Impac Mortgage Holdings, Inc. (NYSE American: IMH) (the
“Company” or “we”) announces its financial results for the quarter
ended March 31, 2022.
For the first quarter of 2022, the Company reported a net (loss)
of $(1.2) million, or $(0.07) per diluted common share, and core
(loss) of $(13.0) million or $(0.61) per diluted common share, as
compared to a net (loss) of $(683) thousand, or $(0.03) per diluted
common share, and core (loss) of $(262) thousand, or $(0.01) per
diluted common share, for the first quarter of 2021.
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
(in thousands, except share data)
March 31,
December 31,
March 31,
(unaudited)
2022
2021
2021
Revenues: Gain on sale of loans, net $
5,955
$
14,861
$
20,131
Servicing expense, net
(12
)
(39
)
(119
)
Gain (loss) on mortgage servicing rights, net
111
(68
)
38
Real estate services fees, net
185
212
210
Other
951
(29
)
324
Total revenues, net
7,190
14,937
20,584
Expenses: Personnel expense
11,921
13,204
14,924
Business promotion
2,301
2,249
1,193
General, administrative and other
5,135
5,040
5,181
Total expenses
19,357
20,493
21,298
Operating loss:
(12,167
)
(5,556
)
(714
)
Other income: Net interest income
116
403
660
Change in fair value of long-term debt
1,642
1,459
1,025
Change in fair value of net trust assets
9,248
7,284
(1,673
)
Total other income, net
11,006
9,146
12
(Loss) earnings before income taxes
(1,161
)
3,590
(702
)
Income tax expense (benefit)
23
8
(19
)
Net (loss) earnings $
(1,184
)
$
3,582
$
(683
)
Other comprehensive loss: Change in fair value of instrument
specific credit risk
(2,269
)
(1,148
)
(1,667
)
Total comprehensive (loss) earnings $
(3,453
)
$
2,434
$
(2,350
)
Diluted weighted average common shares
21,417
21,359
21,294
Diluted (loss) earnings per share $
(0.07
)
$
0.15
$
(0.03
)
Net loss for the three months ended March 31, 2022 increased to
$1.2 million as compared to $683 thousand for the three months
ended March 31, 2021. The quarter over quarter increase in net loss
was primarily due to a $14.2 million decrease in gain on sale of
loans, net, partially offset by a $11.0 million increase in other
income and a $1.9 million decrease in operating expenses. The
decrease in gain on sale of loans, net for the first quarter of
2022 was due to the increase in interest rates beginning in the
fourth quarter of 2021. This change, coupled with a significant
increase in credit spreads during the first quarter of 2022,
resulted in a substantial over supply of low coupon originations
causing a severe decline in margins and diminishing capital market
distribution exits for originators reliant upon an aggregation
execution model. As a result, we began to increase the coupon on
our loan products in January 2022, which resulted in significantly
reduced origination volumes during the first quarter of 2022. For
the three months ended March 31, 2022, we originated $482.1
million, with margins of 124 basis points (bps), as compared to
$849.9 million of originations in the first quarter of 2021, with
margins of 237 bps. Offsetting the increase in net loss was an
increase in other income of $11.0 million as a result of the sale
of the legacy securitization portfolio, which resulted in a $9.2
million increase in fair value during the quarter as well as a $1.6
million increase in fair value of our long-term debt. Additionally,
operating expenses were lower during the first quarter of 2022 due
to a reduction in variable compensation commensurate with reduced
originations as well as a slight reduction in headcount to support
reduced volume.
Total expenses decreased by $1.9 million, or 9%, to $19.4
million for the three months ended March 31, 2022, compared to
$21.3 million for the comparable period in 2021. Personnel expense
decreased $3.0 million to $11.9 million for the three months ended
March 31, 2022 as compared to the same period in 2021. The decrease
in personnel expense was primarily related to a reduction in
variable compensation as a result of the reduction in originations
during the first quarter of 2022 as well as a slight reduction in
headcount as compared to 2021. As a result, average headcount
decreased 10% for the three months ended March 31, 2022 as compared
to the same period in 2021. Although personnel expense decreased
during the first quarter of 2022, it increased to 247 bps of
fundings as compared to 176 bps for the comparable 2021 period.
Business promotion expense increased $1.1 million to $2.3
million for the three months ended March 31, 2022 as compared to
$1.2 million for the same period in the prior year. Business
promotion previously remained low as a result of prior quarters’
more 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, continue production expansion outside of California and
maintain our lead volume as competition increased. 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 were flat at $5.1
million for the three months ended March 31, 2022, as compared to
the same period in 2021. During the three months ended March 31,
2022, general, administrative and other expenses decreased by $46
thousand as a result of a $136 thousand decrease in data processing
expenses primarily related to a reduction in fundings during the
period, a $138 thousand reduction in equipment expense related to a
$102 thousand loss on disposal of equipment in the prior year as
well as a $71 thousand decrease in legal expenses. Partially
offsetting the decline in general, administrative and other
expenses was a $337 thousand increase in professional fees
associated with preparation and planning for a loan origination
system consolidation and implementation.
Origination Data (in millions)
Total Originations
Q1 2022
Q4 2021
%
Q1 2021
%
Retail
$288.9
$497.3
-42%
$773.1
-63%
Wholesale
$193.2
$262.1
-26%
$76.8
152%
Total Originations
$482.1
$759.4
-37%
$849.9
-43%
NonQM Originations
Q1 2022
Q4 2021
%
Q1 2021
%
Retail
$124.7
$129.1
-3%
$1.2
10292%
Wholesale
$189.6
$253.0
-25%
$13.5
1304%
NonQM Originations
$314.3
$382.1
-18%
$14.7
2038%
During the first quarter of 2022, total originations were $482.1
million as compared to $759.4 million in the fourth quarter of 2021
and $849.9 million in the first quarter of 2021. The decrease in
originations as compared to the fourth and first quarters of 2021,
was due to the significant increase in interest rates which began
in the fourth quarter of 2021, resulting in a reduction 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, 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. As a result, we began
to increase the coupon on our loan products in January 2022, which
significantly reduced our origination volumes during the first
quarter of 2022 as compared to the fourth 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.
Correspondingly, during the first quarter of 2022, NonQM
originations decreased to $314.3 million from $382.1 million during
the fourth quarter, but up from $14.7 million during the first
quarter of 2021. During the first quarter of 2022, NonQM
originations represented 65% of our total originations, which was
an increase over the fourth quarter of 2021, when NonQM
originations represented 50% of our total originations and only 2%
of our total originations during the first quarter of 2021.
In the first quarter of 2022, our NonQM originations had a
weighted average Fair Isaac Company (FICO) credit score of 740 and
a weighted average loan-to-value (LTV) ratio of 66%. 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 increased to $74.1 million at
March 31, 2022 as compared to $71.8 million at December 31, 2021,
and $40.7 million at March 31, 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 expense of $12
thousand in the first quarter of 2022, as compared to net servicing
expense of $119 thousand in the first quarter of 2021, 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
2022, we continue to recognize a servicing expense related to
interim subservicing and other servicing costs due to the
relatively small UPB of our current servicing portfolio.
In March 2022, we sold our residual interest certificates, and
assigned certain optional termination and loan purchase rights
relating to 37 securitizations that closed between 2000 and 2007,
which entails the entire legacy securitization portfolio within our
long-term mortgage portfolio. Pursuant to the terms of the sale
agreement, the purchaser paid the Company an aggregate cash
purchase price of $37.5 million In March 2022, we recorded a $9.2
million increase in fair value, net of $277 thousand in transaction
costs related to the transfer of the legacy securitization
portfolio.
At March 31, 2022, cash increased $41.0 million to $70.6 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
March 31,
December 31,
(in thousands, except per share data)
2022
2021
ASSETS Cash
$
70,566
$
29,555
Mortgage loans held-for-sale
160,422
308,477
Mortgage servicing rights
856
749
Securitized mortgage trust assets
-
1,642,730
Other assets
37,746
41,260
Total assets
$
269,590
$
2,022,771
LIABILITIES & STOCKHOLDERS' EQUITY Warehouse
borrowings
$
150,721
$
285,539
Debt
67,549
66,536
Securitized mortgage trust liabilities
-
1,614,862
Other liabilities
44,575
45,898
Total liabilities
262,845
2,012,835
Total equity
6,745
9,936
Total liabilities and stockholders’ equity
$
269,590
$
2,022,771
Book value per share $
0.31
$
0.47
Tangible Book value per share $
0.31
$
0.47
As previously announced, the Company intends to solicit the
votes by consent solicitation of its Series B Preferred Stock and
Series C Preferred Stock to proposed amendments to the provisions
of the Company’s charter (the “Proposed Amendments”) to (1) permit
closing of a proposed exchange offer, described below (the
“Exchange Offer”), without payment of any accrued or accumulated
dividends on any outstanding shares of Series B Preferred Stock or
Series C Preferred Stock, and (2) provide that, following the
effectiveness of the Proposed Amendments and the Exchange Offer,
the remaining outstanding shares of Series B Preferred Stock and
Series C Preferred Stock would be subject to redemption at the
election of the Company or the holders of any outstanding shares of
Series B Preferred Stock or Series C Preferred Stock, as the case
may be, for the following redemption consideration: (i) for each
outstanding share of Series B Preferred Stock, subject to potential
escrow or reduction to reflect the payment of any attorneys’ fees
or costs that are the subject of any petition therefor filed by any
attorneys representing holders of Series B Preferred Stock or any
order entered by a court in respect of any such petition, (a) cash
in the amount of $5.00 and (b) twenty (20) shares of Common Stock
and (ii) for each outstanding share of Series C Preferred Stock,
(a) cash in the amount of $0.10; (b) 1.25 shares of Common Stock
and (c) a warrant to purchase 1.5 shares of Common Stock at a
purchase price of $5.00 per share of Common Stock.
In the proposed Exchange Offer, the Company currently intends to
offer to repurchase each outstanding share of Series B Preferred
Stock and each outstanding share of Series C Preferred Stock in
exchange for the corresponding redemption consideration described
above, and, with respect to the Series B Preferred Stock after
giving effect to any attorneys’ fees or costs ordered to be paid
from such consideration. Closing of the Exchange Offer, if effected
by the Company, is expected to be contingent upon the approval of
the Proposed Amendments by the stockholders of the Company, which
will require the affirmative vote of holders of at least each of 66
2/3% of the outstanding shares of Series B Preferred Stock, 66 2/3%
of the outstanding shares of Series C Preferred Stock and a
majority of the outstanding shares of Common Stock, compliance with
Maryland law regarding limitations on distributions to
stockholders, and acceptance for record of the Proposed Amendments
by the State Department of Assessments and Taxation of
Maryland.
Mr. George A. Mangiaracina, Chairman and CEO of Impac Mortgage
Holdings, Inc., commented, “The Company’s first quarter results
evidence that Impac is not immune from the market dislocation that
continues to challenge the industry. The sell-off in interest
rates, coupled with the widening of credit spreads over the last
two quarters, has reduced the addressable market and compressed the
margins for the Company’s product offerings. We continue to
navigate this environment by remaining disciplined in our
origination approach and vigilant in our capital markets
activities.”
Mr. Mangiaracina further commented, “In addition to managing our
core business, the Company has also been focused on solving for
some long standing legacy matters. In March, the Company finalized
the sale, at a fair value gain to previous quarters’ carrying
values, of substantially all of its pre-subprime crisis legacy
securities. The sale removed complexity from our financial
reporting and enhanced our working capital and liquidity position.
Also, as previously disclosed, in April, 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, which would align stakeholder
interests that have been impacted by on-going litigation 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 will be 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 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 Core Earnings (Loss)
March 31,
December 31,
March 31,
(in thousands, except per share data)
2022
2021
2021
(Loss) earnings before income taxes: $
(1,161
)
$
3,590
$
(702
)
Change in fair value of mortgage servicing rights
(143
)
(32
)
(50
)
Change in fair value of long-term debt
(1,642
)
(1,459
)
(1,025
)
Change in fair value of net trust assets, including trust REO gains
(9,248
)
(7,284
)
1,673
Legacy corporate-owned life insurance (1)
(816
)
166
(158
)
Core loss before tax $
(13,010
)
$
(5,019
)
$
(262
)
Diluted weighted average common shares
21,417
21,359
21,294
Diluted core loss per common share before tax $
(0.61
)
$
(0.23
)
$
(0.01
)
For the Three Months Ended
March 31,
December 31,
March 31,
2022
2021
2021
Diluted (loss) earnings per common share $
(0.07
)
$
0.15
$
(0.03
)
Adjustments: Cumulative non-declared dividends on preferred stock
0.02
0.02
—
Change in fair value of mortgage servicing rights
(0.01
)
—
—
Change in fair value of long-term debt
(0.08
)
(0.07
)
(0.05
)
Change in fair value of net trust assets, including trust REO gains
(0.43
)
(0.34
)
0.08
Legacy corporate-owned life insurance
(0.04
)
0.01
(0.01
)
Diluted core loss per common share before tax $
(0.61
)
$
(0.23
)
$
(0.01
)
Conference Call
The Company will hold a conference call on May 13, 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 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 9115489 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.
Important Additional Information And Where To Find It
The Company, its directors and certain of its executive officers
are deemed to be participants in the solicitation of proxies from
the Company’s common shareholders in connection with the matters to
be considered at the Company’s special meeting of shareholders
relating to the Exchange Offer (“Special Meeting”). Information
regarding the names of the Company’s directors and executive
officers and their respective interests in the Company by security
holdings or otherwise can be found in the Company’s proxy statement
for its 2022 Annual Meeting of Shareholders, filed with the U.S.
Securities and Exchange Commission (the “SEC”) on April 29, 2022.
The proxy statement and all other documents filed with the SEC by
the Company are available free of charge at the SEC’s website at
www.sec.gov. The Company intends to file a definitive proxy
statement and proxy card with the SEC in connection with the
solicitation of proxies from the Company’s shareholders in
connection with the matters to be considered at the Company’s
Special Meeting. Additional information regarding the identity of
participants, and their direct or indirect interests, by security
holdings or otherwise, will be set forth therein. INVESTORS AND
SHAREHOLDERS ARE STRONGLY ENCOURAGED TO READ ANY SUCH PROXY
STATEMENT AND THE ACCOMPANYING PROXY CARD AND OTHER DOCUMENTS FILED
BY THE COMPANY WITH THE SEC CAREFULLY AND IN THEIR ENTIRETY WHEN
THEY BECOME AVAILABLE AS THEY WILL CONTAIN IMPORTANT
INFORMATION. Shareholders will be able to obtain the Proxy
Statement, any amendments or supplements to the Proxy Statement,
the accompanying proxy card, and other documents filed by the
Company with the SEC for no charge at the SEC’s website at
www.sec.gov. Copies will also be available at no charge at the
Investor Relations section of the Company’s corporate website at
www.impaccompanies.com, or by writing to the Company’s Corporate
Secretary at Impac Mortgage Holdings, Inc., 19500 Jamboree Road,
Irvine, California 92612.
In connection with the Exchange Offer and consent
solicitation, a registration statement on Form S-4, a tender offer
statement on Schedule TO, and related documents and amendments
thereto relating to the Exchange Offer and consent solicitation
will be filed by the Company with the Securities and Exchange
Commission. The Series B Preferred Stock and Series C Preferred
Stock may not be exchanged or sold nor may offers to exchange or
buy be accepted prior to the time the registration statement
becomes effective. This earnings release shall not constitute an
offer to exchange or sell, or the solicitation of an offer to
exchange or buy, nor shall there be any exchange or sale of such
securities in any state in which such offer, exchange, solicitation
or sale would be unlawful prior to registration or qualification
under the securities laws of any such state. Holders of the Series
B Preferred Stock and Series C Preferred Stock are strongly advised
to read the registration statement, tender offer statement and
other related documents and amendments thereto when available
because these documents will contain important information. Such
holders will be able to obtain copies of the Exchange Offer
materials from the Company at the Company address set forth above
or at the SEC’s website, www.sec.gov. The Company is not making any
recommendation to holders of outstanding Series B Preferred Stock
and Series C Preferred Stock as to whether they should tender their
shares pursuant to the Exchange Offer and consent
solicitation.
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 Exchange Offer
and receive the requisite consents for the Proposed Amendments; 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; 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
View source
version on businesswire.com: https://www.businesswire.com/news/home/20220512005982/en/
Justin Moisio, Chief Administrative Officer (949) 475-3988
Justin.Moisio@ImpacMail.com
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