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IM

IMPAC MORTGAGE HOLDINGS INC (IMPM)·Q2 2022 Earnings Summary

Executive Summary

  • Q2 2022 deteriorated sharply as NonQM market dislocation and rising rates drove revenues to $0.495M, GAAP net loss to $13.5M ($-0.64 EPS), and gain-on-sale margins to 14 bps; adjusted loss was $15.4M ($-0.71 per share) .
  • Origination volumes collapsed to $128.1M (−73% q/q; −79% y/y) as management intentionally pulled back and shifted to best-efforts delivery to preserve liquidity and execution certainty .
  • Liquidity remained adequate with cash of $61.2M at 6/30/22 and warehouse capacity of $400M (management expects to reduce to $350M by end of Q3) .
  • CEO emphasized disciplined origination, heightened hedging, and a climb in NonQM note rates to ~7% by Q2-end; the company advanced preferred stock exchange/redemption steps that could unlock future capital markets options .
  • No Wall Street consensus estimates were available via S&P Global for Q2 2022 at the time of this analysis; estimate comparisons are therefore unavailable [GetEstimates error].

What Went Well and What Went Wrong

What Went Well

  • Operating expense discipline: Total expenses fell 25% y/y to $14.7M, with personnel expense down $3.9M y/y as headcount was reduced to match lower volumes .
  • Liquidity and balance sheet actions: Cash rose to $61.2M aided by the $37.5M sale/transfer of legacy securitization interests in Q1; long-term debt fair value gains also supported other income .
  • Strategic risk management: Management shifted NonQM delivery to best-efforts and raised minimum/weighted average note rates, stating “we have consciously elected to discourage down in coupon NonQM origination volume…weighted average note rate…~7% at the end of the second quarter of 2022” .

What Went Wrong

  • Severe margin compression: Gain-on-sale margins fell to 14 bps vs 124 bps in Q1 and 175 bps in Q2 2021, reflecting outsized credit spread widening and weak secondary market exits; gain-on-sale revenue dropped to $0.179M .
  • Volume collapse: Originations fell to $128.1M vs $482.1M in Q1 and $611.5M in Q2 2021; retail −68% q/q and wholesale −82% q/q, driven by rate shock and tighter investor credit boxes .
  • P&L deterioration: Total revenues plunged to $0.495M, GAAP EPS to −$0.64, and adjusted loss to −$0.71/share before tax as NonQM market dislocation accelerated into Q2 .

Financial Results

MetricQ2 2021Q1 2022Q2 2022
Total Revenues, net ($USD Millions)$10.980 $7.190 $0.495
Gain on Sale of Loans, net ($USD Millions)$10.693 $5.955 $0.179
Operating Loss ($USD Millions)$(8.636) $(12.167) $(14.171)
Total Expenses ($USD Millions)$19.616 $19.357 $14.666
Other Income ($USD Millions)$(0.166) $11.006 $0.720
Diluted EPS ($USD)$(0.42) $(0.07) $(0.64)
Adjusted Loss per Share before tax ($USD, non-GAAP)$(0.32) $(0.61) $(0.71)
Gain-on-sale Margin (bps)175 124 14
Versus ConsensusN/A (Unavailable)N/A (Unavailable)N/A (Unavailable)

Segment and Origination Mix

Origination ($USD Millions)Q2 2021Q1 2022Q2 2022
Retail$514.2 $288.9 $93.0
Wholesale$97.3 $193.2 $35.1
Total Originations$611.5 $482.1 $128.1
NonQM Originations (Retail)$8.1 $124.7 $49.2
NonQM Originations (Wholesale)$92.5 $189.6 $31.0
Total NonQM$100.6 $314.3 $80.2
NonQM % of Total16% 65% 63%

Key Balance Sheet & KPI Snapshot

KPIQ1 2022Q2 2022
Cash ($USD Millions)$70.6 $61.2
Mortgage Loans Held-for-Sale ($USD Millions)$160.4 $37.0
Debt ($USD Millions)$67.5 $50.9
Warehouse Borrowings ($USD Millions)$150.7 $37.8
Book Value per Share ($USD)$0.31 $0.16
MSR Portfolio ($USD Millions UPB)$74.1 (3/31/22) $71.4 (6/30/22)
Headcount (approx.)~225 at Q2-end; ~170 as of call date ~225 at Q2-end
Warehouse Capacity ($USD Millions)$400 current $400; plan to reduce to $350 by end Q3

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Warehouse borrowing capacityBy end Q3 2022Not previously quantifiedLowering to ~$350M from $400M Lowered
NonQM delivery executionOngoingAggregation model for bulk sale (historic)Shifted to best-efforts delivery; wide use of forward sale agreements, futures/swaps Strategic shift
NonQM note rate levelsOngoing~5.5% at Q1-end ~7% at Q2-end Raised
Marketing spendQ2 onwardIncreased in 2021 to target NonQM Recalibrated/reduced amid dislocation and lower volumes Lowered

Earnings Call Themes & Trends

TopicPrevious Mentions (Q4 2021)Previous Mentions (Q1 2022)Current Period (Q2 2022)Trend
NonQM market dislocation and marginsSpreads widened; AAA NonQM from ~65 to ~160 bps; raised rates, best-efforts deliveries Continued compression; margins pressured; Q1 margins 124 bps Margins collapsed to 14 bps; originations pulled back; note rates ~7% Deterioration peaked in Q2; normalization awaited
Hedging & capital marketsFutures on swaps, forward sale agreements, best-efforts increasing Ongoing, disciplined hedging Wide range of hedges; fully deliverable best-efforts pipeline Continued emphasis
Liquidity/warehouse capacity$600M capacity; adequate liquidity $400M capacity; $70.6M cash $400M capacity; plan $350M; $61.2M cash Capacity right-sized to volume
Headcount/costCompetition for talent increased expense Headcount down ~10% y/y; personnel expense down Headcount ~225 at Q2-end; ~170 by call date; personnel expense $8.0M Accelerated reductions
Preferred stock litigation/exchangeMaryland rulings & process updates Initiated voting agreements; outlined exchange/redemption framework S-4 filed; court actions; deposits of accrued dividends; exchange/redemption progress Advancing toward resolution

Management Commentary

  • CEO: “The Company’s financial results for the second quarter of 2022 reflect the adverse effects of the historic market dislocation and volatility…We continue to navigate this environment by remaining disciplined in our origination approach and vigilant in our capital markets activities…” .
  • CEO on pricing and execution: “Weighted average note rate…~4.5% at year-end 2021, 5.5% at the end of the first quarter of 2022 and 7% at the end of the second quarter of 2022…we have consciously elected to discourage down in coupon NonQM origination volume” .
  • Corporate actions: “Entered into voting agreements…to extend outstanding debt and exchange preferred equity…believes [it] should be better positioned to engage in capital raise and corporate finance activities, absent the overhang of an intractable legacy capital structure” .

Q&A Highlights

  • No live Q&A; the company incorporated shareholder questions into prepared remarks. Key areas addressed: headcount reductions (to ~225 at Q2-end, ~170 by call), warehouse capacity ($400M → targeting $350M), marketing spend recalibration, origination volumes/margins, and NonQM delivery/hedging .

Estimates Context

  • Wall Street consensus estimates via S&P Global for Q2 2022 EPS and revenue were unavailable at the time of this analysis due to system limits; as such, no estimate comparisons are provided. We note coverage for micro-cap mortgage originators can be limited, and we will re-attempt retrieval when feasible [GetEstimates error].

Key Takeaways for Investors

  • Margin shock and volume pullback dominated the quarter; gain-on-sale margins at 14 bps and revenues at $0.495M underscore intense pressure across NonQM execution channels .
  • Liquidity appears adequate in the near term (cash $61.2M; warehouse capacity $400M), but management is proactively reducing capacity to $350M to align with volume—watch turn times and borrowing utilization .
  • Strategic pivot to best-efforts delivery and higher note rates (~7%) stabilizes execution risk; recovery depends on credit spread normalization and investor demand returning to the NonQM sector .
  • Cost actions are material (expenses −25% y/y; headcount reduced), helping cushion P&L pressure but with lower production scale implying near-term losses persist absent margin recovery .
  • Corporate overhang: progress on preferred stock exchange/redemption could unlock future capital markets options and reduce structural constraints—track S-4 effectiveness and court milestones as potential stock catalysts .
  • Risk factors remain elevated: listing compliance risk cited, NonQM volatility, and macro affordability pressures could continue to weigh on volumes and margins; position sizing should reflect execution and liquidity risks .
  • Near-term trading: sentiment likely tied to preferred capital structure resolution and early signs of NonQM spread stabilization; medium term thesis hinges on successful NonQM re-scaling at sustainable margins .