Impac Mortgage Holdings, Inc. Common Stock

Good day and thank you for standing by. Welcome to the first quarter earnings conference call. At this time, all participants are in a listen-only mode. After this speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press star one on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, Simply press star zero. With that, I would now like to hand the conference over to your speaker today, Justin Mozio, Chief Administrative Officer. Thank you, and please go ahead.

Thank you. Good morning, everyone. Thank you for joining Impact Mortgage Holdings' first quarter 2021 earnings conference call. During this call, we will make projections or other forward-looking statements in regards to, but not limited to, gap in taxable earnings, cash flows, interest rate risk and market risk exposure, mortgage production, and general market conditions. I would like to refer you to the business risk factors in our most recently filed Form 10-K under the Securities and Exchange Act of 1934. These documents contain and identify important factors that could cause the actual results to differ materially from those contained in our projections or forward-looking statements. This presentation, including outlook and any guidance, is effective as of the date given, and we expressly disclaim any duty to update the information herein. We'd like to get started by introducing George Mandrasina, Chairman and CEO of Impact Mortgage Holdings.

Thank you, Justin. John Glockner, our Principal Accounting Officer, and Tiffany Etzminger, our Chief Operating Officer, will join me for prepared remarks. Justin will be back along with Tom Donatacci, our Chief of Staff, and Joe Joffrey on our General Counsel for the question and answer segment of today's call. On this call, we will discuss the overall state of the business and key accomplishments for the first quarter of 2021, including the continued momentum from the relaunch of the company's consumer direct and third-party origination or TPO channels in the second half of 2020. Approximately eight weeks ago in our 2020 year-end earnings call on March 11th, we discussed that the company had continued to grow our retail and TPO platforms and recorded a second consecutive quarter of profitability while continuing to maintain our focus on liquidity and risk management post the 2020 COVID crisis. The company's last business update expressed the view that market conditions in the GSC space had begun to normalize with margins narrowing as the capacity to originate and process loans in the industry began to catch up with consumer demand. The company is not immune to the margin compression that presented itself in the fourth quarter of 2020 and that has continued into the second quarter of 2021. We also referenced the welcome shift of increasing investor demand normalization of guidelines and improved valuations for a non-QM product and competency of the firm that we are currently investing in with product innovation, technology enhancements, and sales and operations talent. Tiffany will discuss margins across products and channels in further detail later in the call. The company reported a net gap loss of $700,000 or $0.03 per diluted common share and a core loss of 300,000 or one cent per diluted common share the first quarter of 2021. The company operates its origination activities through its licensed subsidiary Impact Mortgage Corp, IMC. IMC serves as the credit counterparty for the company's warehouse lending facilities and whole loan sales arrangements with GSEs, the government, and non-GSE aggregators. IMC produced gap in core earnings of $3.5 million for the first quarter of 2021, the third consecutive quarter of positive results for our regulated licensed entity. Core earnings loss are an alternative measure of results that senior management utilizes to gauge the company's performance. Core earnings loss isolates results from recurring business activities by adjusting for certain non-recurring items, such as changes in fair value of long-term debt and trust assets, gain a loss on mortgage servicing rights held for sale and other non-recurring legacy matters. As it relates to production volume, we generate originations of approximately $850 million in Q1 2021 versus $800 million in Q4 2020. The company's locked pipeline at the end of the first quarter of 2021 was approximately the same as the end of 2020, $450 million. However, our non-QM lock pipeline was approximately $75 million at the end of the first quarter as compared to $10 million at the end of the year. This shift evidences the more recent pivot to our PPO channel, sequenced after having achieved a sustainable monthly run rate of $200 to $300 million within our GSC-centric consumer direct channel during the last two quarters of 2020. Historically, while we've had success delivering non-QM through consumer direct, the TPO channel has been the prime driver of our non-QM production. While we do not provide forward guidance, we will note that we originated approximately $35 million in non-QM for TPO in April versus at the minimus amount in March. While non-QM market has not returned to pre-crisis levels, we are encouraged by a growing borrower demand, depth of investor interest, and strong capital markets execution, approximating 500 basis points of gross margin for current originations. The current non-QM market is characterized by moderately tighter lending standards across the industry, which are in line with our firm's long-term view on alternative credit, anchored in quality, consistency, performance, and adherence to ability to repay our ATR guidelines. We continue to believe in the market opportunity and demand for non-QM and the company's ability to be an innovative market leader in this segment. Since the company's founding in 1995, Impact has been recognized as a leader in providing loan products to borrowers in need of an alternative to traditional Fannie, Freddie, or other government offerings. The origination, securitization, and asset management of these products is a core competency of the company, having originated over $90 billion of such loans from 1995 to 2007. Post the subprime financial crisis, the company consciously maintained resources across these disciplines to manage our legacy all-day portfolio, and in early 2014, extended that infrastructure as one of the first mortgage companies to anticipate and actively pursue the revival of non-QM mortgage market. Since 2014, we have originated in excess of 4 billion of non-QM, steadily yet responsibly, increasing our non-QM production from 130 million in 2015 to over a billion and a quarter annually, in the two consecutive years, 2018 and 19, leading up to the COVID crisis. The company has maintained sufficient warehouse relationships and liquidity to comfortably support existing and future growth targets for our non-QM production and has recently distributed non-QM loans to a wide range of investors, including Wall Street firms, hedge funds, and alternative capital partners. Throughout 2020 and during the first quarter of 2021, rated private label securitizations were issued backed by the company's non-QM product. Impact's non-QM collateral performance, originator rankings, and adjustment factors with the rating agencies continue to result in efficient, permanent capital structures for our investors. In the near future, we intend to address and add resources to enable the company to directly access the securitization market and opportunistically retain economic interest and support in the tranches of our offerings, evidencing our confidence in the long-term performance and risk-weighted returns of the loans we originate. The company is monitoring developments across a range of macroeconomic factors, including trends in inflation, housing affordability, employment, and the interest rate environment. Our risk management and product offerings will evolve with the marketplace to successfully navigate these challenges and seek opportunity where risk reward is properly balanced. I stated earlier protecting the firm's liquidity continues to be a primary objective for the firm in 2021. The firm's cash and unencumbered hold loan position was approximately $58 million or $2.70 per common share at the end of the first quarter. We believe this liquidity position as well as a continued focus on strong risk management has prepared the firm to navigate future market volatility. John Glockman will now discuss the operating results for the first quarter of 2021. John.