increase in other income.
The sharp and unexpected decline in gain on sale of loans, net
reflects the intense pressure on mortgage originations due to the
dramatic collapse of the mortgage refinance market and the
weakening mortgage purchase market, which has suffered from a lack
of housing inventory and significant increase in mortgage interest
rates resulting in customer affordability issues. As previously
discussed, the increase in interest rates, which began in the
fourth quarter of 2021, caused a significant increase in credit
spreads, which accelerated into the second quarter of 2022,
resulting in a substantial over supply of low coupon originations
causing a severe decline in margins and diminishing capital market
distribution exits for originators, including the Company, reliant
upon an aggregation execution model. To mitigate the risks
associated with reduced distribution exits and extended settlement
timelines, we began to pull back on production, significantly
increasing the pricing on our loan products as well as completely
shifting to best-efforts delivery for non-agency production in the
first quarter of 2022. As a result, origination volumes decreased
significantly during the second quarter of 2022. For the three
months ended June 30, 2022, we originated and sold $128.1 million
and $248.2 million of mortgage loans, respectively, as compared to
$611.5 million and $667.8 million of loans originated and sold,
respectively, during the same period in 2021. During the three
months ended June 30, 2022, margins were 14 bps as compared to 175
bps during the same period in 2021.
Offsetting the increase in net loss was an increase in other
income of $886 thousand as a result of a $2.1 million reduction in
trust losses as a result of the sale of legacy securitization
portfolio during the first quarter of 2022 and a $563 thousand
increase in fair value of our long-term debt, partially offset by a
$1.8 million reduction in net interest income as a result of the
aforementioned sale of the legacy securitization portfolio during
the first quarter of 2022. Additionally, operating expenses were
lower during the second quarter of 2022 due to a reduction in
variable compensation commensurate with reduced originations as
well as a reduction in headcount to support reduced volume.
Total expenses decreased by $5.0 million, or 25%, to $14.7
million for the three months ended June 30, 2022, compared to $19.6
million for the comparable period in 2021. Personnel expense
decreased $3.9 million to $8.0 million for the three months ended
June 30, 2022, as compared to the same period in 2021. The decrease
in personnel expense was primarily related to a reduction in
variable compensation commensurate with reduced originations during
the second quarter of 2022 as well as reductions in headcount to
support reduced volume as compared to 2021. As a result, average
headcount decreased 30% for the three months ended June 30, 2022,
as compared to the same period in 2021. Although personnel expense
decreased in the mortgage lending segment during the second quarter
of 2022, it increased to 626 bps of fundings as compared to 196 bps
for the comparable 2021 period, as a result of our pull back in
originations.
Business promotion expense decreased $451 thousand to $1.3
million for the three months ended June 30, 2022, as compared to
$1.8 million for the same period in the prior year. Business
promotion previously remained relatively low as a result of the
favorable interest rate environment requiring significantly less
business promotion to source leads. Beginning in second quarter of
2021, we began to increase our marketing expenditures in an effort
to more directly target NonQM production in the retail channel,
expand production expansion outside of California and maintain our
lead volume as competition increased. As a result of the recent
dislocation within the NonQM market on account of the significant
increase in interest rates, in the second quarter of 2022, we
reduced our marketing spend as we pulled back on our origination
volumes to mitigate the aforementioned risks associated with the
current environment. Although we continue to source leads through
digital campaigns, which allows for a more cost-effective approach,
the recent competitiveness among other lenders for NonQM production
within the California market has driven up advertising costs.
General, administrative and other expenses decreased $559
thousand to $5.3 million for the three months ended June 30, 2022,
as compared to $5.9 million for the comparable period in 2021, as a
result of a $363 thousand decrease in professional fees, data
processing, and general administrative and other expense all
related to a reduction in fundings during the period. Additionally,
legal fees decreased $310 thousand associated with a decrease in
litigation and related expenses. Partially offsetting the decline
in general, administrative and other expenses was a $114 thousand
increase in occupancy expense as we recognized right of use (ROU)
asset impairment of $123 thousand related to the sublease of
approximately 29,000 square feet of a floor within our corporate
office.
Origination Data (in millions)
Total
Originations Q2 2022 Q1 2022 % Q2
2021 % Retail
$93.0
$288.9
-68%
$514.2
-82%
Wholesale
$35.1
$193.2
-82%
$97.3
-64%
Total Originations
$128.1
$482.1
-73%
$611.5
-79%
NonQM Originations
Q2 2022
Q1 2022
%
Q2 2021
%
Retail
$49.2
$124.7
-61%
$8.1
507%
Wholesale
$31.0
$189.6
-84%
$92.5
-66%
NonQM Originations
$80.2
$314.3
-74%
$100.6
-20%
During the second quarter of 2022, total originations were
$128.1 million as compared to $482.1 million in the first quarter
of 2022 and $611.5 million in the second quarter of 2021. The
decrease in originations as compared to the first quarter of 2022,
was due to the significant increase in interest rates which began
in the fourth quarter of 2021, resulting in a reduction in purchase
loans due to a decrease in home purchase affordability and in
refinance volume due to the number of loans that had previously
refinanced during the preceding historically low interest rate
environment. While we began to shift our origination focus away
from more rate and margin sensitive conventional originations
during the first quarter of 2021, the increase in interest rates
which began in the fourth quarter of 2021 and has accelerated
through the second quarter of 2022, caused a significant increase
in credit spreads, resulting in a substantial over supply of low
coupon originations causing a severe decline in margins and
diminished capital market distribution exits for originators
reliant upon an aggregation execution model. To mitigate the risks
associated with reduced distribution exits and extended settlement
timelines, we began to pull back on production, significantly
increasing the pricing on our loan products as well as completely
shifting to a best-efforts delivery for non-agency production in
the first quarter of 2022, which significantly reduced our
origination volumes during the second quarter of 2022 as compared
to the second quarter of 2021. We continue to manage our headcount,
pipeline and capacity to balance the risks inherent in an
aggregation execution model.
We continue to believe there is an underserved mortgage market
for borrowers with strong credit who may not meet the qualified
mortgage (QM) guidelines set out by the Consumer Financial
Protection Bureau. During the fourth quarter of 2021, we originated
$382.1 million in NonQM loans and were on pace to exceed our fourth
quarter 2021 NonQM originations during the first quarter of 2022,
prior to the recent dislocation in NonQM pricing as a result of
widening credit spreads.
As described earlier, as a result of the market dislocation we
have further backed off NonQM production during the second quarter
of 2022 with NonQM originations decreasing to $80.2 million from
$314.3 million during the first quarter of 2022, and down from
$100.6 million during the second quarter of 2021. During the second
quarter of 2022, NonQM originations represented 63% of our total
originations, which was a decrease over the first quarter of 2022
which represented 65% of our total originations but up from only
16% of our total originations during the second quarter of
2021.
In the second quarter of 2022, our NonQM originations had a
weighted average Fair Isaac Company credit score (FICO) of 735 and
a weighted average LTV ratio of 67%. For the year ended December
31, 2021, our NonQM originations had a weighted average FICO of 747
and a weighted average LTV of 65%.
The mortgage servicing portfolio decreased to $71.4 million at
June 30, 2022, as compared to $71.8 million at December 31, 2021,
and $48.6 million at June 30, 2021. We continue to sell whole loans
on a servicing released basis to investors and selectively retain
GNMA mortgage servicing.
The servicing portfolio generated net servicing income of $7
thousand in the second quarter of 2022, as compared to net
servicing expense of $150 thousand in the second quarter of 2021.
Despite the increase in UPB of the servicing portfolio during 2022,
we will continue to recognize an immaterial amount of net servicing
fees, or a net servicing expense related to interim subservicing
and other servicing costs related to the small UPB of remaining
servicing portfolio.
For the second quarter of 2022, real estate services fees, net
were $257 thousand as compared to $185 thousand in the first
quarter of 2022 and $478 thousand in the second quarter of 2021.
Real estate services fees, net is generated from our former
long-term mortgage portfolio which continued to decline in size.
Additionally, as previously noted, in March 2022, we sold our
residual interest certificates, and assigned certain optional
termination and loan purchase rights which entails the entire
legacy securitization portfolio within our long-term mortgage
portfolio. As a result, it is our expectation that the real estate
services fees, net generated from the long-term mortgage portfolio
will significantly decline in future periods as the securitizations
are called or collapsed by the purchaser.
At June 30, 2022, cash increased $31.6 million to $61.2 million
from $29.6 million at December 31, 2021. Cash balances increased
primarily due to the aforementioned $37.5 million sale and transfer
of the legacy securitization portfolio during the first quarter of
2022.
Summary Balance Sheet June 30, December 31,
(in thousands, except per share data)
2022
2021
ASSETS
Cash
$
61,173
$
29,555
Mortgage loans held-for-sale
37,035
308,477
Mortgage servicing rights
850
749
Securitized mortgage trust assets
-
1,642,730
Other assets
34,600
41,260
Total assets
$
133,658
$
2,022,771
LIABILITIES & STOCKHOLDERS' EQUITY Warehouse
borrowings
$
37,795
$
285,539
Debt
50,889
66,536
Securitized mortgage trust liabilities
-
1,614,862
Other liabilities
41,522
45,898
Total liabilities
130,206
2,012,835
Total equity
3,452
9,936
Total liabilities and stockholders’ equity
$
133,658
$
2,022,771
Book value per share $
0.16
$
0.47
Tangible Book value per share $
0.16
$
0.47
Mr. George A. Mangiaracina, Chairman and CEO of Impac Mortgage
Holdings, Inc., commented, “The Company’s financial results for the
second quarter of 2022 reflect the adverse effects of the historic
market dislocation and volatility across the mortgage origination
industry that commenced in the fourth quarter of 2021. We continue
to navigate this environment by remaining disciplined in our
origination approach and vigilant in our capital markets activities
with respect to product and price offerings and hedging
strategies.”
Mr. Mangiaracina further commented, “In addition to managing our
core business, the Company has also advanced on solving for
circumstances related to our Preferred Securities. As previously
disclosed, in the second quarter of 2022, the Company entered into
voting agreements with certain of its Convertible Note, Preferred
Stock and Common Stock holders to agree to extend outstanding debt
and exchange preferred equity for consideration which would align
stakeholder interests that have been impacted since the Company’s
tender exchange offer for the Preferred Securities in 2009. Should
the exchange offer and redemption transactions take effect, the
Company believes it should be better positioned to engage in
capital raise and corporate finance activities, absent the overhang
of an intractable legacy capital structure.”
Non-GAAP Financial Measures
This release contains adjusted earnings (loss) and per share as
performance measures, to supplement our consolidated financial
statements, which are prepared and presented in accordance with
generally accepted accounting principles in the United States
(GAAP), we use the following non-GAAP financial measures: adjusted
(loss) before tax and diluted adjusted (loss) per common share
before tax. Adjusted (loss) and diluted adjusted loss per common
share are financial measurements calculated by adjusting GAAP net
(loss) before tax to exclude certain non-cash items, such as fair
value adjustments and mark-to-market of mortgage servicing rights
(MSRs), and legacy non-recurring expenses. We believe adjusted loss
provides useful information to investors regarding our results of
operations as it assists both investors and management in analyzing
and benchmarking the performance and value of our core business of
mortgage lending over multiple periods. Adjusted (loss) facilitates
company-to-company operating performance comparisons by backing out
potential non-cash differences caused by variations in hedging
strategies and changes in valuations for long-term debt and net
trust assets, which may vary for different companies for reasons
unrelated to operating performance, as well as certain historical
cost (benefit) items which may vary for different companies for
reasons unrelated to operating performance. These non-GAAP
financial measures are not intended to be considered in isolation
and should not be a substitute for net (loss) earnings before
income taxes, net (loss) earnings or diluted (loss) earnings per
common share (EPS) or any other operating performance measure
calculated in accordance with GAAP, and may not be comparable to a
similarly titled measure reported by other companies. The tables
below provide a reconciliation of net (loss) before tax and diluted
(loss) per common share to non-GAAP adjusted loss before tax and
non-GAAP diluted adjusted loss per common share:
Adjusted Earnings (Loss) June 30, March 31,
June 30, June 30, June 30, (in thousands,
except per share data)
2022
2022
2021
2022
2021
(Loss) before income taxes: $
(13,451
)
$
(1,161
)
$
(8,802
)
$
(14,612
)
$
(9,504
)
Change in fair value of mortgage servicing rights
(89
)
(143
)
11
(231
)
(39
)
Change in fair value of long-term debt
(1,980
)
(1,642
)
(1,417
)
(3,622
)
(2,442
)
Change in fair value of net trust assets, including trust REO gains
(losses)
—
(9,248
)
2,141
(9,248
)
3,814
Legal settlements and professional fees, for legacy matters (1)
—
—
1,000
—
1,000
Legacy corporate-owned life insurance (2)
157
(816
)
160
(659
)
2
Adjusted loss before tax $
(15,363
)
$
(13,010
)
$
(6,907
)
$
(28,372
)
$
(7,169
)
Diluted weighted average common shares
21,509
21,417
21,344
21,463
21,319
Diluted adjusted loss per common share before tax $
(0.71
)
$
(0.61
)
$
(0.32
)
$
(1.32
)
$
(0.34
)
For the Three Months Ended For the Six Months
Ended June 30, March 31, June 30, June
30, June 30,
2022
2022
2021
2022
2021
Diluted loss per common share $
(0.64
)
$
(0.07
)
$
(0.42
)
$
(0.72
)
$
(0.45
)
Adjustments: Cumulative non-declared dividends on preferred stock
0.02
0.02
—
0.04
—
Change in fair value of mortgage servicing rights
(0.01
)
(0.01
)
—
(0.01
)
—
Change in fair value of long-term debt
(0.09
)
(0.08
)
(0.07
)
(0.17
)
(0.11
)
Change in fair value of net trust assets, including trust REO gains
(losses)
—
(0.43
)
0.11
(0.43
)
0.17
Legal settlements and professional fees, for legacy matters
—
—
0.05
—
0.05
Legacy corporate-owned life insurance
0.01
(0.04
)
0.01
(0.03
)
—
Diluted adjusted loss per common share before tax $
(0.71
)
$
(0.61
)
$
(0.32
)
$
(1.32
)
$
(0.34
)
Conference Call
The Company will hold a conference call on August 12, 2022,
at 6:00 a.m. Pacific Time (9:00 a.m. Eastern Time) to discuss
the Company’s financial results and business outlook and answer
investor questions. After the Company’s prepared remarks,
management will host a Q&A session. To submit questions, please
email your questions to Justin.Moisio@ImpacMail.com. Investors may
participate in the conference call by dialing (800) 715-9871
conference ID number 4914370 or accessing the webcast via our
website at http://ir.impaccompanies.com. Dial-in 15 minutes prior
to the scheduled start time to participate in the conference call.
The conference call will be archived on the Company's website 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 and continued effect of the COVID-19
pandemic, our ability to successfully consummate the contemplated
exchange offers for our oustanding preferred stock and receive the
requisite consents for the proposed amendments to our charter
documents to facilitate the redemption from holders of our
outstanding preferred stock who do not participate in the exchange
offers; any adverse impact or disruption to the Company’s
operations; changes in general economic and financial conditions
(including federal monetary policy, interest rate changes, and
inflation); increase in interest rates, inflation, and margin
compression; ability to successfully sell aggregated loans to
third-party investors; successful development, marketing, sale and
financing of new and existing financial products, including NonQM
products; recruit and hire talent to rebuild our TPO NonQM
origination team, and increase NonQM originations; volatility in
the mortgage industry; 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; our ability to maintain
compliance with the continued listing requirements of the NYSE
American for our common stock; 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; and compliance
with applicable local, state and federal laws and regulations.
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 expressly 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,
real estate services, and 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. Website:
http://ir.impaccompanies.com or www.impaccompanies.com
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version on businesswire.com: https://www.businesswire.com/news/home/20220811005668/en/
Justin Moisio Chief Administrative Officer (949) 475-3988
Justin.Moisio@ImpacMail.com
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