Q4 2020 Guild Holdings Co Earnings Call

It's available come for specialist will be with you momentarily.

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Conference on how can I help you.

Now I'd like to turn Guild Holdings earnings call. Please.

Sure Matthew your first and last name please.

David Brown.

Okay Andrew.

Okay.

IRA AI E R I S.

Company, Okay, putting you right there.

Sure.

Thank you.

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One moment, please while we poll for questions.

Thank you. Our first question comes from Don Fan Dirty with Wells Fargo. Please proceed with your question.

Yes.

Thanks for the volume numbers for January February I might have missed it but did you say something about gain on sale for Gen fab.

Yes, Thanks, Don for.

For gain on sale for January and February.

Our pull through adjusted lock volume was $66 4 billion and gain on sale was relatively in line with fourth quarter 2020 on pull through adjusted lock volume, which was 482 basis points.

Got it okay. Thank you.

I guess.

One question I have on the expenses is that if you look at production expenses as a percentage of originations this quarter versus Q3 went up quite a bit yet the volumes didn't.

Move up.

As March from and can you sort of talk a little bit about that dynamic and how we should think about it going forward.

Sure I think the focus really should be on the full year and you look at our expenses as a percent of revenue we're at 57% for the full year of 2020 compared to 78% in 2019 and overall our expenses for the year, we're at 285 basis points compared to 297 for.

Last year and our origination segment.

Ended at 218 basis points in total profitability for the year compared to 84 basis points. In 2019. So there are some timing differences, but I think focusing on the full year is is really the best way to think about it and it gets from some of that timing difference out from quarter to quarter.

Okay. Thank you.

Thank you. Our next question comes from Rick Shane with J P. Morgan. Please proceed with your question.

Thanks, everybody for taking my questions. This afternoon.

First on what percentage of the <unk> with retain this quarter on what was sold.

Yes.

On the retained percentage for the.

For the quarter was about 95%.

Got it.

And.

The way our model is sort of.

Looking to the numbers, we're seeing the CPR on the portfolio of about 50% during the quarter does that seem right are we in the ballpark there.

On an annualized basis, yet the OS of around 48% in us for pay offs in the CPR in the model that we're using for the for the year on as of December is 18.

Got it Okay, and then what drove the increase the sequential increase in servicing expenses.

That's sort of true.

Trains traject trajectory is that one time or should we see that as a new run rate going forward.

There was some onetime expenses in there on from a cares act perspective for our for closure loss provision.

As some of the we looked at the moratorium and the rules and regulations changing around that and the length of foreclosures would be increasing cost. So I would consider that more of a.

One time, although our cost of service.

It is a little bit higher just as we've had to prepare for staffing to work through all of the cares Act forbearance is.

This year and then continuing into next year.

Got it and then last question I apologize for so many but I'm just sort of try to put a finer point on Dan's question.

When we think about the timing differential between.

Our originations are.

Pull through adjusted locked.

Locks and.

Compensation expense help us think about that relationship as is what we saw in terms of the fourth quarter origination or expense is a function of third quarter volume or is there better alignment on that because as we sort of move through the year on that.

It'll help us get the models true it up.

Yeah. Good question I think that the focus really is thinking it on a straight line basis for the year more than looking at the quarter to quarter there.

Theres not any trailing expenses that would roll.

And it would be aligned so I think focusing on the full year of where we ended at 2020 for the expenses and looking at 2019 as well.

On.

Everyone knows 2020 was an anomaly year overall with margins and.

Expenses as well.

But the full year impact expenses to me is the way to think about it.

Got it yep understood, but certainly.

You know, we got that and we appreciate that but at the same time people are looking at quarter, so understanding how that correlation.

Is going to be important going forward, especially in an environment, where we're likely to see sort of on idose, a divergence between locks and fundings.

Some inflection there as well.

Sure and we do we do compensate certain members of our management team based on business performance and growth in both volume and profitability, which resulted in higher payments it to some key employees in the fourth quarter.

And so when you when you think about straight lining it it it takes out some of that variability and as well as when volumes and overall, our revenue and profitability goes down that would shift accordingly.

Got it okay. So some of this was year end true up related to management.

Compensation.

Yeah.

Okay that helps thank you.

Yeah.

Thank you. Our next question comes from Giuliano Bologna with Compass point. Please proceed with your question.

Hey.

Thanks for taking my questions on.

Thinking about.

Your balance sheet for a second is there a sense of how much cash you have.

And your different warehouse lines are kind of paying down the warehouse lines that kind of excess liquidity on.

Just to get a sense of what your general for liquidity position on a pro forma basis.

So at the end of the year, we only had $16 million that was in our warehouse pay it down and the rest of it was sitting in cash and we were about 33% leveraged on our MSR debt overall.

And so the operating cash at 335 million is the majority of our cash with so little and and the pay down and we continue to you know.

Make sure that we're focused on maintaining a strong liquidity position as we always have and are poised to handle any changes in the market going forward.

So that makes loans to Andrew's point.

This is Terry the third quarter, our MSR Outstandings was much higher what was the number amber it was around 50% of the collateral value and we brought it down to.

32% to 33% so that was another change.

Change in the cash position.

Yeah.

Yeah. It was at 52 per cent a third.

And third quarter.

Yeah.

That's great and I guess pivoting a little bit from there.

You, obviously have a very large liquidity position.

Curious how to think about that liquidity positions on shelves.

Are there any are there any.

Any potential acquisition candidates out there that makes sense for or.

How does the pipeline look at the moment and then from there.

How do you think about.

On amount of Macquarie.

On the capital return.

Yes, I can talk about.

Our cash position.

On Ah, Okay talk about it sounds good okay standard.

Overall, okay great.

Go ahead go ahead.

[laughter].

We think about our liquidity and I'm looking at operating reserve in Egypt capital. So what do we need to run the business based on bank Covenant requirement and then market risk associated with forbearance advances that sort of thing margin calls and then to your point any strategic capital that we would need for investment.

<unk> back in our business and investing in the business is really that remains our top priority and as it relates to excess capital beyond these needs will continue to discuss potential capital return options with our board.

And your acquisition question.

You know last year, there wasn't a lot of activity just because of the volume that all the other.

Everybody on the industry was handling and but keep in mind that over 50%.

The other industry is coming in the volume is coming from from independent mortgage bankers that we believe there's still great opportunity and we're seeing a lot of I M. B's that are kind of really thinking maybe it's time to cash in their chips kinda sorta speak so we're seeing activity.

For activity the pipeline of sellers is growing and.

The key is going to be just just getting to the right valuation point and you know we're always good stewards of capital. So we're very careful about our price considerations and wanted to make sure that anything that we're considering we will definitely be reasonable.

That's very helpful. Thank you and I'll jump on.

Okay.

Thank you. Our next question comes from Trevor Cranston with JMP Securities. Please proceed with your question.

Alright. Thanks.

Couple of questions related to the MSR portfolio.

So maybe help us think about prepay speeds looking forward on the ability to.

Generate refi volume from from recapture.

Can you share any.

Data with respect to the servicing book in terms of.

On the overall weighted average coupon or.

Sort of the portion of the servicing book that you would estimate kind of still has a significant incentive to refi.

With mortgage rates up room, three on a quarter or so.

Sure I'll start with that and then David can jump in on the refi on retention. So overall, our weighted average coupon is 3.6 for our portfolio and.

And we have like I said, it's an ETR of 18, so and then a multiple of two.

2.7, ending at the end of the year.

And then David if you want to talk about what who's the money based on your analysis.

Sure. Thanks, Andrew So just a couple of things in 2020, we actually doubled the amount of closed volume that came from our portfolio from $5 billion in 2019 to nearly $11 billion in 2020.

Market conditions were certainly favorable but also the investment in our technology and the ability to continue to look at the portfolio anticipate.

Client refinance activity as well as new purchase activity really has positioned us favorably and that's helped to generate our 66% refinance recapture rate for all of 2020. This is an area that we're continuing to invest and we think that there is good opportunities going forward as you've indicated rates are still low.

The strong tailwind.

But we also anticipate being able to identify when the market normalizes opportunity for that repeat purchase activity, whether its borrowers buying up or buying down and again, we're well positioned to take advantage of that regardless of the interest rate cycle.

And I would just add David just as Maryann I would just add that.

There's probably going to start to be a little bit more cash out refis because I'm in some market for the inventory is an issue to move up. So we are seeing I bet there'll be a lot more improve.

Improvements remodeling.

So that'll be and we've sales people our customers tend to come back to us.

Yes that makes a lot of sense.

Okay I think the rest of my gross questions have already been addressed children per compute thank you.

Sure.

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Thank you. Our next question comes from Derek Hewett with Bank of America. Please proceed with your question.

Good afternoon, everyone and thank you very much for the volume and margin data through February but that's I think that's very helpful. For investors. Most of my questions were already addressed but could you talk a little bit about the attach rate. It looked like it was in the low twenties.

During the fourth quarter, where there were what were the moving parts and then should we expect it to kind of normalize back to the mid twenties next year.

Yes.

Yeah. It was the 25 ish range is what would we would expect other regulatory changes.

Yeah.

And then what was causing that.

The tax rate for the fourth quarter.

There was a slight adjustment for a.

A deferred tax asset.

Debt that we needed to put on for the full year.

Okay.

Alright, thank you.

Yeah.

Thank you there are no further questions at this time I would like to turn the floor back over to management for any closing comments.

Okay, well. Thank you everyone for your time on Amtrust, and we look forward to continuing to discuss our progress on future calls.

Well, thank you everyone.

Okay.

This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation have a wonderful evening.

Okay.