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IM

IMPAC MORTGAGE HOLDINGS INC (IMPM)·Q1 2022 Earnings Summary

Executive Summary

  • Q1 2022 GAAP net loss was $(1.2) million (EPS $(0.07)), as “gain on sale of loans” fell sharply with rising rates and wider credit spreads; core loss widened to $(13.0) million on lower origination volumes and margin compression .
  • Total revenues declined to $7.19 million vs $14.94 million in Q4 2021 and $19.82 million in Q3 2021, driven by lower gain on sale; partially offset by $11.0 million in other income from legacy securitization sale and long-term debt fair value change .
  • Liquidity improved materially: cash rose to $70.6 million at March 31 from $29.6 million at December 31, aided by a $37.5 million sale of residual interests and certain rights in 37 legacy securitizations and related deconsolidation of ~$1.6 billion trust assets/liabilities .
  • NonQM mix increased: NonQM originations were $314.3 million (65% of originations) vs $382.1 million (50%) in Q4; volumes fell sequentially as pricing was recalibrated higher to protect margins amid spread volatility .
  • Strategic capital actions (preferred exchange offer/voting agreements; amended notes extending maturity to 2025 subject to conditions) are intended to resolve legacy capital structure issues and enable future financing flexibility .

What Went Well and What Went Wrong

What Went Well

  • Liquidity and simplification: “The sale removed complexity from our financial reporting and enhanced our working capital and liquidity,” increasing cash to $70.6 million; fair value gain of $9.2 million on legacy portfolio sale recorded in Q1 .
  • Discipline on pricing and risk: Management raised NonQM rates and managed pipeline capacity to protect margins and credit, leveraging forward sales and interest rate swaps to mitigate rate/spread volatility .
  • NonQM franchise resilience: Despite market dislocation, NonQM originations remained $314.3 million and 65% of total, with weighted average FICO 740 and LTV 66%, consistent with higher-quality credit box .

What Went Wrong

  • Margin compression and volume decline: Gain on sale dropped to $5,955 thousand from $14,861 thousand in Q4 and $19,608 thousand in Q3; originations down to $482.1 million vs $759.4 million in Q4 as rates moved from ~3.25% to ~5.5% and spreads widened, compressing margins to 124 bps .
  • Elevated business promotion costs amid competition: Business promotion expense increased year-over-year driven by higher advertising costs to source NonQM leads in California; Q1 was $2,301 thousand vs $1,193 thousand in Q1 2021 .
  • Legacy litigation overhang persists: Preferred B/C matters require supermajority approvals; management cautioned on numerous closing conditions and Maryland distribution tests, and noted commitments do not yet meet required thresholds .

Financial Results

Metric (USD)Q3 2021Q4 2021Q1 2022
Total Revenues, net ($ Thousands)19,818 14,937 7,190
Gain on sale of loans, net ($ Thousands)19,608 14,861 5,955
Total Expenses ($ Thousands)19,797 20,493 19,357
Operating Income (Loss) ($ Thousands)21 (5,556) (12,167)
Total Other Income, net ($ Thousands)2,086 9,146 11,006
Net Earnings (Loss) ($ Thousands)2,086 3,582 (1,184)
Diluted EPS ($)0.08 0.15 (0.07)

Segment/channel origination breakdown:

Originations ($ Millions)Q1 2021Q4 2021Q1 2022
Retail773.1 497.3 288.9
Wholesale76.8 262.1 193.2
Total Originations849.9 759.4 482.1

NonQM origination breakdown:

NonQM Originations ($ Millions)Q1 2021Q4 2021Q1 2022
Retail1.2 129.1 124.7
Wholesale13.5 253.0 189.6
Total NonQM14.7 382.1 314.3

KPIs and balance sheet highlights:

KPIQ3 2021Q4 2021Q1 2022
Originations Margin (bps)287 196 124
NonQM Share of Total Originations (%)—50% 65%
NonQM Weighted Avg FICO——740
NonQM Weighted Avg LTV (%)——66%
Mortgage Servicing Portfolio ($ Millions UPB)65.1 71.8 74.1
Cash and Equivalents ($ Thousands)—29,555 70,566
Warehouse Borrowings ($ Thousands)261,464 285,539 150,721
Book Value per Share ($)0.34 0.47 0.31

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
RevenueFY/QuarterNone providedNone providedMaintained (no formal guidance)
OriginationsNear-termNone providedNo numeric guidance; management targeting NonQM with adjusted pricing and disciplined capacityMaintained (qualitative only)
MarginsNear-termNone providedNo numeric guidance; pricing recalibration to protect marginsMaintained (qualitative only)
Liquidity/CapacityNear-term—Combined warehouse capacity $600 million; management believes liquidity sufficient to meet near-term production goalsInformational (not guidance)

Earnings Call Themes & Trends

TopicQ3 2021 (Previous Mentions)Q4 2021 (Previous Mentions)Q1 2022 (Current Period)Trend
Rates and MacroRising rates; pivot to NonQM as GSE margins compress Rates rising; NonQM rates recalibrated from low-4% to 5.5–6% Primary 30-year GSE moved ~3.25%→~5.5%; heightened inflation/geopolitical risks Worsening through Q1; stabilization signs late Q1
NonQM Credit SpreadsAAA spreads widening to ~160 bps over by end-Q4 Continued widening; margin pressure AAA NonQM spreads peaked near ~200 bps; recently stabilized ~175 bps Stabilizing late Q1
Hedging & ExecutionIncreased use of futures/swaps; forward sale agreements Expanded tools and forward sales Interest rate swaps; forward flow/best efforts executions to minimize spread risk Continued discipline
Origination Mix & CapacityRebuilding TPO NonQM team; retail NonQM ramp NonQM > conventional; run rate >$100M/month NonQM 65% of total; TPO ~60% of NonQM; proactive rate raises reduced pipeline and fallout Mix shifts further to NonQM; volumes down
Capital Structure ActionsPreferred B litigation background Litigation status and arrears details Voting agreements for exchange/redemption; amended notes extend maturity to 2025 (conditional) Active remediation
Marketing/OpExBusiness promotion increased from low levels Slight increase to maintain leads Business promotion flat QoQ, higher YoY amid competition Elevated costs persist

Management Commentary

  • “The Company’s first quarter results evidence that Impac is not immune from the market dislocation that continues to challenge the industry… We continue to navigate this environment by remaining disciplined in our origination approach and vigilant in our capital markets activities.” — CEO George A. Mangiaracina .
  • “The sale removed complexity from our financial reporting and enhanced our working capital and liquidity position.” — CEO George A. Mangiaracina .
  • “We have employed a combination of forward flow agreements and best efforts execution to minimize our exposure to the spread volatility while using interest rate swaps to hedge our interest rate exposure.” — CIO Obi Nwokorie .
  • “Our NonQM funding volume in the retail call center during the first quarter was approximately $125 million… April experienced a decrease… due to volatility … rate shock for borrowers … and a decrease in credit exceptions.” — CAO Justin Moisio .
  • “We currently have warehouse lines with a combined borrowing capacity of $600 million … we feel we have the liquidity necessary to meet our near-term production goals.” — PAO Jon Gloeckner .

Q&A Highlights

  • NonQM production dynamics: Retail NonQM funding ~$125 million in Q1; April down on rate shock and tighter credit exceptions; TPO NonQM volume decreased ~25% QoQ, with April originations downsized to ~$20 million vs ~$75 million monthly run rate previously .
  • Pricing and margin protection: Company raised rates across all NonQM products to balance competitiveness and risk management; fallout increased as borrowers/brokers adjusted to higher rates .
  • Liquidity and capacity: With $70.6 million cash and $600 million combined borrowing capacity, management believes near-term production demands can be met .
  • Preferred equity and notes: Voting agreements in place but supermajority approvals not yet met; amended notes extend maturity contingent on exchange/redemption by Oct 31, 2022 .

Estimates Context

  • Consensus estimates: S&P Global EPS and revenue consensus for Q1 2022 were unavailable to retrieve due to data limits; as such, comparison to Street was not possible in this recap at this time (Values retrieved from S&P Global).*
MetricQ1 2022
Primary EPS Consensus Mean ($)N/A*
Revenue Consensus Mean ($ Millions)N/A*
Primary EPS – # of EstimatesN/A*
Revenue – # of EstimatesN/A*

Key Takeaways for Investors

  • Near-term caution: Mortgage market dislocation (rates + spreads) materially compressed gain-on-sale margins and volumes; expect continued pressure with gradual stabilization in NonQM spreads noted late Q1 .
  • Liquidity enhanced: $37.5 million legacy securitization sale boosted cash to $70.6 million and simplified reporting by deconsolidating ~$1.6 billion trust assets/liabilities; provides flexibility to manage aggregation turn times and pipeline .
  • Mix shift to NonQM: NonQM share rose to 65% with disciplined pricing and credit box (FICO 740, LTV 66%); balance of volumes likely to track spread normalization and borrower rate adjustment pace .
  • Cost vigilance: Business promotion costs remain elevated amid competitive NonQM lead sourcing; ongoing headcount/capacity rightsizing supports margin protection .
  • Capital structure catalysts: Preferred exchange/redemption and note amendments could remove legacy overhangs and enable future capital-raise activities if approvals/conditions are met; monitor related milestones and Maryland distribution tests .
  • Operational discipline: Forward sale/best-efforts execution and rate swaps mitigate pipeline/interest rate risk; continued focus on warehouse capacity and liquidity management under aggregation model .
  • Trading lens: Watch for signs of sustained spread tightening and volume recovery in TPO/retail NonQM, progress on exchange offer/charter amendments, and any updates to capacity or funding costs—key narrative drivers for sentiment near term .