loanDepot, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023. The company originates, finances, sells and services residential mortgage loans and provides title, escrow and settlement services. Unless otherwise noted, dollar amounts below are in millions.
Financial results and liquidity
| Metric | Q1 2023 | Q1 2022 / prior period |
|---|---|---|
| Total net revenue | $207.9 | $503.3; down 58.7% |
| Net loss | $91.7 | $91.3 |
| Net loss attributable to loanDepot, Inc. | $42.9 | $34.7 |
| Loss per share, basic and diluted | $0.25 | $0.25 |
| Adjusted LBITDA (non-GAAP) | $29.3 loss | $74.4 loss |
| Cash from operating activities | $205.4 | $1,148.4 |
| Cash and cash equivalents, March 31 | $798.1 | $864.0 at December 31, 2022 |
| Total liabilities / total equity, March 31 | $5,349.6 / $841.2 | $5,688.5 / $921.5 at December 31, 2022 |
Q1 net interest income was $1.2 million versus $13.1 million. Total expenses were $314.5 million, down 48.1% from $606.3 million. The filing reports a 2.43% gain-on-sale margin, compared with 1.96% in Q1 2022. Cash, cash equivalents and restricted cash together declined $92.3 million during the quarter; investing activities provided $6.9 million and financing activities used $304.6 million.
At March 31, warehouse and other lines of credit were $1.830 billion and debt obligations, net, were $2.304 billion. The company reported $2.1 billion of additional warehouse and other line availability against $4.1 billion of total facility capacity. Unrestricted cash was $798.1 million. Servicing rights were carried at fair value of $2.029 billion; loans held for sale were $2.039 billion.
Material changes versus Q1 2022
- Loan originations fell 77.1% to $4.944 billion from $21.551 billion; units declined to 16,338 from 64,951. Refinances fell to $1.432 billion from $13.520 billion, while purchase originations were $3.513 billion versus $8.031 billion.
- Gain on origination and sale of loans decreased 70.2% to $108.2 million, and origination income fell 79.7% to $12.0 million, primarily reflecting lower transaction volumes and interest-rate-driven market conditions.
- Servicing fee income rose 7.1% to $119.0 million. Servicing expense declined 77.5% to $4.8 million following the transition of the portfolio to the company’s in-house servicing platform.
- Personnel expense fell 59.2% to $141.0 million, including lower commissions and a 51.9% reduction in headcount year over year. Marketing expense declined 64.6% to $35.9 million.
- Other interest expense increased 199.4% to $43.1 million, reflecting higher average balances and rates on secured facilities; Q1 2022 also included a $10.5 million gain on extinguishment of debt.
- Servicing portfolio unpaid principal balance was $141.7 billion, down from $153.4 billion a year earlier. Delinquencies of 60 days or more were 0.91%, versus 0.94%.
Outlook, management commentary and risks
- Management said mortgage volumes are expected to continue declining in 2023 relative to 2022 following higher interest rates; the Federal Reserve raised its target rate by 0.25 percentage points in March 2023. The filing provides no specific financial guidance for the remainder of 2023.
- Under its Vision 2025 plan, the company is emphasizing purchase lending, growth initiatives, centralized origination and fulfillment, and cost reductions. It reported completing its wholesale-business exit and retail and corporate location consolidation in 2022, and its servicing transition in early 2023.
- Management believes available cash and other liquidity sources will be sufficient to support operations and capital commitments for the next 12 months, while noting liquidity could be pressured if warehouse lenders restrict capacity or secondary-market demand weakens. It expects it may need further covenant amendments or waivers; lenders are not obligated to grant them. The company said it was compliant with financial covenants after amendments and with selling and servicing capital requirements at March 31.
- Most warehouse facilities mature during 2023; $3.6 billion of the $4.1 billion capacity was scheduled to mature in 2023 and $0.5 billion in 2024. Several servicing-related facilities and the $200 million Term Notes also had 2023 maturities. Certain facilities were extended or amended after quarter-end.
- The regular quarterly dividend was suspended effective March 31, 2022 and remains suspended for the foreseeable future.
- Mortgage lending is highly sensitive to interest rates, origination volumes, loan-sale demand, prepayments and fair-value assumptions for servicing rights and derivatives. Three investors accounted for 11%, 29% and 33% of Q1 loan sales, respectively. Loan repurchase obligations and counterparty and funding risks are also material considerations.
- A former senior operations executive seeks damages exceeding $75 million in an employment lawsuit; the company says it believes the case is without merit and is defending it. A securities class action and related derivative cases are also pending; the company says losses in those matters are not currently probable or reasonably estimable. Management states other pending legal losses are uncertain.
Key facts for investors to verify
- Whether originations, gain-on-sale performance and cash generation stabilize as mortgage rates and housing activity change.
- Renewal, extension or replacement of warehouse and servicing facilities due to mature in 2023, and continued access to the reported $2.1 billion of available capacity.
- Compliance with lender covenants and regulatory capital and liquidity requirements, including whether additional amendments or waivers are needed.
- Servicing-rights valuation sensitivity, hedge performance and the effects of prepayments and interest-rate changes on earnings and liquidity.
- Developments in the employment, securities and derivative litigation, along with loan repurchase and representation-and-warranty exposure.
- Interpret non-GAAP adjusted measures alongside GAAP results: adjusted LBITDA was a $29.3 million loss, and the company cautions these measures are not substitutes for GAAP results or cash available to meet obligations.