Impac Mortgage Holdings, Inc. Common Stock

Good day and thank you for standing by. Welcome to the Impact Mortgage Holdings 2021 Third Quarter Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. To ask a question, you will need to press star 1 on your telephone. If at any time during the conference you need to reach an operator, please press star 0. And now I would like to turn the call on to your general counsel, Mr. Joe Green. You may begin, sir.

Good morning, everyone, and thank you for joining Impact Mortgage Holdings' third quarter 2021 earnings conference call. During this call, we will make projections or other forward-looking statements in regards to, but not limited to, GAAP and taxable earnings, cash flows, interest rate 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 and Form 10-Qs filed under the Securities 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 any outlook and guidance, is effective as to the date given, and we expressly disclaim any duty to update the information herein. I would like to get started by introducing George Mangiaracina, Chairman and CEO of Impact Mortgage Holdings.

Thank you, Joe. Good morning. Justin Moiseau, our Chief Administrative Officer, and John Glockner, our Treasurer and Principal Accounting Officer, will join me for prepared remarks. Obie Wakori, our EVP of Alternative Credit Products, and Tiffany Etzmanger, our Chief Operating Officer, will be available for the Q&A section of today's call. Approximately three months ago, during our Q2 2021 earnings call on August 12th, we discussed that the company had continued to grow its retail and TPL origination platforms while continuing to main focus on liquidity and risk management following the 2020 COVID crisis. The company's last business update expressed the view that market conditions in the GSE's base had continued to normalize. with margins narrowing as capacity to originate and process loans in the industry caught up with consumer demand. These trends within our rates business generally continued in the third quarter and are anticipated to remain in effect to the end of the year, absent the material move in interest rates. We also previously referenced the increasing investor demand, expansion of underwriting guidelines, as well as improving margins for the company's non-QM production. a competency of the firm that we're currently investing in with capital market securitization talent and a growing sales and operations team. Our credit business exceeded expectations for the third quarter, measured by the increase in our non-QM origination volume and forward submission and lock pipelines. The company reported net gap income of $2.1 million, or $0.08 per diluted common share, and core earnings of approximately $800,000, or 4 cents per diluted common share for the second quarter of 2021. Core earnings are an alternative measure of results that senior management utilizes to gauge the company's performance. Core earnings isolates results from recurring business activities by adjusting for certain non-recurring items, such as changes in the fair value of our long-term debt and our trust assets, gain or loss on mortgage servicing rights held for sale, and other non-recurring legacy matters. As it relates to production volume, we generated total originations of approximately 680 million in Q3 2021 versus 610 million in Q2 2021, with non-QM originations contributing 186 million in the third quarter versus 100 million in the second quarter. We do not typically provide forward-looking guidance, but we will note that our locked non-QM pipeline was only 10 million at the end of 2020. $80 million at the end of Q2 and approached $200 million as of the end of October 2021. This marks a significant accomplishment for our non-QM franchise, which we relaunched in earnest post-COVID market dislocation in the fourth quarter of 2021 and demonstrates the company's pivot towards non-QM originations across both our retail and our TPO channels. We anticipate continued growth of non-QM originations with attractive margins in both origination channels and for the non-QM production ramp within our TPO channel to accelerate as new account executive additions acclimate their customers to our products, competitive pricing, and market-leading service levels. We 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 2004, we have originated in excess of $4.5 billion of non-QM, steadily yet responsibly increasing our production from $130 million in 2015 to over $1.25 billion annually in the two consecutive years leading up to the COVID crisis. The company, subject to capital markets and liquidity conditions, projects to fund $1.5 billion in non-QM in 2022, with an increasingly steep monthly run rate over the third and fourth quarters of next year. As we noted in our Q&A session during our previous earnings call, the company has now established a seasoned structured products capital markets team led by Obi Wakori, based in New York City. This should enable the company to directly or synthetically access the securitization market, and opportunistically retain economic interest in the subordinate tranches and asset management and servicing fees of our offerings, evidencing our confidence in the long-term performance and risk-weighted returns of the loans we originate. Turning now to our long-standing preferred B litigation, as we disclosed in our AK filing on July 19th, 2021, The Maryland Court of Appeals issued an order which affirmed the lower court's ruling, specifically that the proposed 2009 amendment to the preferred B articles did not receive the required votes, and therefore, the original preferred B articles remain in place. I'm going to turn the call over now to our general counsel, Joe Freon, for a more detailed update on this matter. Joe?