loanDepot, Inc. — Form 10-Q Summary
Reporting period: Quarter ended September 30, 2021; comparisons are with the quarter and nine months ended September 30, 2020 unless noted. loanDepot originates, finances, sells, securitizes and services residential mortgages and provides title, escrow and settlement services. The company completed its IPO in February 2021; continuing LLC members held 56.92% of LD Holdings at quarter-end, reflected as noncontrolling interests.
Financial performance and position
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Total net revenues | $923.8 million | $1,368.9 million | $3,019.7 million | $3,013.8 million |
| Net income | $154.3 million | $728.3 million | $608.4 million | $1,465.9 million |
| Net income attributable to loanDepot, Inc. | $51.5 million | Not applicable | $104.9 million | Not applicable |
| GAAP diluted EPS | $0.40 | Not applicable | $0.82 | Not applicable |
| Adjusted EBITDA (non-GAAP) | $238.3 million | $745.6 million | $805.6 million | $1,554.5 million |
- Operating trends: Q3 originations were $32.0 billion, up 17.8%; nine-month originations were $108.0 billion, up 70.4%. Gain-on-sale margin fell to 2.84% from 4.87% in Q3 and to 2.71% from 4.63% for the nine-month period.
- Profitability: Q3 net income fell 78.8%; nine-month net income fell 58.5%. Nine-month revenue was nearly flat, while expenses rose 52.9% to $2.36 billion. Higher personnel, marketing and origination costs were notable contributors. Net margin was approximately 16.7% for Q3 and 20.1% for the nine months, versus 53.2% and 48.7% in the comparable 2020 periods.
- Cash flow: Nine-month operating cash flow was negative $2.06 billion, compared with negative $418.1 million in 2020, reflecting the scale and timing of mortgage originations, loan sales and repurchases. Investing activities provided $288.8 million, including servicing-rights sale proceeds; financing activities provided $1.89 billion. Cash and restricted cash ended at $604.4 million.
- Balance sheet and liquidity: At September 30, total assets were $12.75 billion and total liabilities $11.09 billion. Cash and cash equivalents were $506.6 million; restricted cash was $97.8 million. Management reported $2.8 billion of additional warehouse availability against $8.2 billion outstanding and $11.1 billion total warehouse capacity.
- Borrowings: Warehouse and other lines totaled $8.21 billion, up 24.9% from year-end 2020. Debt obligations, net, were $1.41 billion, up 97.7%, mainly after issuing $600 million of 6.125% senior notes due 2028; $1.085 billion of debt was unsecured senior notes. The company reported compliance with warehouse, debt and selling/servicing covenants.
- Servicing: Servicing portfolio UPB reached $145.3 billion, versus $102.9 billion at year-end 2020. Servicing fee income rose 111.6% in Q3, but the quarter included a $138.5 million net loss from changes in servicing-rights fair value. Active forbearance was 1.1% of portfolio UPB, down from 2.4% at year-end 2020.
Material changes and management commentary
- Management attributed weaker Q3 results primarily to industry capacity and competitive pressure, especially in the partner channel, which compressed loan-sale margins despite higher origination volume. Higher interest rates also affected loan and derivative valuations.
- For the nine months, gains on loan sales decreased 4.3% even as volume rose; lower sale premiums and unfavorable IRLC and loan fair-value movements were partly offset by higher servicing-rights additions and hedge results. Servicing and title/escrow revenues grew with the larger business.
- Management described higher rates as a headwind to refinancing and production, but potentially supportive of servicing-rights values; purchase demand remained strong but faced housing supply constraints. No specific numeric earnings or revenue guidance is provided in the filing.
- Non-GAAP measures are company-defined and exclude, among other items, servicing-rights fair-value changes and related hedges. They should not be treated as substitutes for GAAP results or cash available for debt service.
Risks, contingencies and unusual items
- Results remain sensitive to interest rates, refinancing volumes, mortgage-sale margins, prepayments and servicing-rights valuation assumptions. The company uses derivatives to manage rate exposure, but hedges may not fully offset changes.
- Liquidity exposure includes warehouse-funding availability, collateral haircuts and margin calls, servicing advances during borrower forbearance, and reliance on secondary-market loan sales. Much warehouse capacity was uncommitted; facilities require lender review and renewal.
- Loan-sale representations and warranties can require repurchases or indemnification. Loans eligible for repurchase and the matching liability were each $632.7 million at quarter-end; the reserve for sold-loan losses was $27.0 million.
- The filing describes ordinary-course legal matters and a newly filed employment-related lawsuit following an executive’s demand letter. Management said it did not believe pending matters would materially affect the company, while noting outcomes and potential losses can be uncertain. A putative TCPA class action was settled for a nominal amount.
- The IPO and reorganization made loanDepot, Inc. subject to corporate income taxes on its share of LD Holdings income. The company recorded a $202.3 million deferred tax liability and a $27.9 million estimated tax receivable agreement liability; the TRA provides for payment of 85% of qualifying cash tax savings.
- The company paid $419.7 million of dividends and distributions in the first nine months, including a $200 million special dividend. Future dividends remain discretionary and subject to contractual and legal restrictions.
Investor verification points
- Track gain-on-sale margins, originations by channel and purchase/refinance mix as rates and competition change.
- Reconcile GAAP earnings and operating cash flow with management’s non-GAAP adjustments; assess the effect of fair-value changes and hedging outcomes.
- Monitor unrestricted liquidity, committed versus uncommitted warehouse capacity, facility maturities and covenant compliance.
- Assess servicing-rights valuation sensitivity to discount rates, prepayment speeds and servicing costs, as well as forbearance and advance requirements.
- Review loan repurchase exposure, legal developments, the TRA liability and the sustainability of dividends relative to cash generation and debt obligations.