Business context and reporting period
loanDepot, Inc. filed this unaudited Form 10-Q for the quarter ended June 30, 2021. The company originates, funds, sells, securitizes and services residential mortgage loans and also provides title, escrow and settlement services. Its results are highly sensitive to mortgage rates, refinancing demand, gain-on-sale margins and servicing-rights valuations. The IPO and reorganization were completed in February 2021; 2020 results reflect the predecessor business and are not directly comparable to income attributable to the public company.
Unless noted otherwise, financial amounts below are in millions of dollars. Loan origination and sale volumes are in billions.
Financial performance and position
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Total net revenue | $779.9 | $1,158.7 | $2,095.9 | $1,644.9 |
| Net income | $26.3 | $648.6 | $454.1 | $737.6 |
| Net income attributable to loanDepot, Inc. | $8.6 | Not applicable | $53.4 | Not applicable |
| Adjusted EBITDA (non-GAAP) | $109.3 | $682.6 | $567.4 | $808.9 |
| Gain-on-sale margin | 2.28% | 5.39% | 2.66% | 4.45% |
Q2 2021 diluted EPS was $0.07; six-month diluted EPS was $0.42. The company reported adjusted diluted EPS, a non-GAAP measure, of $0.18 and $1.16, respectively. Adjusted measures are not substitutes for GAAP results and may not be comparable with similarly titled measures at other companies.
Q2 net interest income was $7.0 million, versus $5.0 million a year earlier; six-month net interest income was $8.3 million, versus $7.4 million. Q2 total expenses rose 47% to $749.4 million, while six-month expenses rose 79% to $1,619.3 million.
For the six months, operating cash flow was negative $2,270.3 million, compared with positive $710.0 million in 2020. Investing activities provided $145.7 million and financing activities provided $2,272.6 million. Cash and restricted cash totaled $636.7 million at period-end.
At June 30, 2021, total assets were $13,097.6 million, total liabilities $11,528.8 million and total equity $1,568.8 million. Warehouse and other lines of credit were $8,498.4 million; net debt obligations were $1,473.3 million, including $1,083.9 million of senior notes. Unrestricted cash was $419.3 million, with $936.6 million of additional warehouse-line availability. The company reported compliance with its warehouse, debt and selling/servicing capital and liquidity requirements.
Material changes versus prior comparable periods
- Q2 revenue decreased 32.7% year over year and net income decreased 95.9%; six-month revenue increased 27.4%, while net income decreased 38.4%.
- Originations increased to $34.5 billion in Q2 from $21.0 billion, and to $76.0 billion for the first half from $36.2 billion. Despite higher volumes, gain-on-sale margins fell materially, reflecting industry capacity and competitive pressure.
- Servicing fee income rose sharply as the servicing portfolio grew to $138.8 billion from $57.9 billion a year earlier. Servicing rights at fair value were $1,781.7 million at June 30, up 58% from year-end 2020.
- Personnel expense and marketing expense increased substantially, driven by higher origination volumes, increased staffing, lead acquisition and brand campaigns. Headcount was 11,572, up 56% year over year.
- Warehouse borrowings increased 29% from year-end, while net debt obligations more than doubled, principally following issuance of $600 million of 6.125% senior notes due 2028. The company paid $400.3 million in dividends and distributions in the first half, including a $200 million special dividend.
Outlook, commentary, risks and unusual items
The filing provides no quantitative earnings or origination guidance. Management described Q2 as a transition from 2020’s record origination volumes and margins, citing lower margins from competition and overcapacity, higher average interest rates and lower refinance volumes, continued purchase demand constrained by housing supply, and a focus on ancillary products and industry consolidation. Management said it believed liquidity was adequate for current operations and the next twelve months, but noted that market or funding conditions could change.
- Rates, margins and valuation: Interest-rate shifts affect production, hedges, loan values, refinancing activity and servicing-rights valuations. Servicing-rights fair value is sensitive to prepayment speeds, discount rates and servicing costs; the filing’s sensitivity analysis illustrates potentially material valuation changes.
- Forbearance and servicing advances: Approximately 1.4% of the servicing portfolio, or $1.9 billion of unpaid principal, was in active forbearance at quarter-end. The company may have to advance principal and interest, with requirements varying by loan program.
- Funding and liquidity: The business depends on warehouse lines and secondary-market loan sales. Warehouse lines include uncommitted capacity, covenant requirements and margin-call provisions; several facilities had near-term maturities, with certain extensions or non-renewals disclosed after quarter-end.
- Credit and concentration: Loan sales carry representation-and-warranty repurchase exposure. Three investors accounted for 43%, 35% and 13% of first-half loan sales; California represented approximately 34% of originations. The company also relies on warehouse lenders and derivative counterparties.
- IPO, taxes and ownership: The IPO/reorganization created corporate income-tax exposure and a $202.9 million deferred tax liability. Under the tax receivable agreement, the company may owe specified parties 85% of qualifying realized or deemed tax savings; the recorded liability was $12.9 million. Continuing LLC members held 58.7% of LD Holdings at quarter-end.
- Legal and operational matters: The filing describes ordinary-course litigation and an unresolved employment-related demand with unspecified damages; management said it did not believe the allegations had merit. A prior consumer-refund review was completed, with $4.2 million refunded. Management reported no material changes to previously disclosed risk factors and effective disclosure controls.
Important facts for investors to verify
- Whether competitive pressure and lower gain-on-sale margins persist, and how they affect earnings as refinance volumes shift.
- How much warehouse capacity is committed versus uncommitted, the status of upcoming facility renewals, and liquidity available after collateral and margin requirements.
- The sensitivity and assumptions underlying servicing-rights valuations, including prepayments, discount rates and forbearance-related servicing advances.
- Future repurchase claims, investor concentration, and the adequacy of the $26.6 million loan-loss obligation for sold loans.
- The impact of senior-note interest and maturities, dividends, and potential tax receivable agreement payments on cash and capital.
- Whether reported GAAP performance and cash generation support distributions and growth; operating cash flow was substantially negative in the first half despite positive net income.