Impac Mortgage Holdings, Inc. (NYSE American: IMH) (the
“Company”) announces its financial results for the quarter ended
September 30, 2021.
For the third quarter of 2021, the Company reported net earnings
of $2.1 million, or $0.08 per diluted common share, and core
earnings of $810 thousand, or $0.04 per diluted common share, as
compared to net earnings of $1.6 million, or $0.08 per diluted
common share, and core earnings of $4.4 million, or $0.21 per
diluted common share, for the third 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 Nine Months Ended (in thousands, except share
data) September 30, June 30, September 30,
September 30, September 30, (unaudited)
2021
2021
2020
2021
2020
Revenues: Gain (loss) on sale of loans, net $
19,608
$
10,693
$
19,261
$
50,432
$
(7,451
)
Servicing (expense) fees, net
(124
)
(150
)
(125
)
(393
)
3,733
Gain (loss) on mortgage servicing rights, net
101
(37
)
(133
)
102
(26,885
)
Real estate services fees, net
244
478
332
932
1,018
Other
(11
)
(4
)
143
308
1,495
Total revenues, net
19,818
10,980
19,478
51,381
(28,090
)
Expenses: Personnel expense
12,685
11,964
11,186
39,574
39,624
Business promotion
2,185
1,770
104
5,146
3,307
General, administrative and other
4,927
5,882
4,828
15,991
18,418
Total expenses
19,797
19,616
16,118
60,711
61,349
Operating earnings (loss):
21
(8,636
)
3,360
(9,330
)
(89,439
)
Other income (expense): Net interest income
777
558
720
1,996
4,429
Change in fair value of long-term debt
(1,803
)
1,417
(1,127
)
638
3,701
Change in fair value of net trust assets
3,112
(2,141
)
(1,349
)
(702
)
(4,596
)
Total other income (expense)
2,086
(166
)
(1,756
)
1,932
3,534
Earnings (loss) before income taxes
2,107
(8,802
)
1,604
(7,398
)
(85,905
)
Income tax expense (benefit)
21
62
4
63
55
Net earnings (loss) $
2,086
$
(8,864
)
$
1,600
$
(7,461
)
$
(85,960
)
Other comprehensive earnings (loss): Change in fair value of
instrument specific credit risk
631
(538
)
362
(1,574
)
(525
)
Total comprehensive earnings (loss) $
2,717
$
(9,402
)
$
1,962
$
(9,035
)
$
(86,485
)
Diluted weighted average common shares
21,345
21,344
21,256
21,327
21,249
Diluted earnings (loss) per share $
0.08
$
(0.42
)
$
0.08
$
(0.37
)
$
(4.05
)
Net earnings for the three months ended September 30, 2021
increased to $2.1 million as compared to $1.6 million for the three
months ended September 30, 2020. The quarter over quarter increase
in net earnings was primarily the result of $3.1 million in other
income due to fair value gains on our net trust assets in the third
quarter of 2021, as a result of a decrease in residual discount
rates, partially offset by $1.8 million in fair value losses on our
long-term debt due to an increase in fair value as a result of a
decrease in the discount rate. The increase in net earnings was
also a result of an increase in originations with gain on sale of
loans, net increasing $347 thousand to $19.6 million for the three
months ended September 30, 2021 as compared to a gain of $19.3
million during the same period in 2020.
Total expenses increased by $3.7 million, or 23%, to $19.8
million for the three months ended September 30, 2021, compared to
$16.1 million for the comparable period in 2020. Personnel expense
increased $1.5 million to $12.7 million for the three months ended
September 30, 2021 as compared to the same period in 2020. The
increase is related to an increase in originations during the third
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 20%
for the three months ended September 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 operational talent,
as well as the continued rebuild and expansion of our NonQM
platform, which began in the fourth quarter of 2020.
Business promotion expense increased $2.1 million to $2.2
million for the three months ended September 30, 2021 as compared
to $104 thousand for the same period in the prior year. The
increase in business promotion is partially related to an increase
in originations during the third quarter of 2021 in an effort to
target NonQM production in the retail channel, continue to expand
production outside of California and maintain our lead volume.
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 increased to $4.9
million for the three months ended September 30, 2021, compared to
$4.8 million for the same period in 2020. The increase in general,
administrative and other expenses was primarily due to a $96
thousand increase in data processing expense, a $45 thousand
increase in insurance expense and a $41 thousand increase in
occupancy expense. Partially offsetting the increase in general,
administrative and other expenses was an $82 thousand decrease in
other various general and administrative.
Origination Data (in
millions)
Total
Originations Q3 2021 Q2 2021
% Q3 2020 % Retail
$
533.7
$
514.2
4
%
$
412.3
29
%
Wholesale
$
148.9
$
97.3
53
%
$
6.2
2302
%
Total Originations
$
682.6
$
611.5
12
%
$
418.5
63
%
NonQM Originations
Q3 2021 Q2 2021 %
Retail
$
53.5
$
8.1
560
%
Wholesale
$
132.7
$
92.5
43
%
Total NonQM Originations
$
186.2
$
100.6
85
%
During the third quarter of 2021, total originations were $682.6
million as compared to $611.5 million in the second quarter of 2021
and $418.5 million in the third quarter of 2020. The increase in
originations as compared to the second 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 which began in the first quarter of
2021. The increase in originations as compared to the third quarter
of 2020, was the result of our temporary suspension of lending
activities during 2020, due to uncertainty caused by the COVID-19
pandemic.
During the three months ended September 30, 2021, NonQM
originations increased to $186.2 million, as compared to $100.6
million for the three months ended June 30, 2021 and none for the
three months ended September 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, we accelerated our pivot to NonQM in
both our TPO and Retail channels.
The re-emergence 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. In the third quarter
of 2021, our NonQM originations had a weighted average Fair Isaac
Company credit score (FICO) of 754 and a weighted average LTV ratio
of 67%. 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 $65.1 million at
September 30, 2021 as compared to $30.5 million at December 31,
2020 and $0.8 million at September 30, 2020. 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 expense of $124
thousand in the third quarter of 2021, as compared to net servicing
expense of $125 thousand in the third quarter of 2020, as a result
of the previous servicing sales in the second and third quarters of
2020. Despite the increase in UPB of the servicing portfolio during
2021, we continue to recognize a servicing expense related to
interim subservicing and other servicing costs due to the small UPB
of our servicing portfolio.
At September 30, 2021, cash decreased $12.0 million to $42.2
million from $54.2 million at December 31, 2020. Cash balances
decreased primarily due to payment of operating expenses as well as
an increase in warehouse line haircuts.
Summary Balance Sheet September 30,
December 31, (in thousands, except per share data)
2021
2020
ASSETS Cash
$
42,192
$
54,150
Mortgage loans held-for-sale
275,544
164,422
Mortgage servicing rights
757
339
Securitized mortgage trust assets
1,727,736
2,103,269
Other assets
44,279
47,126
Total assets
$
2,090,508
$
2,369,306
LIABILITIES & STOCKHOLDERS' EQUITY
Warehouse borrowings
$
261,464
$
151,932
Debt
66,458
64,413
Securitized mortgage trust liabilities
1,707,494
2,086,557
Other liabilities
47,810
50,753
Total liabilities
2,083,226
2,353,655
Total equity
7,282
15,651
Total liabilities and stockholders’ equity
$
2,090,508
$
2,369,306
Book value per share $
0.34
$
0.74
Tangible Book value per share $
0.34
$
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). In addition, as required by
the Circuit Courts original order, the Company held a special
meeting of the holders of the Preferred B stock on October 13, 2021
for the election of two directors to the Company’s board. Due to a
quorum not being reached, the meeting was adjourned until November
23, 2021.
Mr. George A. Mangiaracina, Chairman and CEO of Impac Mortgage
Holdings, Inc., stated, “The Company’s return to profitability was
largely attributable to the performance of our NonQM activities.
Originations within this segment of our business, across our direct
to consumer and business-to-business channels, increased by more
than 85% from the second quarter to the third quarter of 2021, and
our locked pipeline approached $200 million at the end of October
vs only $10 million at the end of 2020. The resiliency of our NonQM
franchise remains one of the Company’s core strengths and will
enable the Company to capitalize on expanding the addressable
market for alternative products.”
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)
2021
2021
2020
2021
2020
Net earnings (loss) before tax: $
2,107
$
(8,802
)
$
1,604
$
(7,398
)
$
(85,905
)
Change in fair value of mortgage servicing rights
(150
)
11
115
(190
)
22,608
Change in fair value of long-term debt
1,803
(1,417
)
1,127
(638
)
(3,701
)
Change in fair value of net trust assets, including trust REO gains
(3,112
)
2,141
1,349
702
4,596
Legal settlements and professional fees, for legacy matters (1)
—
1,000
—
1,000
—
Legacy corporate-owned life insurance (2)
162
160
251
2
427
Core earnings (loss) before tax $
810
$
(6,907
)
$
4,446
$
(6,522
)
$
(61,975
)
Diluted weighted average common shares
22,275
21,344
21,256
21,327
21,249
Diluted core earnings (loss) per common share before tax $
0.04
$
(0.32
)
$
0.21
$
(0.31
)
$
(2.92
)
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)
2021
2021
2020
2021
2020
Diluted earnings (loss) per common share $
0.08
$
(0.42
)
$
0.08
$
(0.37
)
$
(4.05
)
Adjustments: Cumulative non-declared dividends on preferred stock
0.02
—
—
0.02
—
Change in fair value of mortgage servicing rights
(0.01
)
—
0.01
(0.01
)
1.06
Change in fair value of long-term debt
0.08
(0.07
)
0.05
(0.03
)
(0.17
)
Change in fair value of net trust assets, including trust REO gains
(0.14
)
0.11
0.06
0.03
0.22
Legal settlements and professional fees, for legacy matters
—
0.05
—
0.05
—
Legacy corporate-owned life insurance
0.01
0.01
0.01
—
0.02
Diluted core earnings (loss) per common share before tax $
0.04
$
(0.32
)
$
0.21
$
(0.31
)
$
(2.92
)
Conference Call
The Company will hold a conference call on November 12, 2021, at
6:00 a.m. Pacific Time (9:00 a.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
2795176, 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/20211111006056/en/
Justin Moisio, Chief Administrative Officer (949) 475-3988
Justin.Moisio@ImpacMail.com
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