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IM

IMPAC MORTGAGE HOLDINGS INC (IMPM)·Q3 2022 Earnings Summary

Executive Summary

  • Q3 2022 was severely impacted by rate shock and spread widening; GAAP net loss was $13.0 million and diluted EPS was $(0.62), with adjusted loss before tax of $12.6 million and diluted adjusted loss per share of $(0.59) .
  • Originations fell to $62.0 million (−52% QoQ, −91% YoY) with margins of −110 bps, versus $128.1 million and +14 bps in Q2 and $682.6 million and +287 bps in Q3 2021; NonQM represented 80% of originations, up from 63% in Q2 .
  • Operating expenses declined 24% QoQ to $11.1 million (personnel −$2.3 million QoQ), reflecting aggressive cost actions; unrestricted cash was $44.0 million at quarter-end .
  • Corporate action as a catalyst: the company completed exchange offers and initiated redemption of Series B/C preferreds (Oct/Nov 2022), aiming to remove long‑standing capital structure overhang and align equity interests .

What Went Well and What Went Wrong

What Went Well

  • Cost discipline: Operating expenses fell 24% QoQ to $11.1 million; personnel costs decreased by $2.3 million QoQ, with headcount reduced from ~330 at YE’21 to 162 at Q3 end .
  • Liquidity managed: Unrestricted cash of $44.0 million at quarter end; management expressed confidence in near‑term production liquidity .
  • Capital structure progress: “In October the Company announced the completion of the Exchange Offers and the Redemption of its Series B and Series C Preferred Stock... align our equity stakeholder interests... bring closure to costly legal proceedings” — George A. Mangiaracina, CEO .

What Went Wrong

  • Volume/margin collapse: Originations fell to $62.0 million with −110 bps margins vs $128.1 million and +14 bps in Q2; gain on sale of loans turned to a $(0.682) million loss vs $0.179 million gain in Q2 and $19.608 million gain in Q3 2021 .
  • Revenue pressure: “Total (expense) revenues, net” of $(0.161) million vs $0.495 million in Q2 and $19.818 million in Q3 2021, driven by refinance market collapse and purchase market weakening .
  • Other income deteriorated: Other income turned to a $(1.769) million expense vs $0.720 million income in Q2, reflecting reduced trust gains and net interest income post legacy securitization sale .

Financial Results

P&L summary vs prior periods

MetricQ3 2021Q1 2022Q2 2022Q3 2022
Net (loss)/earnings ($USD Millions)$2.086 $(1.184) $(13.467) $(13.013)
Diluted EPS ($USD)$0.08 $(0.07) $(0.64) $(0.62)
Adjusted/Core (loss) before tax ($USD Millions)$0.810 $(13.010) (Core) $(15.363) $(12.617)
Diluted adjusted/core loss per share ($USD)$0.04 $(0.61) (Core) $(0.71) $(0.59)
Total revenues, net ($USD Millions)$19.818 $7.190 $0.495 $(0.161)
Operating (loss)/earnings ($USD Millions)$0.021 $(12.167) $(14.171) $(11.237)
Other (expense)/income, net ($USD Millions)$2.086 $11.006 $0.720 $(1.769)
Total expenses ($USD Millions)$19.797 $19.357 $14.666 $11.076

Originations and margins

MetricQ3 2021Q1 2022Q2 2022Q3 2022
Total Originations ($USD Millions)$682.6 $482.1 $128.1 $62.0
Retail Originations ($USD Millions)$533.7 $288.9 $93.0 $33.1
Wholesale Originations ($USD Millions)$148.9 $193.2 $35.1 $28.9
NonQM Originations ($USD Millions)$186.2 $314.3 $80.2 $49.6
Margins (basis points)287 124 14 −110
NonQM % of Total Originations (%)27% 65% 63% 80%

Balance sheet and liquidity (2022 trajectory)

MetricQ1 2022Q2 2022Q3 2022
Cash ($USD Millions)$70.566 $61.173 $44.008
Mortgage loans held-for-sale ($USD Millions)$160.422 $37.035 $18.443
Warehouse borrowings ($USD Millions)$150.721 $37.795 $13.292
Debt ($USD Millions)$67.549 $50.889 $48.264
Total equity ($USD Millions)$6.745 $3.452 $(6.071)
Book value per share ($USD)$0.31 $0.16 $(0.28)

KPIs

KPIQ1 2022Q2 2022Q3 2022
NonQM weighted avg FICO740 735 738
NonQM weighted avg LTV (%)66% 67% 70%
Mortgage servicing portfolio UPB ($USD Millions)$74.1 $71.4 $69.6
Net servicing income/expense ($USD Millions)$(0.012) $0.007 $0.032
Business promotion expense ($USD Millions)$2.301 $1.319 $0.545

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Warehouse borrowing capacityQ4 2022Anticipated lowering to ~$350 million by end of Q3 2022 Plan to lower to less than $50 million in Q4 2022 Lowered materially
Marketing spendNear-termReduced in Q2 amid NonQM dislocation Further reduced in Q3 to calibrate to lower volumes and lead quality Lowered
Formal financial guidance (revenue, margins, EPS)Q4/Q1None providedNone providedMaintained no formal guidance

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1 & Q2)Current Period (Q3 2022)Trend
Macro rates and credit spreadsNonQM note rates recalibrated from low‑4% to high‑6%/low‑7%; significant spread widening, hedging via swaps/forward sales/best efforts “Unrelenting” rate/spread pressure; layered risks cannot be effectively hedged; risk‑off posture maintained Worsened
Origination mix and marginsNonQM ~65% of originations; margins +124 bps; aggressive pricing to manage risk NonQM 80% of originations; margins −110 bps; originations $62m Mix shifts to NonQM; margins compress
Liquidity and warehouse capacityUnrestricted cash ~$70m; warehouse capacity $600m; planning reductions Unrestricted cash $44m; combined warehouse capacity $325m at Q3 end, targeting < $50m in Q4 Liquidity preserved; capacity reduced
Capital structure actionsS‑4 filed; voting agreements on preferred stock; legacy securitization sale to simplify balance sheet Exchange offer completed; redemption notice for remaining Series B/C preferreds; escrow for litigation pending Structural overhang addressed
Regulatory/legal (Timm litigation)Maryland court orders; preferred B matters; filings in progress Escrowed shares; hearing scheduled Dec 5, 2022 for fee motions Resolution process advancing

Management Commentary

  • “Interest rate and credit spread pressures with attendant market volatility and liquidity were unrelenting in the third quarter of 2022. The company adopted a defensive risk-off posture... Layered risks cannot be effectively hedged...” — George A. Mangiaracina, CEO .
  • “Operating expenses decreased 24% or $3.6 million to $11.1 million... primarily due to a reduction in personnel costs... Headcount has declined from approximately 330 at year-end 2021 to 162 at the end of the third quarter” — Jon Gloeckner, Principal Accounting Officer .
  • “We continue to carefully manage our liquidity as evidenced by our unrestricted cash position of $44 million... we feel we have the liquidity necessary to meet our near-term production needs” — Jon Gloeckner .
  • “In October the Company announced the completion of the Exchange Offers and the Redemption of its Series B and Series C Preferred Stock... align our equity stakeholder interests... bring closure to the costly legal proceedings” — George A. Mangiaracina .

Q&A Highlights

  • The company incorporated shareholder questions into prepared remarks and did not host an open Q&A; themes addressed included liquidity, origination strategy, and preferred stock actions .
  • Clarifications provided on warehouse capacity reduction to < $50 million in Q4 and ongoing risk‑off origination posture to protect margins and capital market exits .
  • Update on litigation/escrow mechanics and timeline for the Maryland Action fee motions (Dec 5, 2022) .

Estimates Context

  • Wall Street consensus (S&P Global) for Q3 2022 EPS, revenue, and EBITDA was unavailable via our data feed during this session; therefore, no estimate comparisons are presented. If S&P Global coverage exists, we expect estimates to reassess lower given the magnitude of margin compression and volume declines disclosed .

Key Takeaways for Investors

  • The mortgage origination backdrop remains extremely challenging: originations collapsed to $62.0 million with margins at −110 bps, driving a $13.0 million GAAP net loss; expect continued near‑term pressure absent rate/spread normalization .
  • Management is prioritizing survival over growth: sharp cost cuts (OpEx −24% QoQ) and warehouse capacity reduction to < $50 million aim to preserve liquidity and limit market risk exposure .
  • Liquidity is adequate near term ($44.0 million unrestricted cash), but equity turned negative (−$6.1 million); balance sheet flexibility is constrained until operating trends improve .
  • Strategic de‑risking of capital structure (preferred exchange/redemption) reduces a multi‑year overhang and could enable future corporate finance options if market conditions stabilize .
  • NonQM remains the core competency, now 80% of originations, but investor pricing/credit boxes and borrower affordability at higher rates continue to suppress volumes and margins; expect cautious production at higher coupons .
  • With no formal guidance and estimates unavailable in this session, monitor: rate/spread trajectory, NonQM investor demand, warehouse availability, and litigation resolution as primary stock narrative drivers .