Q2 2021 Guild Holdings Co Earnings Call
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Good afternoon, ladies and gentlemen, and welcome to the gilt Holdings company.
Second quarter 2021 earnings conference call at this time, all participants are in listen only mode.
Later, we will be conducting a question and answer session.
And instructions will be provided at that time house.
Finally, this call is being recorded and I will now like to turn the conference over to Mr. Kim Michael Kim rather Investor Relations. Please go ahead Michael.
Thank you and good afternoon, everyone.
Before we begin I'd like to remind everyone that comments on this conference call may contain certain forward looking statements regarding the company's expected operating and financial performance for future periods.
These statements are based on the company's current expectations.
Actual results for future periods may differ materially from those expressed or implied by these forward looking statements due to a number of risks or other factors that are described in greater detail.
The risk factors and guilds Form 10-K, and 10-Q and other reports filed with the U S Securities and Exchange Commission.
Additionally, today's remarks will refer to certain non-GAAP financial measures reconciliations of non-GAAP financial measures where appropriate.
Excuse me the corresponding GAAP measures can be found in today's earnings release filed with the U S. D C as well as on yield Investor Relations website.
Participating in the call today are Chief Executive Officer, Marianne Mcgarry.
President Terry Schmid.
And Chief Financial Officer, Anne Burrell, well now like to turn the call over to Maryann Mcgarry.
Dan.
Thank you Michael.
Good afternoon, everyone and thank you for joining us.
Before we discuss second quarter results I wanted to thank all guilt employees for their hard work.
Our people are at the heart of guilt and drive our continued success.
I'm proud of the Guild was named as one of the best mortgage companies to work for in 2021 by National mortgage news.
I'm joined by our President Terry Schmidt, who will discuss how guild is strategically positioned for growth.
Our Chief Financial Officer, Anne Burrell, well, well review, our financial results for the second quarter.
And then we will be joined by our Chief operating Officer, David Neyland for Q&A.
I wanted to start by providing some perspective on the market.
Margins have increasingly compressed due in part to rising competitive pressures.
It is anticipated that these market dynamics will continue through the balance of the year as forecasted by the MBA.
This dynamic led to lower gain on sale margins in the second quarter yet.
Yeah Guild was able to produce results slightly above pre COVID-19 levels.
We remain confident that we will continue to deliver sustainable and profitable growth across market cycles as we successfully been doing for 60 years.
Were purchased focused and service oriented with a servicing division we can scale.
We provide a personalized and individualized experience where clients returned to us and were killed and referred guild to others.
We can adapt and compete effectively against many different businesses and models for.
For example in June we were named as one of the best online lenders by mortgage professional America.
You're after year because of our business model and our ability to adjust.
Maintain durable volume and consistent returns that are less sensitive to various market cycles compared to our peers.
Another key to our success is servicing.
Our portfolio has scaled from 2.5 billion of unpaid principal balance in 2007 to 66 billion as of June 30th with loan servicing fees rising 26% year over year to 48 million in the second quarter.
Our servicing platform, it's important to client retention, we retain servicing rights of 92% of total loans sold in the second quarter.
As interest rates rise servicing functions as a natural hedge to originations with favorable valuation adjustments to the MSR asset.
In the second quarter.
Total funded originations were 8.2 billion, while purchase mortgage originations were 4.9 billion up 34% on a sequential basis.
We generated adjusted net income of $52 million and adjusted earnings per share of 87 cents for the second quarter.
Year to date volumes were up strongly compared to the first half of 2020, showing the strength of our differentiated platform compared to most peers.
So with that I'd like to turn it over to our President Terry Schmid Terry.
Terry.
Thank you Marianne as mentioned I'm going to discuss in greater detail. How guild is strategically positioned for growth and provide an update on our previously announced acquisition of residential mortgage services.
One of the many attributes that differentiate skills from our peers is our primary focus on the retail channel, which accounted for 97% of our total originations in the second quarter.
Our retail footprint includes approximately 1069 loan officers across 34 states that maintain strong relationships with and source loans through an established referral network of Realtors and builders past clients and other partners with the closing of the accretive acquisition of <unk>.
Residential mortgage services or our M. S. We will start the third quarter with a local presence and an 11 additional states by adding approximately 250 loan officers.
Additionally, according to inside mortgage finance the combined volume for 2020 would have ranked the company's combined at number seven for non bank originators.
We will also continue to leverage our robust technology platform and coaching programs to drive higher loan officer productivity and higher recapture rates, which held strong at 55% for the second quarter.
As maryann alluded to earlier, our originations mix has historically skewed heavily in favor of purchase volumes, which has driven more consistent growth over time in contrast refinancing volumes across the industry are typically much more volatile and more dependent on cyclical interest rates and spreads more.
Over while the refinance business has largely commoditized, we compete on service and offer competitive pricing at the local level as we leverage our long standing relationships with existing clients.
We remain focused on continuing to expand our footprint organically by recruiting you don't loan officers to our platform as well as through acquisitions. Our strategy has proven to be scalable as we have further penetrated in many of our existing markets and expanded our presence into new markets across the United States.
We believe that we are well positioned to continue to capture market share given our well recognized brand proprietary technology platform and differentiated focus on the purchase market.
Identifying executing and integrating complementary acquisitions remains part of our DNA.
Now I'll turn over the call to our Chief Financial Officer, Anne Burrell, well to discuss the financials in more detail Hamburg.
Thank you Terry for the second quarter of 2021, we generated $8.2 billion of loan origination versus $8.8 billion in the year ago quarter.
Net revenue totaled $294 million compared to 435 million in the second quarter of 2020, while net income totaled $9 million or 15 cents per diluted share.
Excluding the change in fair value of the MSR due to model inputs and assumptions acquisition related contingent liabilities and stock based compensation adjusted net income totaled 52 million or <unk> 87 per share for the second quarter.
Year over year decline, we're mostly a function of lower origination fees and gain on sale of loans consistent with reduced volumes and margin compression.
For the first half of 2021 total loan originations came in at $17.9 billion are up 23% year over year.
Net revenue totaled $820 million up 36% versus the first half of 2020, while net income increased 54% to $170 million or $2.81 per diluted share.
Starting with our origination segment for the second quarter pull through adjusted lock volume totaled 8 billion in the second quarter with 59% of clothes alone close loan origination volume from purchase business compared to the mortgage bankers Association average of 44%.
Gain on sale margins on originations came in at 405 basis points for the quarter, while the margin on pull through adjusted locked volume equates to 415 basis points.
Turning to our servicing business, our unpaid principle balance grew 24% year over year to 66 billion as of June 30th 2021 with total loan servicing and other fees, increasing by 26% year over year to 48 million for the second quarter of 2021.
Segment reported a net loss of 49 million for the quarter, largely reflecting MSR fair value adjustment compared to a loss of 69 million in the second quarter of 2020.
Our balance sheet remains strong and highly liquid with 322 million of cash and cash equivalent excluding funds to use to pay down our warehouse line as well as $3.1 billion of warehouse lines of credit with unused capacity of 1.2 billion as of June 30th 'twenty 'twenty. One. This is after paying a one dollar per share dividend.
And during the second quarter.
On July 1st we closed the RMS acquisition and paid part of the consideration with $150 million of cash.
We remain focused on maximizing long term shareholder value when evaluating capital allocation strategy, including funding originations ongoing reinvestment in the business as well as potentially capitalizing on further acquisition opportunities and returning capital to shareholders.
While we are not providing forward looking guidance, we did want to provide some perspective on the current environment more broadly as well as an update on quarter to date volume.
Specifically, the MBA forecast overall volume in the third quarter to decline around 21% on a sequential basis.
<unk> on the purchase market, our applications were up 12% quarter over quarter, while total applications were down 12% as refinances subside.
For July we generated $2.6 billion of loan origination with total pull through adjusted lock volume of approximately $2.9 billion.
Furthermore, ongoing margin headwinds include tighter spreads and intense competitive dynamics as we've discussed in the past we anticipate further margin compression in the back half of the year with the full year gain on sale margin for 2021 expected to be consistent with our long term historical average of approximately 380 basis points.
And with that we'll open up the call for questions operator.
Thank you well now begin the question and answer session.
To join the question queue. You May Press Star then one on your telephone keypad, you'll hear a tone acknowledging your request if you're using a speakerphone. Please pick up your handset before pressing any keys.
To withdraw your question. Please press Star then two.
Our first question is from Rick Shane with J P. Morgan. Please go ahead.
Thanks, guys for taking my questions and Amber welcome back I hope everybody is well.
Just one quick question for me when we look at the gain on sale what is the mix currently between cash gain and capitalization of the MSR.
The the cash or the MSR is about 80.590 basis points right now it's dropped a little bit and then the remainder would be cash.
Got it okay. Thank you and then I guess I will ask one other question.
Peer company reported recently and they talked about some GSE.
Changes during the quarter and how that impacted their capital markets execution is that anything that we should see in your numbers or what do you. What do you think is different.
I can't answer that this is Gary.
Yeah, we did have some impact when the GSE announced the change and the the cap on non owner and second homes, but we were able to pivot very quickly because of our size, we were able to get them set some private.
Capital investors to fill that void. So we haven't really lost the beat and it's it's not really overly material, it's not material to our overall gain on sale numbers.
Got it okay. Thank you very much.
Mhm.
Our next question is from Trevor Cranston with JMP Securities. Please go ahead.
Alright. Thanks.
You guys mentioned in the remarks with respect to the RMS acquisition.
I think you said that you expect it to be accretive in the second half of this year.
I was wondering if you could maybe specify a little more near term. It if you think it'll be accretive in.
In the third quarter.
And also maybe if you could just provide any color you can around the financial results and the profitability of our Miss for the.
The second quarter, which was closed.
Yeah.
Overall.
Right.
Okay, Yeah, I can take that and Terry you want to jump in.
I mean, we can't talk about forward looking on RMS and you can look at the purchase price at 3.25 estimated 2021 earnings overall.
We would expect overall accretion.
Due to them being a profitable historically and running you know they're high purchase and run very similar to us in terms of gain on sale and so that would continue all day, although they would see the same drops them that we would see so combined you would see that same impact to their business as ours.
From an integration perspective, we're working through them then coming on over the next few months and so there we don't expect any issues with in terms of funding as they go through the integration that would change any of the the regular practices in terms of net income.
And like Guild RMS is purchased focus so.
And they're very strong when you purchase a business.
And they run about 25% of our overall volume.
And just as a proxy.
That's been very consistent.
Yes.
Their gain on sale, there's a little bit lower than ours, but also it's been pretty consistent as well.
So the drop that we experienced is very similar to the drop that they've experienced.
Okay. That's helpful.
And then just one other question repay recapture rate I'm still fairly strong this quarter, but slightly lower than where it had been running was there anything in particular that we should be aware of to think about.
You know why that might have dipped or is that just maybe some sort of quarter to quarter noise and why it was a little bit lower than where it had been the particulars.
Yeah.
Okay.
Well our purchase your percentage increase.
This is David I can speak to that.
We see a slight drop but I think that's really more based on a quarter fluctuation basis. There's certainly some pressure in the refi market from a gain on sale compression standpoint, but.
Our ability to navigate through that and the different market cycles with our focus on customers for life and our high retention numbers allowed us to continue to outperform the market and we don't expect that to change.
Okay.
Okay I appreciate the comments thank you.
Once again, if you have a question. Please press Star then one.
Our next question is from Don Sunday with Wells Fargo. Please go ahead.
Albert can you talk a little bit about the gain on sale guidance, obviously implies a pretty meaningful decline in the back half.
Happening industry wide.
You talk about where maybe you're not that it was in June.
Give us a little sense on whether or not you know in.
The guidance, there's a big drop in.
More.
<unk> declines as you progress through the back half of the year.
Yeah overall it it is as you said competitive in nature in the industry and so we're seeing that continue will decline throughout and.
Based on what that the what we're seeing we just didnt see.
You bet it would drop below our average for the year of where he ran around 380 in and that would be a gradual over time and some of the you know the competitive nature of that affected the refinance businesses' effect affecting some of those the margins and so that you know, we're adjusting accordingly and work.
Probably priced in our local market, but.
But we would see that.
Dropped below you know, we talked about last quarter being a trough below our average that we would get below that that average number to get to that 380 consistent for the year.
Got it.
Strategically now that you have a very strong presence in the northeast Whats next if you were to look at additional acquisitions, how would you sort of think about that.
We're always looking at opportunities both organically and Inorganically. So we're just continuing.
Continuing to focus on growth and when we find the right.
On the right either partner are in an acquisition or a originator branch ware.
Where that's our Gulf states grown market share them with people that are purchased focused and have similar values and model as we do.
Okay. So no particular market, where you feel like you need to build.
Build out capacity.
No not really I mean, we we like to be in in local communities, where we can capture you know a good and a good market share. So we wanted to be in the top five and if we're not in the top five and and if there's a good cultural.
Fit whether it's organic or acquisition.
We're gonna take we're going to take the opportunity to look at it.
Yep.
Thank you.
Mhm.
This concludes the question and answer session.
I'd like to turn the conference back over to Marianne Mcgarry for any closing remarks.
Well. Thank you everyone for joining us today have a great rest of the summer and stay healthy and we look forward to updating you on our next call.
Goodbye.
This concludes today's conference call you may disconnect. Your lines. Thank you for participating and have a pleasant day.
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