Quarterly Report (10-q)

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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2021

☐

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 1-14100

IMPAC MORTGAGE HOLDINGS, INC.

(Exact name of registrant as specified in its charter)


Maryland		33-0675505
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

19500 Jamboree Road, Irvine, California 92612

(Address of principal executive offices)

(949) 475-3600

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.01 par value	IMH	NYSE American
Preferred Stock Purchase Rights	IMH	NYSE American

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer ☐		Accelerated filer ☐

Non-accelerated filer ☒		Smaller reporting company ☒
Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2) Yes ☐ No ☒

There were 21,332,684 shares of common stock outstanding as of November 5, 2021.

Table of Contents

IMPAC MORTGAGE HOLDINGS, INC. AND SUBSIDIARIES

FORM 10-Q QUARTERLY REPORT

TABLE OF CONTENTS


		Page

PART I. FINANCIAL INFORMATION

ITEM 1.	CONSOLIDATED FINANCIAL STATEMENTS

	Consolidated Balance Sheets as of September 30, 2021 (unaudited) and December 31, 2020	3
	Consolidated Statements of Operations and Comprehensive Earnings (Loss) for the Three and Nine Months Ended September 30, 2021 and 2020 (unaudited)	4
	Consolidated Statements of Changes in Stockholders’ Equity for the Three and Nine Months Ended September 30, 2021 and 2020 (unaudited)	5
	Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2021 and 2020 (unaudited)	7
	Notes to Unaudited Consolidated Financial Statements	8

ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	33

	Forward-Looking Statements	33
	The Mortgage Industry and Discussion of Relevant Fiscal Periods	33
	Selected Financial Results	34
	Status of Operations	34
	Liquidity and Capital Resources	38
	Critical Accounting Policies	40
	Financial Condition and Results of Operations	41

ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	62

ITEM 4.	CONTROLS AND PROCEDURES	62

PART II. OTHER INFORMATION

ITEM 1.	LEGAL PROCEEDINGS	63

ITEM 1A.	RISK FACTORS	63

ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	63

ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	63

ITEM 4.	MINE SAFETY DISCLOSURES	63

ITEM 5.	OTHER INFORMATION	63

ITEM 6.	EXHIBITS	63

	SIGNATURES	64

	CERTIFICATIONS

Table of Contents

PART I. FINANCIAL INFORMATION


ITEM 1.	CONSOLIDATED FINANCIAL STATEMENTS

IMPAC MORTGAGE HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)


	September 30,		December 31,
	2021		2020
ASSETS	(unaudited)
Cash and cash equivalents	$	42,192	$	54,150
Restricted cash		5,812		5,602
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		38,467		41,524
Total assets	$	2,090,508	$	2,369,306
LIABILITIES
Warehouse borrowings	$	261,464	$	151,932
Convertible notes, net		20,000		20,000
Long-term debt		46,458		44,413
Securitized mortgage trust liabilities		1,707,494		2,086,557
Other liabilities		47,810		50,753
Total liabilities		2,083,226		2,353,655

Commitments and contingencies (See Note 11)

STOCKHOLDERS’ EQUITY
Series A-1 junior participating preferred stock, $0.01 par value; 2,500,000 shares authorized; none issued or outstanding		—		—
Series B 9.375% redeemable preferred stock, $0.01 par value; liquidation value $35,360; 2,000,000 shares authorized, 665,592 cumulative shares issued and outstanding as of September 30, 2021 and December 31, 2020 (See Note 12)		7		7
Series C 9.125% redeemable preferred stock, $0.01 par value; liquidation value $35,127; 5,500,000 shares authorized; 1,405,086 cumulative shares issued and outstanding as of September 30, 2021 and December 31, 2020 (See Note 12)		14		14
Common stock, $0.01 par value; 200,000,000 shares authorized; 21,332,684 and 21,238,191 shares issued and outstanding as of September 30, 2021 and December 31, 2020, respectively		213		212
Additional paid-in capital		1,237,767		1,237,102
Accumulated other comprehensive earnings, net of tax		23,192		24,766
Total accumulated deficit:
Cumulative dividends declared		(822,520)		(822,520)
Accumulated deficit		(431,391)		(423,930)
Total accumulated deficit		(1,253,911)		(1,246,450)
Total stockholders’ equity		7,282		15,651
Total liabilities and stockholders’ equity	$	2,090,508	$	2,369,306

See accompanying notes to unaudited consolidated financial statements

Table of Contents

IMPAC MORTGAGE HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE EARNINGS (LOSS)

(in thousands, except per share data)

(Unaudited)


	For the Three Months Ended				For the Nine Months Ended
	September 30,				September 30,
	2021		2020		2021		2020
Revenues
Gain (loss) on sale of loans, net	$	19,608	$	19,261	$	50,432	$	(7,451)
Real estate services fees, net		244		332		932		1,018
Gain (loss) on mortgage servicing rights, net		101		(133)		102		(26,885)
Servicing (expense) fees, net		(124)		(125)		(393)		3,733
Other		(11)		143		308		1,495
Total revenues, net		19,818		19,478		51,381		(28,090)
Expenses
Personnel		12,685		11,186		39,574		39,624
General, administrative and other		4,927		4,828		15,991		18,418
Business promotion		2,185		104		5,146		3,307
Total expenses		19,797		16,118		60,711		61,349
Operating earnings (loss)		21		3,360		(9,330)		(89,439)

Other income (expense)
Interest income		17,197		25,965		49,429		97,893
Interest expense		(16,420)		(25,245)		(47,433)		(93,464)
Change in fair value of long-term debt		(1,803)		(1,127)		638		3,701
Change in fair value of net trust assets, including trust REO gains		3,112		(1,349)		(702)		(4,596)
Total other income (expense), net		2,086		(1,756)		1,932		3,534
Earnings (loss) before income taxes		2,107		1,604		(7,398)		(85,905)
Income tax expense		21		4		63		55
Net earnings (loss)	$	2,086	$	1,600	$	(7,461)	$	(85,960)

Other comprehensive earnings (loss)
Change in fair value of instrument specific credit risk of long-term debt		631		362		(1,574)		(525)
Total comprehensive earnings (loss)	$	2,717	$	1,962	$	(9,035)	$	(86,485)

Net earnings (loss) per common share:
Basic	$	0.08	$	0.08	$	(0.37)	$	(4.05)
Diluted	$	0.08	$	0.08	$	(0.37)	$	(4.05)

See accompanying notes to unaudited consolidated financial statements

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IMPAC MORTGAGE HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(in thousands, except share amounts)

(Unaudited)


	Preferred			Common			Additional		Cumulative				Accumulated Other		Total
	Shares	Preferred		Shares	Common		Paid-In		Dividends		Accumulated		Comprehensive		Stockholders’
	Outstanding	Stock		Outstanding	Stock		Capital		Declared		Deficit		Earnings, net of tax		Equity
Balance, December 31, 2020	2,070,678	$	21	21,238,191	$	212	$	1,237,102	$	(822,520)	$	(423,930)	$	24,766	$	15,651

Stock based compensation	—		—	—		—		218		—		—		—		218
Issuance of restricted stock units	—		—	94,493		1		—		—		—		—		1
Other comprehensive loss	—		—	—		—		—		—		—		(1,667)		(1,667)
Net loss	—		—	—		—		—		—		(683)		—		(683)
Balance, March 31, 2021	2,070,678	$	21	21,332,684	$	213	$	1,237,320	$	(822,520)	$	(424,613)	$	23,099	$	13,520

Stock based compensation	—		—	—		—		224		—		—		—		224
Other comprehensive loss	—		—	—		—		—		—		—		(538)		(538)
Net loss	—		—	—		—		—		—		(8,864)		—		(8,864)
Balance, June 30, 2021	2,070,678	$	21	21,332,684	$	213	$	1,237,544	$	(822,520)	$	(433,477)	$	22,561	$	4,342

Stock based compensation	—		—	—		—		223		—		—		—		223
Other comprehensive earnings	—		—	—		—		—		—		—		631		631
Net earnings	—		—	—		—		—		—		2,086		—		2,086
Balance, September 30, 2021	2,070,678	$	21	21,332,684	$	213	$	1,237,767	$	(822,520)	$	(431,391)	$	23,192	$	7,282

See accompanying notes to unaudited consolidated financial statements

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IMPAC MORTGAGE HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(in thousands, except share amounts)

(Unaudited)


	Preferred			Common			Additional		Cumulative				Accumulated Other		Total
	Shares	Preferred		Shares	Common		Paid-In		Dividends		Accumulated		Comprehensive		Stockholders’
	Outstanding	Stock		Outstanding	Stock		Capital		Declared		Deficit		Earnings, net of tax		Equity
Balance, December 31, 2019	2,070,678	$	21	21,255,426	$	212	$	1,236,237	$	(822,520)	$	(334,499)	$	24,786	$	104,237

Proceeds and tax benefit from exercise of stock options	—		—	9,500		1		46		—		—		—		47
Stock based compensation	—		—	—		—		238		—		—		—		238
Other comprehensive loss	—		—	—		—		—		—		—		(3,073)		(3,073)
Consolidation of corporate-owned life insurance trusts	—		—	—		—		—		—		(1,281)		—		(1,281)
Net loss	—		—	—		—		—		—		(64,731)		—		(64,731)
Balance, March 31, 2020	2,070,678	$	21	21,264,926	$	213	$	1,236,521	$	(822,520)	$	(400,511)	$	21,713	$	35,437

Proceeds from exercise of stock options	—		—	(35,069)		(1)		(125)		—		—		—		(126)
Stock based compensation	—		—	—		—		111		—		—		—		111
Issuance of warrants in connection with debt financing	—		—	—		—		242		—		—		—		242
Other comprehensive earnings	—		—	—		—		—		—		—		2,186		2,186
Net loss	—		—	—		—		—		—		(22,829)		—		(22,829)
Balance, June 30, 2020	2,070,678	$	21	21,229,857	$	212	$	1,236,749	$	(822,520)	$	(423,340)	$	23,899	$	15,021

Stock based compensation	—		—	—		—		199		—		—		—		199
Other comprehensive earnings	—		—	—		—		—		—		—		362		362
Net earnings	—		—	—		—		—		—		1,600		—		1,600
Balance, September 30, 2020	2,070,678	$	21	21,229,857	$	212	$	1,236,948	$	(822,520)	$	(421,740)	$	24,261	$	17,182

See accompanying notes to unaudited consolidated financial statements

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IMPAC MORTGAGE HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(Unaudited)


	For the Nine Months Ended
	September 30,
	2021		2020
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$	(7,461)	$	(85,960)
(Gain) loss on sale of mortgage servicing rights		(143)		4,925
Change in fair value of mortgage servicing rights		41		21,960
Gain on sale of mortgage loans		(47,017)		(13,520)
Change in fair value of mortgage loans held-for-sale		(3,632)		16,595
Change in fair value of derivatives lending, net		504		100
Change in provision for repurchases		(287)		4,276
Origination of mortgage loans held-for-sale		(2,144,067)		(1,936,904)
Sale and principal reduction on mortgage loans held-for-sale		2,083,135		2,566,925
Gain from trust REO		(1,289)		(4,959)
Change in fair value of net trust assets, excluding trust REO		1,991		9,555
Change in fair value of long-term debt		(638)		(3,701)
Accretion of interest income and expense		40,335		49,320
Amortization of debt issuance costs and discount on note payable		—		4
Stock-based compensation		665		548
Accretion of interest expense on corporate debt		—		202
Loss on disposal of premises and equipment		102		—
Net change in other assets		1,585		5,703
Net change in other liabilities		(1,928)		(13,933)
Net cash (used in) provided by operating activities		(78,104)		621,136

CASH FLOWS FROM INVESTING ACTIVITIES
Net change in securitized mortgage collateral		462,387		313,451
Proceeds from the sale of mortgage servicing rights		143		16,338
Investment in corporate-owned life insurance		(177)		(1,220)
Purchase of premises and equipment		(27)		(534)
Proceeds from the sale of trust REO		6,696		18,199
Net cash provided by investing activities		469,022		346,234

CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of MSR financing		—		(15,448)
Borrowings under MSR financing		—		15,448
Repayment of warehouse borrowings		(1,975,667)		(2,424,655)
Borrowings under warehouse agreements		2,085,199		1,865,328
Repayment of securitized mortgage borrowings		(512,540)		(385,610)
Net change in liabilities related to corporate-owned life insurance		341		1,699
Tax payments on stock based compensation awards		—		(2)
Issuance of restricted stock		1		—
Retirement of restricted stock		—		(126)
Proceeds from exercise of stock options		—		47
Net cash used in financing activities		(402,666)		(943,319)
Net change in cash, cash equivalents and restricted cash		(11,748)		24,051
Cash, cash equivalents and restricted cash at beginning of year		59,752		37,132
Cash, cash equivalents and restricted cash at end of period	$	48,004	$	61,183

NON-CASH TRANSACTIONS
Transfer of securitized mortgage collateral to trust REO	$	5,676	$	8,117
Mortgage servicing rights retained from issuance of mortgage backed securities and loan sales		459		1,753
Recognition of corporate-owned life insurance cash surrender value (included in Other assets)		—		9,476
Recognition of corporate-owned life insurance trusts (included in Other liabilities)		—		10,757
Issuance of warrants		—		242

See accompanying notes to unaudited consolidated financial statements

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IMPAC MORTGAGE HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except share and per share data or as otherwise indicated)

Note 1.—Summary of Business and Financial Statement Presentation

Business Summary

Impac Mortgage Holdings, Inc. (the Company or IMH) is a financial services company incorporated in Maryland with the following direct and indirect wholly-owned operating subsidiaries: Integrated Real Estate Service Corp. (IRES), Impac Mortgage Corp. (IMC), IMH Assets Corp. (IMH Assets), Impac Funding Corporation (IFC) and Copperfield Capital Corporation (CCC). The Company’s operations include the mortgage lending operations and real estate services conducted by IRES, IMC and CCC and the long-term mortgage portfolio (residual interests in securitizations reflected as securitized mortgage trust assets and liabilities in the consolidated balance sheets) conducted by IMH. IMC’s mortgage lending operations include the activities of its division, CashCall Mortgage.

Financial Statement Presentation

The accompanying unaudited consolidated financial statements of IMH and its subsidiaries (as defined above) have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) for interim financial information and with the instructions to Form 10-Q and Rule 8-03 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments, consisting of normal recurring adjustments considered necessary for a fair presentation, have been included. Operating results for the nine months ended September 30, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021. These interim period condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements, which are included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, filed with the United States Securities and Exchange Commission.

All significant intercompany balances and transactions have been eliminated in consolidation. In addition, certain amounts in the prior periods’ consolidated financial statements have been reclassified to conform to the current period presentation.

Management has made a number of material estimates and assumptions relating to the reporting of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period to prepare these consolidated financial statements in conformity with GAAP. Additionally, other items affected by such estimates and assumptions include the valuation of trust assets and trust liabilities, contingencies, the estimated obligation of repurchase reserves related to sold loans, the valuation of long-term debt, mortgage servicing rights (MSR), mortgage loans held-for-sale (LHFS) and derivative instruments, including interest rate lock commitments (IRLC). Actual results could differ from those estimates and assumptions.

Recent Accounting Pronouncements Not Yet Effective

There have been no developments to recently issued accounting standards, including the expected dates of adoption and estimated effects on the Company’s consolidated financial statements and footnote disclosures, from those disclosed in the 2020 Annual Report on Form 10-K, except for the following:

In March 2020 and January 2021, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2020-04 and ASU 2021-01, “Reference Rate Reform (Topic 848)”. Together, the ASUs provide temporary optional expedients and exceptions to the U.S. GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens related to the expected market transition from the London Interbank Offered Rate (LIBOR) and other interbank offered rates to alternative reference rates. This guidance is effective beginning on March 12, 2020, and the Company may elect to apply the amendments prospectively through December 31, 2022. The Company is currently evaluating the impact the adoption of this ASU would have on the Company’s consolidated financial statements.

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In May 2021, the FASB issued ASU 2021-04, “Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options (a consensus of the FASB Emerging Issues Task Force)”. The amendments in this update are effective for all entities for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. The Company is currently evaluating the impact the adoption of this ASU would have on the Company’s consolidated financial statements.

Note 2.—Mortgage Loans Held-for-Sale

A summary of the unpaid principal balance (UPB) of mortgage LHFS by type is presented below:


	September 30,		December 31,
	2021		2020
Government (1)	$	5,388	$	7,924
Conventional (2)		136,659		141,139
Jumbo & Non-qualified mortgages (NonQM)		125,570		11,064
Fair value adjustment (3)		7,927		4,295
Total mortgage loans held-for-sale	$	275,544	$	164,422

(1)	Includes all government-insured loans including Federal Housing Administration (FHA), Veterans Affairs (VA) and United States Department of Agriculture (USDA).

(2)	Includes loans eligible for sale to Federal National Mortgage Association (Fannie Mae or FNMA) and Federal Home Loan Mortgage Corporation (Freddie Mac or FHLMC).

(3)	Changes in fair value are included in gain (loss) on sale of loans, net in the accompanying consolidated statements of operations and comprehensive earnings (loss).

At September 30, 2021, no loans were in nonaccrual status and $1.2 million in UPB of mortgage LHFS were in nonaccrual status at December 31, 2020, as the loans were 90 days or more delinquent. The carrying value of the nonaccrual loans at December 31, 2020 was $1.1 million.

Gain (loss) on sale of loans, net in the consolidated statements of operations and comprehensive earnings (loss), is comprised of the following for the three and nine months ended September 30, 2021 and 2020:


	For the Three Months Ended				For the Nine Months Ended
	September 30,				September 30,
	2021		2020		2021		2020
Gain on sale of mortgage loans	$	19,230	$	8,454	$	58,345	$	34,093
Premium from servicing retained loan sales		246		—		459		1,753
Unrealized gain (loss) from derivative financial instruments		2,591		5,241		(504)		(100)
(Loss) gain from derivative financial instruments		(2,085)		—		829		(11,035)
Mark to market gain (loss) on LHFS		4,228		6,607		3,632		(16,595)
Direct origination expenses, net		(4,677)		(1,774)		(12,616)		(11,291)
Change in provision for repurchases		75		733		287		(4,276)
Gain (loss) on sale of loans, net	$	19,608	$	19,261	$	50,432	$	(7,451)

Note 3.—Mortgage Servicing Rights

The Company selectively retains MSRs from its sales and securitization of certain mortgage loans or as a result of purchase transactions. MSRs are reported at fair value based on the expected income derived from the net projected cash flows associated with the servicing contracts. The Company receives servicing fees, less subservicing costs, on the UPB of the underlying mortgage loans. The servicing fees are collected from the monthly payments made by the mortgagors, or if delinquent, when the underlying real estate is foreclosed upon and liquidated. The Company may receive

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other remuneration from rights to various mortgagor-contracted fees, such as late charges, collateral reconveyance charges and nonsufficient fund fees, and the Company is generally entitled to retain the interest earned on funds held pending remittance (or float) related to its collection of mortgagor principal, interest, tax and insurance payments.

The following table summarizes the activity of MSRs for the nine months ended September 30, 2021 and year ended December 31, 2020:


	September 30,		December 31,
	2021		2020
Balance at beginning of year	$	339	$	41,470
Additions from servicing retained loan sales		459		2,094
Reductions from bulk sales		—		(21,263)
Changes in fair value (1)		(41)		(21,962)
Fair value of MSRs at end of period	$	757	$	339

(1)	Changes in fair value are included within gain (loss) on mortgage servicing rights, net in the accompanying consolidated statements of operations and comprehensive earnings (loss).

At September 30, 2021 and December 31, 2020, the UPB of the mortgage servicing portfolio was comprised of the following:


	September 30,		December 31,
	2021		2020
Government insured	$	65,142	$	30,524
Conventional		—		—
Total loans serviced	$	65,142	$	30,524

The table below illustrates hypothetical changes in fair values of MSRs caused by assumed immediate changes to key assumptions that are used to determine fair value. See Note 7.—Fair Value of Financial Instruments for a description of the key assumptions used to determine the fair value of MSRs.

IMH

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