loanDepot, Inc. — Q2 2022 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2022. loanDepot originates, sells and services residential mortgages and provides related title, escrow and settlement services. Unless noted, financial amounts below are in U.S. dollars.
Financial performance
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Total net revenue | $308.6 million | $779.9 million | $811.9 million | $2,095.9 million |
| Net income (loss) | ($223.8 million) | $26.3 million | ($315.1 million) | $454.1 million |
| Net income (loss) attributable to loanDepot, Inc. | ($100.9 million) | $8.6 million | ($135.7 million) | $53.4 million |
| Basic and diluted EPS | ($0.66) | $0.07 | ($0.93) | $0.42 |
| Total expenses | $560.7 million | $749.4 million | $1,166.9 million | $1,619.3 million |
- Q2 loan originations were $16.0 billion, down 53.6% year over year; refinance originations fell to $6.5 billion from $24.1 billion, while purchase originations were $9.5 billion versus $10.4 billion.
- Q2 gain-on-sale margin declined to 1.16% from 2.28%. Net gain on loan origination and sale fell 78.8% to $146.6 million; loan-sale discounts, lower production and lower servicing-right additions weighed on results. Net interest income rose to $22.8 million from $7.0 million, while servicing fee income increased 23.8% to $117.3 million.
- Q2 personnel expense decreased 36.9% to $296.6 million, partly reflecting lower commissions and headcount; general and administrative expense rose 31.4% to $63.9 million. The quarter included a $40.7 million goodwill impairment and $1.4 million impairment of other intangible assets.
- Six-month operating cash flow was positive $2.67 billion, investing cash flow positive $362.9 million, and financing cash flow negative $2.50 billion. Cash and restricted cash together increased $529.0 million. Operating cash flow reflects substantial mortgage originations and sales and should not be read as recurring free cash flow.
Financial position and liquidity
- At June 30, 2022, cash and cash equivalents were $954.9 million and restricted cash was $194.6 million. Total assets were $9.20 billion, total liabilities $7.98 billion and total equity $1.21 billion.
- Warehouse and other lines of credit totaled $4.27 billion outstanding; debt obligations, net, were $2.43 billion, including $1.44 billion of secured debt and $990.5 million of senior notes. Warehouse capacity was $9.85 billion, with $5.5 billion of additional availability reported.
- Cash increased by $535.4 million from year-end, including $388.0 million of proceeds from bulk sales of mortgage servicing rights and increased use of MSR facilities. Servicing rights were valued at $2.21 billion; the servicing portfolio was $155.2 billion unpaid principal balance.
- Management stated it believed cash and available liquidity sources would fund operations and commitments for the next 12 months. It also cautioned that lenders could reduce uncommitted warehouse capacity, financing costs could rise, and demand for mortgage loans in the secondary market could weaken.
Changes, outlook and risks
- Management attributed the sharp deterioration from 2021 to rising mortgage rates, which reduced refinancing demand, loan volumes and production margins. Total net revenue fell 60.4% in Q2 and 61.3% for the first half.
- In July 2022, the company announced its Vision 2025 plan: greater focus on purchase loans, growth initiatives, centralized origination and fulfillment, and cost reductions. The company planned to reduce staffing to approximately 6,500 by year-end 2022 from 8,540 at June 30, and decided to exit the wholesale business. Savings and operational benefits are not assured.
- The company suspended its regular quarterly dividend effective March 31, 2022, for the foreseeable future. It paid $117.1 million in dividends and distributions in the first half.
- After Q2 losses, loanDepot amended certain warehouse facilities and obtained or amended waivers of profitability covenants; it reported compliance at June 30 following those actions. Management expected to seek further amendments or waivers during 2022. Failure to obtain them could trigger defaults, acceleration, termination of commitments, collateral demands or cross-defaults.
- Key exposures include interest-rate and prepayment risk, loan repurchase and representation-and-warranty obligations, reliance on warehouse lenders and mortgage investors, and regulatory capital requirements. Loan-loss obligations for sold loans rose to $85.9 million from $26.6 million a year earlier.
- Legal matters include an employment lawsuit seeking more than $75 million; the court sustained the company’s demurrer in full, and the company subsequently answered the amended complaint. A securities class action and related derivative lawsuits were also disclosed; the company disputed the claims and did not consider losses probable or reasonably estimable at the filing date.
Important facts for investors to verify
- Whether loan volumes, gain-on-sale margins and profitability stabilize as mortgage rates and housing demand change.
- Whether the company obtains needed covenant amendments or waivers and preserves access to warehouse and other funding facilities.
- Progress and costs of Vision 2025, including the planned staffing reduction and wholesale-business exit.
- Cash generation excluding mortgage-loan inventory movements and asset-sale proceeds, and the sustainability of reported liquidity.
- Changes in loan repurchase provisions, MSR valuations and servicing-portfolio performance, as well as developments in the disclosed litigation.
Management’s outlook and non-GAAP measures are subject to risks and assumptions; adjusted results should not be treated as substitutes for GAAP results or as discretionary cash available to the company.