News Release
For the third quarter of 2017, the Company reported GAAP net earnings of
| Results of Operations | For the Three Months Ended | For the Nine Months Ended | ||||||||||||||||||
| (in thousands, except share data) | September 30, | June 30, | September 30, | September 30, | September 30, | |||||||||||||||
| (unaudited) | 2017 | 2017 | 2016 | 2017 | 2016 | |||||||||||||||
| Revenues: | ||||||||||||||||||||
| Gain on sale of loans, net | $ | 42,476 | $ | 36,806 | $ | 113,158 | $ | 116,602 | $ | 245,849 | ||||||||||
| Real estate services fees, net | 1,355 | 1,504 | 2,678 | 4,492 | 6,773 | |||||||||||||||
| Servicing fees, net | 8,492 | 7,764 | 3,789 | 23,575 | 8,680 | |||||||||||||||
| Loss on mortgage servicing rights, net | (10,513 | ) | (6,669 | ) | (15,857 | ) | (18,159 | ) | (41,249 | ) | ||||||||||
| Other | 266 | 228 | 225 | 541 | 453 | |||||||||||||||
| Total revenues | 42,076 | 39,633 | 103,993 | 127,051 | 220,506 | |||||||||||||||
| Expenses: | ||||||||||||||||||||
| Personnel expense | 23,062 | 21,373 | 38,467 | 69,353 | 93,025 | |||||||||||||||
| Business promotion | 10,403 | 10,110 | 10,350 | 30,744 | 30,828 | |||||||||||||||
| General, administrative and other | 8,497 | 8,324 | 7,736 | 24,845 | 23,742 | |||||||||||||||
| Accretion of contingent consideration | 396 | 707 | 1,591 | 1,948 | 5,244 | |||||||||||||||
| Change in fair value of contingent consideration | (4,798 | ) | (6,793 | ) | 23,215 | (11,052 | ) | 34,569 | ||||||||||||
| Total expenses | 37,560 | 33,721 | 81,359 | 115,838 | 187,408 | |||||||||||||||
| Operating income: | 4,516 | 5,912 | 22,634 | 11,213 | 33,098 | |||||||||||||||
| Other income (expense): | ||||||||||||||||||||
| Net interest income | 1,546 | 1,098 | 1,304 | 3,090 | 2,036 | |||||||||||||||
| Loss on extinguishment of debt | — | (1,265 | ) | — | (1,265 | ) | — | |||||||||||||
| Change in fair value of long-term debt | 104 | (265 | ) | (8,641 | ) | (2,657 | ) | (7,286 | ) | |||||||||||
| Change in fair value of net trust assets | (1,745 | ) | 2,005 | 1,071 | 6,578 | 2,609 | ||||||||||||||
| Total other income (expense) | (95 | ) | 1,573 | (6,266 | ) | 5,746 | (2,641 | ) | ||||||||||||
| Net earnings before income taxes | 4,421 | 7,485 | 16,368 | 16,959 | 30,457 | |||||||||||||||
| Income tax expense | 2,104 | 1,045 | (130 | ) | 3,575 | 728 | ||||||||||||||
| Net earnings | $ | 2,317 | $ | 6,440 | $ | 16,498 | $ | 13,384 | $ | 29,729 | ||||||||||
| Diluted weighted average common shares | 21,195 | 21,258 | 14,403 | 20,381 | 13,973 | |||||||||||||||
| Diluted earnings per share | $ | 0.11 | $ | 0.32 | $ | 1.18 | $ | 0.71 | $ | 2.27 | ||||||||||
The decrease in net earnings and Adjusted Operating Income (Loss) was primarily attributable to a
Net earnings include certain fair value adjustments, which are non-cash items and are not related to current operating results. Operating income, excluding the changes in contingent consideration (“Adjusted Operating (Loss) Income”), is considered a non-GAAP financial measurement; see the discussion and reconciliation of non-GAAP financial measures below. Although we are required by GAAP to record these fair value adjustments, management believes Adjusted Operating (Loss) Income as defined above is more useful to discuss the ongoing and future operations of the Company, shown in the table below:
| Adjusted Operating (Loss) Income | For the Three Months Ended | For the Nine Months Ended | |||||||||||||||||
| (in thousands, except share data) | September 30, | June 30, | September 30, | September 30, | September 30, | ||||||||||||||
| 2017 | 2017 | 2016 | 2017 | 2016 | |||||||||||||||
| Net earnings: | $ | 2,317 | $ | 6,440 | $ | 16,498 | $ | 13,384 | $ | 29,729 | |||||||||
| Total other (income) expense | 95 | (1,573 | ) | 6,266 | (5,746 | ) | 2,641 | ||||||||||||
| Income tax expense | 2,104 | 1,045 | (130 | ) | 3,575 | 728 | |||||||||||||
| Operating income: | $ | 4,516 | $ | 5,912 | $ | 22,634 | $ | 11,213 | $ | 33,098 | |||||||||
| Accretion of contingent consideration | 396 | 707 | 1,591 | 1,948 | 5,244 | ||||||||||||||
| Change in fair value of contingent consideration | (4,798 | ) | (6,793 | ) | 23,215 | (11,052 | ) | 34,569 | |||||||||||
| Adjusted operating (loss) income | $ | 114 | $ | (174 | ) | $ | 47,440 | $ | 2,109 | $ | 72,911 | ||||||||
| Diluted weighted average common shares | 21,195 | 21,258 | 14,403 | 20,381 | 13,973 | ||||||||||||||
| Diluted adjusted operating income (loss) per share | $ | 0.01 | $ | (0.01 | ) | $ | 3.29 | $ | 0.10 | $ | 5.22 | ||||||||
During 2017 we have also maintained marketing activities and certain costs consistent with 2016, despite higher interest rates, in an effort to increase NonQM and government-insured loan production both of which have higher margins and both of which have increased over the third quarter of 2016 (as discussed below), as well as expanding our geographic footprint outside of
| Servicing Portfolio Data | ||||||||||
| (in millions) | ||||||||||
| As of September 30, 2017 |
As of June 30, 2017 |
% Change | As of September 30, 2016 |
% Change | ||||||
| Mortgage Servicing Portfolio (UPB) | $15,703.1 | $14,667.9 | 7% | $9,450.7 | 66% | |||||
| Mortgage Servicing Rights | $159.0 | $152.3 | 4% | $87.4 | 82% | |||||
| Q3 2017 | Q2 2017 | % Change | Q3 2016 | % Change | ||||||
| Servicing Fees, Net | $8.5 | $7.8 | 9% | $3.8 | 124% | |||||
Beginning in 2016, we developed a strategy to retain servicing. As a result, the unpaid principal balance (“UPB”) of the Company’s mortgage servicing portfolio increased 66% to
The loss on mortgage servicing rights (“MSR”) in the third quarter of 2017 was primarily due to mark-to-market (“MTM”) loss and charges associated with payoffs in the portfolio related to the decrease in prevailing mortgage rates in the third quarter. We have begun an effort to reduce prepayments in the servicing portfolio. By doing so, we expect to reduce the payoffs in the portfolio as well as reduce the loss on mortgage servicing rights.
| Origination Data | ||||||||||
| (in millions) | ||||||||||
| Q3 2017 | Q2 2017 | % Change | Q3 2016 | % Change | ||||||
| Retail Originations | $1,426.2 | $1,186.8 | 20% | $3,273.7 | -56% | |||||
| Correspondent Originations | $376.4 | $305.8 | 23% | $583.2 | -35% | |||||
| Wholesale Originations | $281.7 | $301.0 | -6% | $360.1 | -22% | |||||
| Total Originations | $2,084.3 | $1,793.6 | 16% | $4,217.0 | -51% | |||||
During the third quarter of 2017, total originations increased 16% to
In the third quarter of 2017, NonQM and government-insured originations represented approximately 35% of total originations, as compared to just 12% of total originations in the third quarter of 2016. During the third quarter of 2017, the origination volume of NonQM loans increased to
We continue to believe there is an underserved mortgage market for borrowers with good credit who may not meet the qualified mortgage (QM) guidelines set out by the
Additionally, in the third quarter of 2017, the Company’s government-insured loan production increased to
| Summary Balance Sheet | September 30, | December 31, | |||
| (in thousands, except per share data) | 2017 | 2016 | |||
| ASSETS | |||||
| Cash | $ | 34,815 | $ | 40,096 | |
| Mortgage loans held-for-sale | 572,268 | 388,422 | |||
| Finance receivables | 60,912 | 62,937 | |||
| Mortgage servicing rights | 158,950 | 131,537 | |||
| Securitized mortgage trust assets | 3,769,231 | 4,033,290 | |||
| Goodwill and intangibles | 127,569 | 130,716 | |||
| Deferred tax asset | 24,420 | 24,420 | |||
| Other assets | 67,212 | 52,316 | |||
| Total assets | $ | 4,815,377 | $ | 4,863,734 | |
| LIABILITIES & STOCKHOLDERS' EQUITY | |||||
| Warehouse borrowings | $ | 591,583 | $ | 420,573 | |
| Debt | 94,666 | 102,082 | |||
| Securitized mortgage trust liabilities | 3,751,831 | 4,017,603 | |||
| Contingent consideration | 5,816 | 31,072 | |||
| Other liabilities | 62,028 | 61,364 | |||
| Total liabilities | 4,505,924 | 4,632,694 | |||
| Total equity | 309,453 | 231,040 | |||
| Total liabilities and stockholders’ equity | $ | 4,815,377 | $ | 4,863,734 | |
| Book value per share | $ | 14.77 | $ | 14.42 | |
Mr.
Non-GAAP Financial Measures
This release contains operating income excluding changes in contingent consideration (“Adjusted Operating (Loss) Income”) 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. Adjusted Operating (Loss) Income and Adjusted Operating (Loss) Income 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 EPS prepared in accordance with GAAP. The table below shows operating income per share excluding these items:
| For the Three Months Ended | For the Nine Months Ended | ||||||||||||||||||
| September 30, | June 30, | September 30, | September 30, | September 30, | |||||||||||||||
| 2017 |
2017 |
2016 |
2017 |
2016 | |||||||||||||||
| Diluted earnings per share | $ | 0.11 | $ | 0.32 | $ | 1.18 | $ | 0.71 | $ | 2.27 | |||||||||
| Adjustments: | |||||||||||||||||||
| Total other (expense) income (1) | — | (0.09 | ) | 0.40 | (0.35 | ) | 0.05 | ||||||||||||
| Income tax expense | 0.10 | 0.05 | (0.01 | ) | 0.18 | 0.05 | |||||||||||||
| Accretion of contingent consideration | 0.02 | 0.03 | 0.11 | 0.10 | 0.38 | ||||||||||||||
| Change in fair value of contingent consideration | (0.22 | ) | (0.32 | ) | 1.61 | (0.54 | ) | 2.47 | |||||||||||
| Diluted adjusted operating income (loss) per share | $ | 0.01 | $ | (0.01 | ) | $ | 3.29 | $ | 0.10 | $ | 5.22 | ||||||||
| (1) Except for when anti-dilutive, convertible debt interest expense, net of tax is included for calculating diluted earnings per share (EPS) and is excluded for purposes of reconciling GAAP diluted EPS to non-GAAP diluted adjusted operating income (loss) per share. | |||||||||||||||||||
Conference Call
The Company will hold a conference call on
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: failure to increase origination volume in each of our origination channels and ability to successfully leverage our marketing platform to expand volumes of our other loan products; successful development, marketing, sale and financing of new and existing financial products, including expansion of NonQM loan originations and conventional and government-insured loan programs; inability to successfully reduce prepayments on our mortgage loans; ability to successfully diversify our mortgage products; ability to continue to grow servicing portfolio; volatility in the mortgage industry; unexpected interest rate fluctuations and margin compression; our ability to manage personnel expenses in relation to mortgage production levels; our ability to successfully use warehousing capacity; 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; 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, including any settlements, of litigation or regulatory actions pending against us or other legal contingencies; and our compliance with applicable local, state and federal laws and regulations and other general market and economic conditions.
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 the annual and quarterly reports we file with the
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