Impac Mortgage Holdings, Inc. (NYSE American: IMH) (the
“Company”) announces its financial results for the quarter ended
June 30, 2021.
For the second quarter of 2021, the Company reported a net
(loss) of $(8.9) million, or $(0.42) per diluted common share, and
core (loss) of $(6.9) million, or $(0.32) per diluted common share,
as compared to a net (loss) of $(22.8) million, or $(1.08) per
diluted common share, and core (loss) of $(10.4) million, or
$(0.49) per diluted common share, for the second quarter of
2020.
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 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 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 Six Months Ended (in thousands, except share
data)
June 30,
March 31,
June 30,
June 30,
June 30,
(unaudited)
2021
2021
2020
2021
2020
Revenues: Gain (loss) on sale of loans, net $
10,693
$
20,131
$
1,451
$
30,824
$
(26,712)
Servicing (expense) fees, net
(150)
(119)
1,352
(269)
3,859
(Loss) gain on mortgage servicing rights, net
(37)
38
(8,443)
1
(26,753)
Real estate services fees, net
478
210
293
688
687
Other
(4)
324
1,289
320
1,352
Total revenues (losses)
10,980
20,584
(4,058)
31,564
(47,567)
Expenses: Personnel expense
11,964
14,924
7,774
26,888
28,439
Business promotion
1,770
1,193
74
2,963
3,203
General, administrative and other
5,882
5,181
6,617
11,063
13,590
Total expenses
19,616
21,298
14,465
40,914
45,232
Operating loss:
(8,636)
(714)
(18,523)
(9,350)
(92,799)
Other (expense) income: Net interest income
558
660
781
1,218
3,709
Change in fair value of long-term debt
1,417
1,025
(4,208)
2,442
4,828
Change in fair value of net trust assets
(2,141)
(1,673)
(864)
(3,814)
(3,247)
Total other (expense) income
(166)
12
(4,291)
(154)
5,290
Loss before income taxes
(8,802)
(702)
(22,814)
(9,504)
(87,509)
Income tax expense (benefit)
62
(19)
15
43
51
Net loss $
(8,864)
$
(683)
$
(22,829)
$
(9,547)
$
(87,560)
Other comprehensive loss: Change in fair value of instrument
specific credit risk
(538)
(1,667)
2,186
(2,205)
(887)
Total comprehensive loss $
(9,402)
$
(2,350)
$
(20,643)
$
(11,752)
$
(88,447)
Diluted weighted average common shares
21,344
21,294
21,230
21,319
21,229
Diluted loss per share $
(0.42)
$
(0.03)
$
(1.08)
$
(0.45)
$
(4.12)
Net loss for the three months ended June 30, 2021 decreased to
$(8.9) million as compared to $(22.8) million for the three months
ended June 30, 2020. The quarter over quarter decrease in net loss
was the result of a number of factors including: the previously
disclosed pause in lending as a result of the global pandemic
during 2020, which resulted in the Company booking a substantial
loss in the first and second quarters of 2020; the remarking of the
non-qualified mortgage (“NonQM”) position as well as mark-to-market
decreases in fair value of our MSRs; and the significant decline in
interest rates. Consequently, gain on sale of loans, net increased
$9.2 million to $10.7 million for the three months ended June 30,
2021 as compared to a gain of $1.5 million during the same period
in 2020. During the second quarter of 2021, margins were 175 basis
points (“bps”).
Total expenses increased by $5.1 million, or 36%, to $19.6
million for the three months ended June 30, 2021, compared to $14.5
million for the comparable period in 2020. Personnel expense
increased $4.2 million to $12.0 million for the three months ended
June 30, 2021 as compared to the same period in 2020. The increase
is related to an increase in originations during the second quarter
of 2021 as well as the temporary pause in lending during 2020,
which resulted in the furlough of certain employees and subsequent
reduction in headcount. Although we continue to manage our
headcount, pipeline and capacity to balance the risks inherent in
an aggregation execution model, average headcount increased 75% for
the three months ended June 30, 2021 as compared to the same period
in 2020. In addition to the aforementioned increases in personnel
expense, the increase is also the result of an industry wide
escalation in the cost of production and operation talent, as well
as the continued rebuild of our NonQM platform, which began in the
fourth quarter of 2020.
Business promotion expense increased $1.7 million to $1.8
million for the three months ended June 30, 2021 as compared to $74
thousand for the same period in the prior year. The increase in
business promotion is partially related to an increase in
originations during the second quarter of 2021 as compared to the
second quarter of 2020, due to the temporary pause in lending
during 2020. During the second quarter of 2021, we increased
business promotion to maintain our lead volume and began targeting
NonQM production in the retail channel. Although we continue to
source leads through digital campaigns, which allows for a more
cost effective approach, the competitiveness within the California
market has driven up advertising costs.
General, administrative and other expenses decreased to $5.9
million for the three months ended June 30, 2021, compared to $6.6
million for the same period in 2020. The decrease in general,
administrative and other expenses was primarily due to a $1.4
million decrease in premiums associated with the legacy
corporate-owned life insurance trusts liability and a $73 thousand
decrease in other various general and administrative expenses.
Partially offsetting the decrease in general, administrative and
other expenses was a $485 thousand increase in legal and
professional fees as well as a $214 thousand increase in insurance
expense.
Origination Data (in millions)
Total
Originations Q2 2021 Q1 2021 % Change
Q2 2020 % Change Retail
$514.2
$773.1
-33%
$1.9
26963%
Correspondent
$0.0
$0.0
0%
$0.2
-100%
Wholesale
$97.3
$76.8
27%
$0.0
n/a
Total Originations
$611.5
$849.9
-28%
$2.1
29019%
During the second quarter of 2021, total originations were
$611.5 million as compared to $849.9 million in the first quarter
of 2021 and $2.1 million in the second quarter of 2020. The
decrease in originations as compared to the first quarter of 2021,
was the result of our shift to focus on NonQM originations as a
result of the increase in mortgage interest rates and margin
compression seen in conventional originations in the first quarter
of 2021. The increase in originations as compared to the second
quarter of 2020, was the result of our temporary suspension of
lending activities during 2020, due to uncertainty caused by the
COVID-19 pandemic. We continue to manage our headcount, pipeline
and capacity to balance the risks inherent in an aggregation
execution model.
During the three months ended June 30, 2021, NonQM originations
increased to $100.6 million, as compared to $14.7 million for the
three months ended March 31, 2021 and $0.2 million for the three
months ended June 30, 2020. We re-engaged lending in the NonQM
market during the fourth quarter of 2020, and have continued
throughout 2021 rebuilding our third-party origination (“TPO”)
NonQM team in anticipation of increasing mortgage interest rates
and declining conventional margins in the second half of 2021. With
the increase in mortgage interest rates and margin compression seen
in conventional originations in the first quarter of 2021, we
accelerated our pivot to NonQM in both our TPO and Retail
channels.
We continue to believe there is an underserved mortgage market
for credit-worthy borrowers who may not meet the qualified mortgage
guidelines set out by the Consumer Financial Protection Bureau. The
re-emergence of the NonQM market has been defined by products that
fit within a tighter credit box, which is where our NonQM
originations have been historically. In the second quarter of 2021,
our NonQM originations had a weighted average Fair Isaac Company
credit score (“FICO”) of 752 and a weighted average LTV ratio of
62%. For the year ended December 31, 2020, our NonQM originations
had a weighted average FICO of 730 and a weighted average LTV of
68%.
The mortgage servicing portfolio increased to $48.6 million at
June 30, 2021 as compared to $30.5 million at December 31, 2020 and
decreased from $146.2 million at June 30, 2020. The increase in the
mortgage servicing portfolio at June 30, 2021 as compared to
December 31, 2020, was in part due to our continued whole loan
sales on a servicing released basis to investors as well as
selectively retaining GNMA mortgage servicing. The decrease in the
mortgage servicing portfolio at June 30, 2021 compare to June 30,
2020 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.
The servicing portfolio generated net servicing expense of $150
thousand in the second quarter of 2021, as compared to net
servicing fees of $1.4 million in the second quarter of 2020, as a
result of the aforementioned servicing sales as well as a portfolio
runoff caused by the decrease in mortgage interest rates. The sale
of MSRs during 2020, have and will continue to result in net
servicing expense going forward as a result of a small balance
servicing portfolio as well as interim servicing costs.
At June 30, 2021, cash decreased $4.0 million to $50.2 million
from $54.2 million at December 31, 2020. Cash balances decreased
primarily due to payment of operating expenses.
Summary Balance Sheet
June 30,
December 31
(in thousands, except per share data)
2021
2020
ASSETS Cash
$
50,194
$
54,150
Mortgage loans held-for-sale
152,558
164,422
Mortgage servicing rights
553
339
Securitized mortgage trust assets
1,862,595
2,103,269
Other assets
44,451
47,126
Total assets
$
2,110,351
$
2,369,306
LIABILITIES & STOCKHOLDERS' EQUITY Warehouse
borrowings
$
148,164
$
151,932
Debt
64,900
64,413
Securitized mortgage trust liabilities
1,847,224
2,086,557
Other liabilities
45,721
50,753
Total liabilities
2,106,009
2,353,655
Total equity
4,342
15,651
Total liabilities and stockholders’ equity
$
2,110,351
$
2,369,306
Book value per share $
0.20
$
0.74
Tangible Book value per share $
0.20
$
0.74
As previously disclosed by the Company in connection with the
Timm, et al v Impac Mortgage Holdings, Inc. litigation, on July 15,
2021, the Maryland Court of Appeals affirmed the decision of the
Circuit Court (and the Court of Special Appeals) in granting
summary judgment in favor of the plaintiffs. Accordingly, the 2009
amendments to the Preferred B Articles Supplementary were not
validly adopted and therefore the 2004 Preferred Articles
Supplementary remain in effect. In accordance with the Circuit
Courts original order, the Company will be required to pay the
three quarters of dividends on the Preferred B stock under the 2004
Preferred B Articles Supplementary (approximately $1.2 million,
which had been previously accrued for), and the Preferred B
stockholders shall be entitled to call a special meeting for the
election of two additional directors.
Mr. George A. Mangiaracina, Chairman and CEO of Impac Mortgage
Holdings, Inc., stated, “Although disappointed in the Maryland
Court of Appeals order of July 15th with respect to the Company’s
Preferred B securities, the ruling brings closure to over a decade
of active legacy litigation, and certainty as to the terms and
rights of that portion of the Company’s capital structure. The
Company’s existing Board will welcome two Preferred B directors in
the near future, creating an opportunity to collectively align the
Company’s stakeholders towards a more efficient capital structure
and a common strategic vision. With respect to operating results,
the Company’s GSE origination business was not immune from the
pressure of compressed margins experienced by the industry in the
second quarter. We continue to enjoy healthy margins in our NonQM
origination business, and are encouraged by the receptivity within
both the primary and secondary markets to our recent product and
pricing adjustments. The Company’s NonQM submissions and locked
pipelines continue to ramp quarter over quarter, and as leading
indicators should convert to increased originations and further the
momentum already achieved within the alterative credit segment of
our business.”
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 Six Months Ended
Core Earnings (Loss)
June 30,
March 31,
June 30,
June 30,
June 30,
(in thousands, except per share data)
2021
2021
2020
2021
2020
Net loss before tax: $
(8,802)
$
(702)
$
(22,814)
$
(9,504)
$
(87,509)
Change in fair value of mortgage servicing rights
11
(50)
7,200
(39)
22,494
Change in fair value of long-term debt
(1,417)
(1,025)
4,208
(2,442)
(4,828)
Change in fair value of net trust assets, including trust REO gains
2,141
1,673
864
3,814
3,247
Legal settlements and professional fees, for legacy matters
1,000
—
—
1,000
—
Legacy corporate-owned life insurance
160
(158)
176
2
176
Core loss before tax $
(6,907)
$
(262)
$
(10,366)
$
(7,169)
$
(66,420)
Diluted weighted average common shares
21,344
21,294
21,230
21,319
21,229
Diluted core loss per common share before tax $
(0.32)
$
(0.01)
$
(0.49)
$
(0.34)
$
(3.13)
For the Three Months Ended For the Six Months
Ended
June 30,
March 31,
June 30,
June 30,
June 30,
(in thousands, except per share data)
2021
2021
2020
2021
2020
Diluted loss per common share $
(0.42)
$
(0.03)
$
(1.08)
$
(0.45)
$
(4.12)
Adjustments: Change in fair value of mortgage servicing rights
—
—
0.34
—
1.06
Change in fair value of long-term debt
(0.07)
(0.05)
0.20
(0.11)
(0.23)
Change in fair value of net trust assets, including trust REO gains
0.11
0.08
0.04
0.17
0.15
Legal settlements and professional fees, for legacy matters
0.05
—
—
0.05
—
Legacy corporate-owned life insurance
0.01
(0.01)
0.01
—
0.01
Diluted core loss per common share before tax $
(0.32)
$
(0.01)
$
(0.49)
$
(0.34)
$
(3.13)
Conference Call
The Company will hold a conference call on August 12, 2021, 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) 406-9449 conference ID number
8773487, 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 and continued effect of the COVID-19
pandemic, 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, recruit
and hire talent to rebuild our TPO NonQM origination team, and
increase NonQM originations; 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; the
effects of any acquisitions or dispositions of assets we may make;
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/20210812005823/en/
Justin Moisio, Chief Administrative Officer (949) 475-3988
Justin.Moisio@ImpacMail.com.
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