loanDepot, Inc. (NYSE: LDI), (together with its subsidiaries, “loanDepot” or the “Company”), the innovative consumer lending and real estate services provider that is using its proprietary mello® technology to deliver best-in-class experiences to its customers, today announced results for the second quarter ended June 30, 2021.

“Eleven years ago we set out to reshape the mortgage industry with a new, digital-first approach that would thrive across all market conditions. This is why, despite the transition in the mortgage market, we continued to grow in the second quarter with meaningful increases in both market share and purchase loan originations,” said loanDepot Founder and CEO Anthony Hsieh.

“We’ve entered a transitional period and expect to see industry consolidation as some lenders may not be in a position to withstand the headwinds, whereas we are confident and excited for the future. While our revenues were lower on decreased gain on sale margins and rate lock volume during this transitional quarter, our investments and commitment to our core business philosophy continue to fuel our momentum, especially as the industry becomes less fragmented and consumers rightfully demand more robust and integrated products and services from their lender. We will meet and exceed these demands with our just announced loanDepot Grand Slam package that will give homeowners access to real estate, mortgage, title and insurance services within one bundle for their home transaction, increasing ease, speed and peace of mind, all while reducing overall cost to the customer.”

“We can express this confidence,” continued Hsieh, “because our diversified channel strategy, which is the industry’s only at-scale model of this type, and proprietary mello tech stack allow us to continually reduce costs and maximize operational elasticity, so that our loan manufacturing process is true to any given market environment. These unique capabilities, in addition to our world-class, highly-recognized brand and significant top-of-funnel customer acquisition and data matching capabilities ensure that we will continue to grow, responsibly and productively serving our customers, our employees and our shareholders. We are confident we will continue to accelerate our growth, increase our market share and outperform in the long term.”

Current Market Conditions:

The second quarter represented a transitional quarter from the record levels of loan origination volume and profit margins in 2020 into an operating environment characterized by:

• Lower profit margins resulting from industry overcapacity and increased competitive pressure, particularly in the wholesale partner channel.
• Higher interest rates resulting in lower refinance transaction volumes.
• Continuing strong demand for purchase transactions, which is somewhat adversely impacted by supply constraints on new and resale housing.
• Sharper focus on industry consolidation and expansion of ancillary products and services to capture additional revenue sources and expand customer engagement points.

Second Quarter Highlights:

Financial Summary

Operational Results

• Rate lock volume of $42.1 billion for the three months ended June 30, 2021 resulted in quarterly total revenue of $779.9 million, which represents a decrease of $536.1 million, or 41%, from the first quarter of 2021.
• Loan origination volume for the second quarter of 2021 was $34.5 billion, a decrease of $7.0 billion or 17% from the first quarter of 2021.
• Our Retail and Partner strategies delivered $10.4 billion of purchase loan originations and $24.1 billion of refinance loan originations during the second quarter of 2021.
• Net income for the second quarter of 2021 decreased to $26.3 million as compared to $427.9 million in the prior quarter. The quarter over quarter decrease was primarily driven by the decline in gain on sale margins and an increase in servicing rights fair value losses, net of hedge.
• Reflecting the strength of our core business, adjusted EBITDA for the second quarter of 2021 exhibited a smaller decline compared to net income, decreasing to $109.3 million as compared to $458.1 million for the first quarter of 2021. Adjusted EBITDA excludes the impact of fair value changes of our mortgage servicing rights, net of hedging results, and other non-core operating expenses.
• Total expenses for the second quarter of 2021 decreased by $120.5 million, or 14% from the first quarter of 2021, due primarily to lower variable expenses on loan origination volume and IPO related expenses incurred in the first quarter.

Other Highlights

• Returned value to shareholders through a regular cash dividend of $0.08 per share paid on July 16, 2021, to shareholders of record on July 1, 2021.
• Implemented cost cutting initiatives late in the second quarter and early in the third quarter, the results of which we expect to be primarily realized in the second half of 2021. Our technology driven processes allow us to adjust our expenses to changing market conditions, or as demonstrated by our increase in purchase loan originations during the quarter adjust our pipeline to load balance our operational capabilities.
• Announced the addition of George Brady as Chief Digital Officer and Karin Lockovitch as Chief Risk Officer to our exceptional management team. With the appointments of these highly experienced executives we underscore the Company’s drive to accelerate the pace of innovation, support continued growth, and manage risk.
• For the second quarter of 2021, our preliminary organic refinance consumer direct recapture rate² increased to 75% as compared to the final recapture rate of 72% for the first quarter of 2021. This highlights the efficacy of our marketing efforts and the strength of our customer relationships, which includes our growing servicing portfolio that reached a record level of $138.8 billion in unpaid principal balance serviced as of June 30, 2021. This growth was against the backdrop of growing our servicing portfolio in-house and relying relatively less on third party sub-servicing arrangements.
• Continuing its track record of creating strategically beneficial joint ventures, loanDepot entered into a partnership with Farm Bureau Bank. loanDepot’s streamlined platform makes the Company a partner of choice for home builders and other financial services companies.
• We believe our position as the second most recognized mortgage brand grew even stronger through our ongoing national television ad campaign delivering over 16 billion household impressions from May 2020 through June 2021. Our extensive data analytics also allowed us to capitalize on the 1.8 million average monthly website visits and 406 million online media exposures during the second quarter of 2021.
• We firmly believe in our responsibility as corporate citizens to make a positive social impact in the communities in which we work, live and serve. Over the last quarter the Company granted more than $500,000 to organizations across the country, including the Boys & Girls Clubs of America, the Surfside Relief Fund and Turn 2 Foundation.

Strategic Channel Overview
Our diverse origination strategy ensures we can serve customers in the way they want to be served, with the right mortgage professional, with the right product, at the right price, at the right time. Complementing our origination strategy is our servicing portfolio, which ensures we can serve the customer through their entire mortgage journey.

Retail Channel

The Company employs more than 2,800 licensed mortgage loan professionals who work in our Retail Channel that reach customers through our organic marketing or their own relationships in either our proprietary call centers or local in-market branches. During the second quarter of 2021, our Retail Channel accounted for $27.9 billion, or 81%, of our loan originations.

Partner Channel

Our Partner Channel originates loans through our network of approved mortgage brokers, as well as a series of exclusive joint ventures with some of the nation’s largest homebuilders and depositories, who market our broad spectrum of products utilizing our innovative mello® technology platform to efficiently underwrite, process and fund mortgage loans, while delivering an exceptional customer experience. During the second quarter of 2021, our Partner Channel accounted for $6.6 billion, or 19%, of our loan originations.

The returns were complemented by $2.9 million of income recorded from our joint ventures for the second quarter of 2021, reflecting the wide variety of industry partners we work with in the channel. We added one new joint venture relationship in the second quarter of 2021 with Farm Bureau Bank.

Servicing

The increase in unpaid principal balance of our servicing portfolio was driven by an increase in servicing-retained loan sales, offset somewhat by a sale of $14.4 billion of unpaid principal balance during the quarter. We continued to invest in growing our high-quality servicing portfolio and not only increased total loan originations but also the percentage of our servicing customers who chose to refinance with us.

As of June 30, 2021, approximately 1.4%, or $1.9 billion, of our servicing portfolio was in active forbearance. This represents a decline from 1.7%, or $2.2 billion, as of March 31, 2021.

Balance Sheet Highlights

The decrease in cash and cash equivalents from March 31, 2021 was primarily due to dividend payments during the quarter. An increase in loans held for sale at June 30, 2021, resulted in a corresponding increase in the balance on our warehouse lines of credit. Total funding capacity with our lending partners decreased to $9.5 billion at June 30, 2021 from $10.3 billion at March 31, 2021. The decrease of $0.9 billion was primarily due to a decrease in temporary commitments on existing facilities from lower loan originations during the quarter. Available borrowing capacity was $0.9 billion at June 30, 2021.

Consolidated Statements of Operations

Consolidated Balance Sheets

Loan Origination and Sales Data

Second Quarter Earnings Call
Management will host a conference call and live webcast today at 11:00 a.m. ET on loanDepot’s Investor Relations website, investors.loandepot.com, to discuss its earnings results.

The conference call can also be accessed by dialing 833-312-1365 (domestic) or 236-712-2485 (international) using pin number 8675562. Please call five minutes in advance to ensure that you are connected prior to the call. A replay of the webcast and transcript will also be made available on the Investor Relations website following the conclusion of the event.

For more information about loanDepot, please visit the company’s Investor Relations website: investors.loandepot.com.

Non-GAAP Financial Measures
To provide investors with information in addition to our results as determined by GAAP, we disclose Adjusted Total Revenue, Adjusted Net Income, Adjusted Diluted EPS, and Adjusted EBITDA as non-GAAP measures. We believe Adjusted Total Revenue, Adjusted Net Income, Adjusted Diluted EPS, and Adjusted EBITDA provide useful information to investors regarding our results of operations because each measure assists both investors and management in analyzing and benchmarking the performance and value of our business. They facilitate company-to-company operating performance comparisons by backing out potential differences caused by variations in hedging strategies, changes in valuations, capital structures (affecting net interest expense), taxation, the age and book depreciation of facilities (affecting relative depreciation expense) and the amortization of intangibles, which may vary for different companies for reasons unrelated to operating performance, as well as certain historical cost (benefit) items which may vary for different companies for reasons unrelated to operating performance. These measures are not financial measures calculated in accordance with GAAP and should not be considered as a substitute for revenue, net income, or any other operating performance measure calculated in accordance with GAAP, and may not be comparable to a similarly titled measure reported by other companies.

We define “Adjusted Total Revenue” as total revenues, net of the change in fair value of mortgage servicing rights (“MSRs”) and the related hedging gains and losses. We define “Adjusted Net Income” as tax-effected earnings before change in fair value of contingent consideration, stock compensation expense and management fees, IPO expense, and the change in fair value of MSRs, net of the related hedging gains and losses, and the tax effects of those adjustments. We define “Adjusted Diluted EPS” as Adjusted Net Income divided by the diluted weighted average number of shares of Class A common stock and Class D common stock outstanding for the applicable period, which assumes the proforma exchange of all outstanding Class C common shares for shares of Class A common stock. We define “Adjusted EBITDA” as earnings before interest expense and amortization of debt issuance costs on non-funding debt, income taxes, depreciation and amortization, change in fair value of MSRs, net of the related hedging gains and losses, change in fair value of contingent consideration, stock compensation expense and management fees, and IPO related expense. Adjustments for income taxes are made to reflect historical results of operations on the basis that it was taxed as a corporation under the Internal Revenue Code, and therefore subject to U.S. federal, state and local income taxes. We exclude from each of these non-GAAP measures the change in fair value of MSRs and related hedging gains and losses as this represents a non-cash non-realized adjustment to our total revenues, reflecting changes in assumptions including discount rates and prepayment speed assumptions, mostly due to changes in market interest rates, which is not indicative of our performance or results of operations. We also exclude stock compensation expense, which is a non-cash expense, management fees and IPO expenses as management does not consider these costs to be indicative of our performance or results of operations. Adjusted EBITDA includes interest expense on funding facilities, which are recorded as a component of “net interest income (expense)”, as these expenses are a direct operating expense driven by loan origination volume. By contrast, interest and amortization expense on non-funding debt is a function of our capital structure and is therefore excluded from Adjusted EBITDA.

Adjusted Total Revenue, Adjusted Net Income, Adjusted Diluted EPS, and Adjusted EBITDA have limitations as analytical tools, and you should not consider them in isolation or as a substitute for analysis of our results as reported under U.S. GAAP. Some of these limitations are:

• they do not reflect every cash expenditure, future requirements for capital expenditures or contractual commitments;
• Adjusted EBITDA does not reflect the significant interest expense or the cash requirements necessary to service interest or principal payment on our debt;
• although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced or require improvements in the future, and Adjusted Total Revenue, Adjusted Net Income, and Adjusted EBITDA do not reflect any cash requirement for such replacements or improvements; and
• they are not adjusted for all non-cash income or expense items that are reflected in our statements of cash flows.

Because of these limitations, Adjusted Total Revenue, Adjusted Net Income, Adjusted Diluted EPS, and Adjusted EBITDA are not intended as alternatives to total revenue, net income (loss), net income attributable to the Company, or Diluted EPS or as an indicator of our operating performance and should not be considered as measures of discretionary cash available to us to invest in the growth of our business or as measures of cash that will be available to us to meet our obligations. We compensate for these limitations by using Adjusted Total Revenue, Adjusted Net Income, Adjusted Diluted EPS, and Adjusted EBITDA along with other comparative tools, together with U.S. GAAP measurements, to assist in the evaluation of operating performance. See below for a reconciliation of these non-GAAP measures to their most comparable U.S. GAAP measures.

Forward-Looking Statements
This press release may contain “forward-looking statements,” which reflect loanDepot’s current views with respect to, among other things, its operations and financial performance. You can identify these statements by the use of words such as “outlook,” “potential,” “continue,” “may,” “seek,” “approximately,” “predict,” “believe,” “expect,” “plan,” “intend,” “estimate” or “anticipate” and similar expressions or the negative versions of these words or comparable words, as well as future or conditional verbs such as “will,” “should,” “would” and “could.” These forward-looking statements are based on current available operating, financial, economic and other information, and are not guarantees of future performance and are subject to risks, uncertainties and assumptions, including the risks in the “Risk Factors” section of loanDepot, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2020, which are difficult to predict. Therefore, current plans, anticipated actions, financial results, as well as the anticipated development of the industry, may differ materially from what is expressed or forecasted in any forward-looking statement. loanDepot does not undertake any obligation to publicly update or revise any forward-looking statement to reflect future events or circumstances, except as required by applicable law.