IMH - Earnings call transcript Q2 2018 | Impac Mortgage Holdings, Inc.

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Operator

Good day ladies and gentlemen, and welcome to the Impac Mortgage Holdings Second Quarter 2018 Earnings Conference Call. At this time all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] I would now like to introduce your host for today's conference, Justin Moisio, Investor Relations. Please go ahead.

Justin Moisio

you. Thank everyone. morning Good joining Holdings for earnings quarter conference call. Impac you second Mortgage XXXX Thank

other and These and projections we projections any to GAAP will documents those our including most statements forward-looking call, identified production to risk, factors XX-Q. materially this actual Exchange XX-K During guidance Form make our exposure, in with risk presentation to, cash contain interest and or mortgage that not the could and earnings, outlook cause contained Securities differ statements. and important market to would in results general or This identify market CEO any to the business expressly but by limited Holdings. update filed taxable Impac given to like and effective to duty and I and of started flows, rate regards to forward-looking conditions. information like I uncertainties risk get any recently Chairman the of as risks well is the as Commission, Mangiaracina, you as in refer disclaim factors and in our herein. the introducing Mortgage George would we date other

George Mangiaracina

Good Justin. July Impac elected our Pickup. a annual morning. shareholders' XX, additions newly that meeting Board Koenigsberg slate on of included Directors Richard and At announced of the you, Stewart Thank of

GE, he GE new term with XXXX, Worldwide. of and various GE currently myself the company's on past Richard at various Capital compensation currently From XXXX constituted, activities capital and over complete shareholders. long Corporate public Tom Board. an the of served markets governance franchise the all Frank Stewart last represented XX CEO goal director of equity serving managed officer, Board. and largest value Koenigsberg in will long is decision-making organizations term now Akin, As director and our private and Capital years. Filipps been Pickup company a the Markets, material the has investor shareholder where of share President to as for positions the for align and creating of a

market and estate summaries was of investment over professional in the CEO Chairman XXXX appointed team, qualifications company's XXXX. C who leading proxy to the institutions, that by joined of CFO Board presiding finance introduce of this years real our be Brian capacity Ron call and in earnings pleased variety over and suite I provide General COO; Counsel. serving Rian Furey directors of statement Our the privately and second management at annual as of held Impac. of companies Morrison alternative Kuelbs, our has on public are senior for for quarter I'll May call roles in is XX a inaugural The the Brian latest call Brian of each asset the I'm member experience financial executive entities. and

Before I'd recent highlight we review our like some to developments. second quarter results,

originated To efficient that existed CashCall origination XXXX environment environment, As model time, customers concentrated XXXX, favorable channel, earnings market our concluded and that marketing of of loans, prevailing current of rate in themselves In with the CashCall to residential be at platforms CashCall during platform to with we we models California periodically calibrated operating business of conditions. call-to-action have noted primarily capture television Mortgage. assessing refinance we alternatives. mortgage the during a and period previous that including review the operating campaign. geographically avail In in conventional CashCall the low consumer was radio quickly calls filings, entirely our a market from helping opportunity the direct the not our

no balance, of to ability partners, terms operating closing and low mortgage and elevated loans was LTV, the borrower in markets of byproducts terms pricing competitive of service consequences California, and FICO, favorable a our creation model centric income, one produced the to valuation This results susceptible offer discount refi high consumers. acceptance points, margins of the this in high of resulted profile on costs. and GAAP prepayment no our our While our to in with rights, capital unintended creating pressure activity;

levels, we normalized, Throughout action, industry margin in compression higher sustained taken XXXX interest levels within to an volume generally our speeds on capital declines based we’ve While markets consistent remained cohorts, have rate profile conditions effort experience sub-optimal remedial market and sub-optimal. execution and borrowers create to prepayment with and CashCall. execution continued have

adjustments reduction go-forward These value, and a As for business the the fair have a CashCall. We result, asset estimated carrying necessitating estimate intangible million a of future outlook for for for approximately quarter in anticipated value flows value our projections to XX, we CashCall. resulted adjusted below ended impairment have be CashCall cash goodwill XXXX. June and of charge the to the $XX fair

portfolios with associated the Brian As The future value provides direct quarter lending Rights we in impairment dedicated the the consumer with historically Mortgage with quarters. trigger of benchmarks. aside, to billion channel business. charge detail, continue optionality. second continue successfully the direct MSRs. we impairment will discuss CashCall review have with more has our leading company remain retail when re-evaluate to he the respect Servicing a fully Putting goodwill the will rate also resulted deployment ability consumer the consumer Kuelbs teams to channel results. provides company's the foundational, be production done, to or we consistent direct industry's to with charge The in our in The coupled remaining capture of will of specialized committed the campaigns, protect $XX

most environments. driving direct alternative call. converged market. speeds direct of NonQM within to proof of markets pre-pay and product volume related channel overall the this believe conversion volume, diversified indications to details contributor force those positive timing growth within within segment loans of developments material to and consumer residential rates has are unpredictable in direct channel the capture activity business. the while consumer consumer and on we dynamic for company's our Lastly, and in efficiently spend the method in that mortgage to will within scalable NonQM some we've rate progress to have mediums component consumers. non-qualified, efforts and in distribution direct an that Early of a this and sustainability encouraging, date balanced early NonQM moment these a provide consumer to conventional for related like to NonQM Rian will future a additional our consumer the origination be effective company's these for and cost offering further capabilities low to our of now company's incremental stage or future, refinance NonQM duration, the our in view credit during been interest can are remain remains integral While of highlight, the the experienced later I'd to on direct industry acquisition results we've cohort concept achieved marketing Furey Consumer-direct

the and reemergence Since servicing that design, with loans with production June, billion in of respect strategic we developing company company to a an of entered spearheaded Since markets This of by NonQM historically the the the over for million this announced credit As XXX origination, with and have since of that to securitization, the promoting origination loans market acceptance XXXX, to the investors been originating and creation been concurrently Property Trust X sector, and time. loans. Starwood agencies actively In rating has we innovator we structures the capital diversify alternative the of NonQM provides securitization early collaborate NonQM its purchase continue NonQM, from into on Starwood loans. we relationships months. inception has products. to next-generation next of to relationship the XXXXs, strategic up scale to relationship exit Impac XX these

the loans. sponsored that co-invest in right along with (inaudible) Impac future Starwood Additionally NonQM to contain securitizations Starwood

advantage that residential and brought STAR the million has While XXX% in further a longer permits non-agency market NonQM to term Since is the the by private this originate. our of priced the label we XXXX-IMCX, arrangement announcement, loans of segment believe we $XXX to collateral. in securitization. securitization June XXXA the market Starwood competitive backed and participate company economics impacts

exercised capital portions in to part its the right company-invest Impac under the certain securitization, As has of of structure. the agreement

and deals future We XXXX-IMCX marked STAR the capital by received, at NonQM market other year. this label Starwood result is deals demonstrate rating pricing in competing NonQM structure adjustment capital are component securitization company, strategy. the and increased below as performance, oversubscribed company-investing the These various significantly for and loans. collateral successfully securitizations. also factors for demand backed growth have A and securitization, third for backed in loans. deal points investors. future agencies The acceptance These of was origination NonQM Impac's achieved been our important the and a it triple with product, well private permanent rankings with attachment our efficient NonQM market have our milestones for by Impac clear structures anticipate the critical improved in collateral resulted have of levels our to

XXX first across XXX continue in NonQM, a the over company a of direct. will origination For from all be XXXX, and to our million This of three million originated consumer half increase wholesale, of the first focus the of XX% half the XXXX. channels; correspondent, product

the of from be attracted several environment, on for in the in both benefits or of company's company's the of anticipate like the to to profile, trend. our counter-cyclical in MSRs asset long update may noted I derived what foreseeable intend this challenging we've should origination flow, in last calls, risk In cash flow be and continue would profile, quarter to we we our retain basis as rate liquidity bulk a operating adjusted Lastly, we GAAP to portfolio, future. continually We values on to earnings to return market in liquidity and summary, balance to provide resilience, terms the the selectively an XXXX terms second provide our class the determine an us. as up as origination MSRs and of earnings, continued MSRs this business sell income environment selectively achieves return MSR a

our Now, Kuelbs. discussion I'm over going the to to Brian pass CFO,

Brian Kuelbs

George. you, Thank

like to of for Now provide brief quarter. results review the the I'd second a

was quarter of operating a for per of of million net diluted diluted net XXXX or common $X.XX quarter X.X million of XX.X or second share second second income diluted compared the per XXXX. The common loss to of XXXX XXX,XXX million quarter share, earnings second of $X.XX or $X.XX a share to compared loss reported Adjusted a XXXX. the for as per common loss of common share, quarter $X.XX or of diluted the for X.X per

XXXX. XX, six for XX.X million XX.X of for per or XX, the June of share, ended XX, ended, share per reported months operating share million June six share, common for per loss net or a $X.XX the net $X.XX to X.X six ended the common loss diluted or of common months income of earnings Adjusted diluted the to June months diluted was $X.XX income as six months or XXXX, For million compared ended, June per XXXX. we X a compared diluted XX, common XXXX $X.XX as million

units due also of and the and experiencing uncertainty the result to significant model downward to compression has shifted adverse due in cash for volume and anticipated sheet. in reduction unit result In to substantial market, participants conditions. strategy unit in CashCall value financial on a estimated adverse CashCall; impairment has recorded term was for CashCall, the margins plan charge impairment, similar the investors, capital that its resulting company; place. business propensity awareness. use decline brand name intangible A occurred. light Mortgage XX.X deterioration an loans million these comparing million in that long the fair in value in anticipated to demand the a of by margin on cash compression produced for the loss has by asset has balance reductions value The impairment is for by CashCall impairment the in company markets and impairment due from As a resulted. the to has from of determining business company An brand reporting borrowers; led million goodwill The an the following; and the pressure refinance as loan $XX.X tests the value the CashCall future in fair and and developments, XX.X reporting remain originations and in intangibles for volume quarter related mortgage carrying in services of value decline million The unaffiliated from consumer fair estimated demand reporting its occurred. change consumer-direct performed flows, has further taken $XX.X goodwill additional to brand material to second in flows

consumer-direct sale to XX.X of the XXXX, integral capabilities. June will remain of company's However, quarter an $XX.X on compared second despite channel component channel June XX, Gain XXXX. as the distribution for balanced the the as of charge, impairment XX, million to million declined

the ending, June to to quarter compared XXXX, comparable million For compared XX.X of in sales points on points the the in points Gain for by six XXX basis period XX, as the to second quarter period decreased in XXX declined month to basis XXXX. of basis XXXX. XX.X gain sales on XX XXXX, million second margin

second of XX% volume, X billion XXXX. as first to X.X the XXXX, in in During quarter compared decreased billion originations quarter of total the to

quarter of to decreased XXXX. volume XX%, quarter Second as compared billion the in X.X second

XXX to XXX NonQM the of in first quarter the million XXXX.The consumer-direct XXX correspondent and volume wholesale of originations, XX% accounted of quarter quarter production. for second to the XX% and XXXX, of channel accounted for compared as second the XXXX, our collectively NonQM million During in remaining increased million

respectively. FICO XXX, loan-to-value average a and XXXX of first weighted NonQM quarter, score average XX% XXX results of was with with for is second which Our quarter, consistent the XX%

for refinance billion the to in second XXX to compared as money volume quarter the second quarter XXX to transactions to million, of XXXX, During XXXX. XXX quarter XX% million, the second XXXX. of XX% in million X.XX declined of decreased compared Purchase

portfolio versus months increased the XX, flat with UPB, consistent this billion a XXXX. Freddie points X.X XX% balance; of June comprised as billion, fair as as The net Mac well up XX. mark-to-market million billion, loan increase December billion The as Ginnie MSR X.X portfolio $XX.X as for in servicing basis Mae and of of Fannie billion the XXX billion three X million ended as up XXXX retained of million fast XX, for comprised the portfolio X.X of million, June the XXXX, XX, For respectively XX.X XXXX. as period The is (inaudible) at is servicing X.X of March of from servicing days X.X XX assets plus XXX in X.X June servicing, value as is from XXXX. XXXX. million, servicing to comparable fees XX June XX% XXXX, a of June is servicing and June of (inaudible) increase UPB Mae, is remained

June capacity combined billion total as warehouse is finance borrowing and Our X.XX XXXX. MSR of XX,

in XX% our liquidity drawn capacity about to availability million with and XXX have We respect XXX million position. available or

the of June first million, For quarter months of second for expenses and three to XXXX. charge, total million impairment the for XXXX expenses XX, quarter total ended compared million XX.X were net the XX.X the of in million XX.X XX.X

the remainder million, six continue for to For loan compared XXXX. year. ending XX.X expenses in the with of and expenses in expenses were QX million June the QX net ending of XXXX, period months XX, capacity production the the XX.X for and total impairment charge, month June will company volume total six The XX, [rolling]

XX, the is related million. due in XX% staff expense X.X commissions, reduction primarily or XX.X personnel The decline three and production volume. For decreased reduced decrease months million ended to loan to to June

as headcount comparable XXXX. in compared XXXX. to ended second Our declined million for the the second quarter X for quarter compared to Business million promotions in during XX, period XX% decreased the the XX.X to three June in months XXXX,

discuss report. operations. concludes to over legal call like matters. our the the for Furey million three to months primarily to turn to The fees, now XX, Rian That general $X million million and with period compared mortgage the is XX.X XXXX expenses related administrative increase associated I'd increase same and defending increased the to June financial to X.X Our professional for in And ended in litigation the

Rian Furey

Thanks, Brian.

in focus our levels and platform (inaudible) was and rising We've of and the significant much market George borrowers, space. our into managed CashCall acquisition expense, close personnel product of from NonQM away two regards To to dollars advantages to mentioned, our is in As activity. the of with targeted in increased to adjusting to the our second price quarter production advertising of to responsible approach Mortgage, rates headcount on The in we've refinancing expense drop and efficiency and which our aggregators. face address our ad-spend broad and our for being more largest of online items. by radio call-to-action beyond the speed marketing emphasizes transitioned offerings still agency ads, the augmented TV

that and Our consumers digital NonQM our the spend profile, in us to volume it's fit growth to allows target more specifically likely segment. helping

and affiliated. more center level digital production many is not lines, bringing are brand we quarter, business the and but fees back no spoken realigned discount from previously customer focus programs. us to deemphasizing better spend much peers. the and the leads term APRs CashCall online Our some factors appreciation larger We've off-line than also which large continue fees flow. loan capital our strategy, California value, borrowers. commitment amongst and normalized agents these manage acquired and have adding second our levels servicing portfolio we lead help for of fees. reliant, We've continue address the the Much our see of first salaried on continued up the home fees hold. make on a have experienced and compensation part will a our as levels confusion brand consumers presence, managers common include as portion franchise to attract with CashCall and production, incentives previous our loan we consistent are our we talents we to California, and rightsizing advertised consumer-direct loan rewarding of improve In and those we our as on consumer effects and with take about with mortgage to delivery. to volume, and allow of continue will In to in our made execution cost eliminated points maintain continue We less production efficiency, minimizing to We've our third reduced savvy channel, be changes messaging, help markets. detrimental our pre-payment we're of and in acquisition to prepaid maintained our new price our so borrowers in other defending segregated our national Mortgage of operational rights to the a with us of year long current behaviors. consumers new preserving outside Those significant updating process associated origination routing invest to consumers repayment technology staffing our but quarter call increases in us who've confident to these servicing shown fees amounts attracting in call closing for elevated between continue We've party print by

marketplace focus building our improving on With I'll service on continues on be over back our levels, products, Our to technology call George. our the used to to (inaudible) that the NonQM educating external-facing our with partners. and hand originator

George Mangiaracina

Thank up senior We're is encouraged by our encouraged We our our you, we've for the business results operating for market. provided in management portfolio, adjusted and repositioning profile. made our the evidenced the originators, about competitive consumer-direct in team model. challenging We're mortgage by MSR our resilience continued are the these progress but positioning times are in Rian. the recognize residential challenge optimistic and about liquidity

Thank to standing will NonQM origination, positioned across and and alternative have forward cohort, sharing Q&A. markets industry aligned objective remarks. consumer my a We our capital expand, build believe process is We're and the addressable our responsibly I'll creative company and with in that plan investment we've enthused the and industry uniquely prepared for of the recognized about to you that the that operating concept consumer-direct all providing needs created our concludes the market believe you speeds pre-pay of during products meet we're in quarter conventional call and upon forward Our for earnings for we the the as products to our NonQM. proof now business, we capital respect to of company, call early look positive experienced third related open November. we've with momentum vision with finalizing leader, stage channels and strategic

Operator

JMP Steve [Operator first Instructions] comes with DeLaney from question line the of Securities. Our

now Your open. is line

Steve DeLaney

to some opening you? you the with behind George, to but brand. talked remarks, damage rename Do need of of I kind put covered the your wanted just lot that envision to to and starting about in rebrand thorough CashCall of ask deal you impairment, a CashCall with any some try what or you about to to

Brian Kuelbs

going This is Kuelbs, Steve. use the brand anticipate to continuing Brian forward. CashCall We

Our we platform, a has impairment observation in with think brand use the that forward. point, deteriorated and diversified a that brand value, going to to utilized place we this continue but still has it at origination analysis the respect has to the expect

Steve DeLaney

you using mentioned another curious, financial enforceable I'm looking at company you lawyers, with you there? trademark And that any are your that do CashCall you have services the name. feel was rights

Brian Kuelbs

in the CashCall, acquired CashCall and business the been CashCall, when Mortgage, line. they in from unsecured Steve, operating acquired Mortgage has remains platform consumer company Inc. Inc. the CashCall business And

So that's confusion from that. results the

Steve DeLaney

CashCall And consumer mortgage (inaudible) is going continue the not that the just product use I they that’s think. into to business, Inc.

Brian Kuelbs

That’s correct.

Steve DeLaney

we not you but view loan just is one When terms know in certainly mean way does Do a more business of investors. happening. whether that but where or I'm that in curious for end whether multiple in we need the early purposes, of we're Starwood as and to products more that loan are, about developing don't restricts your and I QMs, stages you're both product, you multiple going broader consumer in and network any investors? necessarily think agreement

George Mangiaracina

it so not let me investments. parts, securing down break broad other Starwood that say us --. to restrict does us, a our I'd And does from on agreement either it not That's not it’s exclusive restrict question, part,

Steve DeLaney

you fine. hearing I’m

George Mangiaracina

market, and that portion our some NonQM, the in starting currently of market sector mover because develop room heard the So, to the the and we're products billion fifth we're that around I'll advantage, mover the laugh market. in and answer reemergence in the on first addressable and we've of that advantage really numbers of like that But we fits Impac has I'd starts. lot leader now the that say we there's see been billion that sit where But about focused that broadly segment we're X NonQM around of question XX and on. been grow, a

this firm. competency we consciously you many a in we've so DNA, of to consider be and of of the will, It's core early the think credit I alternative XXXXs, enterprise. respect our products, consciously, disciplines company institutional if the the over required in there's and manage memory the Steve retained and with to since we've last to this decade invested

production, new think creation of I of drive and to undertaking, entrants, isn't We've we've into effort NonQM. course new think drive often underestimated channels; markets production but additional NonQM three to seen and that driving correspondent, the scale in capital but on. NonQM invested this about volumes also to the entrants product origination marketplace limited respect is consumer-direct the origination I'd with come say it’s I seen new it's and enjoy to of to entrants space, and the having trying wholesale, touched the design we production, benefit you production

in new on responsibly market underwriting the recently performance broker capital it's manage the a embedding re-tooling investors whole launched and risk years company a diversification legacy around financing, manufacturing risk I engine. and whole conditioning program of data the that underwriting from support providing investment base, loan of other our and experience capital taking of consumers' including also points; address to securitization touch features has management learned terms the efforts. into on think sales, robust and operational we will it's nuanced warehouse process, It's one it competitive our working match cadence It's portal, lessons loan and and product to way of needs we we're and evolve. continue their our the investor the effort to to markets objectives, technology to controls and our the credit

with to reviews we've folks bring provide deal it's efficient market, when to, and achieve we've to they work and help to So master with and subordination sold I and think support that levels agency them servicing servicing. loans rating deals structures partnered

better those these would is equates the and totality those for all and the say to really across pricing share protect disciplines gain Impac pricing activities as competency back what pricing then in segment for the margins. whether retain to So disciplines that decide us excellence share market, to company or advantage our we to in and I within can market we of NonQM of loans, for consumer the redirect that striving differentiates market

an of that, launched in NonQM proud our didn't chance. Impac industry in So X happen leader threshold, time. month vision of this XXXX, in since that space. NonQM we We're validated and crossed the to reflective billion originations our commitment important long by being it’s this and It decade

Steve DeLaney

for today balance industry and cyclical borrower (inaudible) and today? long production final you the one probably poster business and on are business the the how between going to take right-size George, it’s to out. the which demand, helpful very close child see to from just where That's the where Probably ultimate do we question macro but models, industry is capacity for the mortgage

George Mangiaracina

growth, crystal mortgage jotted for so some out ball, origination trillion. for the difficult not 'XX, down environment I've as looking looking will it's and trillion We I've it's numbers kind at and to a of XXXX, have 'XX and But as this future. volume your before MBA-projected trillion wrong recently for were X a like we much X.X for XXXX, the been view. don't time, X.X Yes, originations that adjust tough

January to at refi platform but level lowest a volume, market pay XXXX of reduction its MBA there's since XXXX. published December level just has always actually lowest recently we is its overall the composite the and index centric a index couple total refi since been is So that our attention of and at the indexes

notably attempting origination that product. but in portfolio, from we're is at so So one a in that adding terms MSRs. the capacity our but which and there mix billion, do move-up servicing XX in to equates XX an curve, story, we most I'd borrowers on item, that. in backup conventional portion conventional our terms rate We production look carry the weighted in across to moving experience you government size declining a benefit the in and to the and focus books we of from average specific rates point certain that, of the same strong XX our have Steve conventional so and The we're away and to shift the points could there's we curve, reduced excess resiliency isn't continuing billion is purchase. keep rates, on could if real for that of in term (inaudible) at to about and of volume rate have billion margins, other have NonQM, also and X.XX%, real out refinance MSR, to the same on of of refinance on a incentive MSR from countercyclical would for can the focusing (inaudible) book inversion

you're think an I it. origination machine challenged are if don't you simply you big more to and servicing balance have

Operator

back concludes turn the I now Thank the call to the company for you. any like to remarks. session. question-and-answer That would closing

Justin Moisio

quarter with quarter second early earnings everybody We the back the for third forward everyone. in for look call. Thank you it call. That's to November speaking

Operator

today's in conclude day. does program, participating all Ladies great thank conference. today's may for Everyone and gentlemen, a disconnect. have you you This

Impac Mortgage (IMPM) 12 Aug 182018 Q2 Earnings call transcript