Q3 2021 Guild Holdings Co Earnings Call
Good afternoon, ladies and gentlemen, and welcome to the Guild Holdings Company third quarter of 2021 earnings Conference call.
At this time all participants are in a listen only mode. Later, we will conduct a question and answer session with instructions to follow at that time.
As a reminder, this call will be recorded.
I would now like to turn the conference over to Michael Kim Investor Relations. Please go ahead and Michael.
Thank you and good afternoon, everyone.
Where where you began 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 expectation.
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 under 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.
Reconciliation of non-GAAP financial measures where appropriate to.
See the corresponding GAAP measures can be found in today's earnings release filed with the F. C C as well as on guilds Investor Relations website.
Participating in the call today, or Chief Executive Officer, Marianne Mcgary.
President Terry Schmidt.
And Chief Financial Officer Amber Kramer.
Now I'd like to turn the call over to Marianne Mcgary.
Maryann.
Thank you Michael.
Afternoon, everyone and thank you for joining us.
I've got an Empire cough I wanted to start by recognizing all killed employees for their continued dedication and hard work.
Their ambition energy and determination drive our continued success.
As always I'm joined by our President Kerry Schmidt and our Chief Financial Officer Amber Kramer.
Our Chief operating officer gave it neylon well join us for Q&A after our prepared remarks.
I am extremely pleased with our strong results for the third quarter keep.
Keep financial highlights included Kennedy alien as total funded originations at 23% friendly 8.2 billion in the second quarter and it's still strong gain on sale margins.
Through the first nine months of 2021 year did gain volumes continued to track meaningfully I had of 2020 levels.
Re enforcing the strength and sustainability of our differentiated platform.
Turning to our financial results, we generated adjusted net income of 77 million and adjusted earnings per share of $1.27 for the quarter.
We remain well positioned as some mix of mortgage volumes continues to shift away from refinances in favor of purchase loans.
Refinancing volumes across the industry are typically more volatile and are mostly a function of.
Cyclical interest rates and spreads.
Moreover, the refinance business is largely commoditized.
In contrast, we compete on service and expertise at the local level, which is driven more consistent growth for Guild Ah cross market cycles.
Are differentiated purchased focused business model separates us from the other lenders by providing a personalised and individualized experience to homebuyers.
In fact purchase loans accounted for 61% of our mortgage volumes in the third quarter.
Compared to just 47% for the industry. According to the mortgage bankers Association.
And our market share within purchase lending increased in the third quarter of this year compared to the fourth quarter of 2020, according to data from Corelogic.
Focusing within the purchase channel. We believe we are well positioned to continue to capture market share given are well recognized brand proprietary technology platform and long standing relationships with existing clients.
Clients returned to us and refer guild to others year after year, which drives durable volumes and consistent returns across market cycles.
And Ah recently closed the acquisition of residential mortgage services.
R. R M S.
Further enhances our purchase platform and she had graphics footprint.
The next generation continues to Wanna buy homes.
With growth in the numbers of young people, reaching age 31, the average age when they changed from renting to owning.
We continue to be well positioned for this growing market because of our focus on first time homebuyers.
And our growing number of loan officers and branches across the United States with over 1200 loan officers across 42 states after the RMS acquisition.
Our loan officers in communities leverage their relationships across in network of Realtors builders and other partners to tap into a recurring stream of loans.
With 97% of our business and the retail channel.
Finally from a financial perspective, we have managed through all kinds of market cycles and consistently delivered strong returns.
Through the first three quarters of 2021, we generated a 38.5% return on equity.
So with that I'd like to turn it over to our President Terry Schmidt.
Terry.
Thank you Marianne.
I wanted to discuss in greater depth power balanced originations and servicing model differentiate skilled and positions as for long term sustainable growth.
Both from a diversification perspective, as well as by providing synergies across our business channels.
Starting with the origination business.
Williams across the industry likely remain under pressure in the near term, reflecting changing mortgage rates and limited inventory more favorably is marianne discuss our purchase focused approach positions as well with respect to longterm durable demographic trends in a constructive government agenda.
Another key component of our business model is our scale enabled servicing segment.
Underlying servicing portfolio consist primarily of msr's originated to a retail channel.
To that point, we retain servicing right for 86% of total loan sold year to date through September reinforcing that complementary nature of our two businesses.
In addition are servicing platform allows us to build longstanding client relationships that dry repeat and referral business back to origination segment to capture or recapture our clients next mortgage transaction.
During the nine months ended September 30th 2021, we generate a 30% purchase recapture rate and a 63% refinance be cashew rate compared to 26% and 66% respectively for the nine months ended September 30th 2020.
The 30% purchase recapture rate is a new record for Gil we were able to achieve this by continuing to develop predictive analytics and pushing that information back to the originating loan officer to reconnect with their client.
This again speaks to the strength of our platform local brand presence and strong relationships.
We remain focused on increasingly leveraging our existing servicing client base as well as our proprietary technology to recapture more purchase business.
In summary.
We believe that maintaining both an origination segment and are servicing segment provides us with a more balanced model and therefore more sustainable earnings power across interest rate cycle.
Assuming interest rates rise are servicing business functions as a natural hedge two origination segment, creating a longer duration of servicing cashflows, resulting in favorable valuation adjustments to R. M. S. R assets.
Now turn the call over to our Chief Financial Officer, Amber Kramer to discuss the financials in more detail Amber.
Thank you Terry for.
The third quarter of 2021, we generated 10 billion alone origination consistent with the volume delivered in the year ago quarter <unk>.
<unk> revenue totaled 413 million compared to 564 million in the third quarter of 2020, Walnut income totaled 72 million or 117 per diluted share.
Your over your decline, we're mostly a function of lower gain on sales alone.
Adjusted net income totaled 77 million or 127 per share for the third quarter, while adjusted EBITDA totaled 108 million for the third quarter.
Turning to your to date results total loan origination came in at 28 billion for the first three quarters of 2021 up 14% year over year.
Net revenue totaled 1.2 billion up 6% versus the first three quarters of 2020.
Walnut income totaled 242 million or 399 per diluted share.
And we generated 236 million of adjusted net income and 328 million of adjusted EBITDA for the nine months ended September 30th 2021.
Starting with the origination segment the third quarter posted adjusted locks all your total 10.4 billion, while we generated pinpoint O billion a total funded origination.
Based on close loan 61% of origination volume was purchased business two per cent quarter over quarter and well above the mortgage bankers Association estimated average of 47%.
Dana sale margins on origination came in at 396 basis points for the corner, while the margin until through adjusted locked volume was 381 basic point.
Turning to our servicing business are unpaid principal balance grew 20% year over year to 68 billion as of September 30th 2021, with total loan servicing and other fees, increasing by 25% year over year to 50 million for the third quarter of 2021.
The segment reported net income of $10 million for the quarter.
Reversal from a loss of 12 million in the third quarter of 2020.
Selecting higher fees.
Negative MSR fair value adjustment and lower expenses, primarily due to reductions in a foreclosure last reserve in 2021 as more homeowners exited forbearance plans and avoided foreclosure.
For the third quarter of 2021, the last related to the fair value of R. M. S. Ours was 35.5 million compared to 41 million for the same quarter in 2020, due primarily to slower prepayment speeds.
We remain focused on continuing to leverage are strong in liquid balance sheet to maximize long term shareholder value.
As of the end of the third quarter, you may <unk> maintain $303 million of cash and cash equivalents, excluding funds used to pay down our warehouse line.
As well as 3.6 billion of warehouse lines of credit with unused capacity of 1.7 billion.
The sequential quarterly decline in our cash balance is largely a function of the hundred and 86 million upfront payment related to the RMS acquisition, which closed on July 1st.
Looking ahead capital allocation priority include funding originations and reinvesting in the business and a continued focus on growing shareholder value.
In addition, we've built daughter footprint through a series of complementary and highly accretive acquisition and we remain focused on capitalizing on further opportunities that fit our strategic geographic and financial criteria.
In conjunction with a strong liquidity position the board of directors of Guild declared a special cash dividend of one dollar per share for his class a and class E common stock, which will be paid on or about December 8th 2021 to the stockholders on record on November 22nd 2021.
Wrap up I'd like to provide some perspective on game wholesale margins and Intraquarter origination volume.
Macro headwinds around interest rates and capacity constraint have used to some degree as reflected by the relative stability of our game on sale margin, which came in at 396 basis points for the third quarter compared to 405 basis points for the second quarter.
It's important to note, arguing on so margins remain well above the industry, reflecting are differentiated retail distribution platform purchase focused and disciplined pricing approach.
And while our margins remained influenced by market demand and capacity trends, we aren't motivated by short term market share gains at the expense of unfavourable economics.
We remain focused on generating sustainable growth over the long run.
Turning to volumes for October or loan originations totaled 3.1 billion and total pull through adjusted lock volume was approximately 3 billion.
And with that will open up the call for questions operator.
Before we jump to Q&A I'd like to share an exciting announcement reported today Guild mortgage was ranked number one by J D power and overall customer satisfaction for originations.
We're really pleased with the results of our performance.
So now we'll open it up for open up the call for questions operator.
Thank you Marianne at this time, we will be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate that your line is in the question too.
You May press Star two if you would like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the sarkies.
One moment, please while we pull for questions.
Our first question comes from the line of Trevor Cranston with JMP Securities. You May proceed you May proceed with your question.
Alright, thanks, and congratulations on the trunk order.
A couple of questions related to the servicing portfolio.
<unk> number one do you guys have a N D V prepayment speed on the on the portfolio and three Q.
And.
Just generally as you look forward over the next couple of quarters could you provide any commentary on sort of how much.
<unk> do you think there is for speeds to come down further.
Refinancing cause I'm looking to Mr. Burnham six.
Sure. Thank trever for your question Uhm, the prepayment see it on our portfolio in two three is at 14.2 on the Uhm C. P. R for Msr's and so as obviously as rates are going up we're gonna continue to see that decline, although it does <unk> should reach it somewhat of a.
A steady state overall and N b, a has refinances dropping down I'm, 67% into next year, so that would impact it overall.
I don't know where the bottom is and I don't know Terry you've obviously been doing this for a long time do you know where we've been historically in the market like this or recycle changes.
Yeah, I would say that the lowest we've seen in the last several years is an 11%.
Prepayment speed.
Yeah.
Okay Gotcha, that's really helpful.
So one more thing on the servicing brook it looks like the percent of loans your routine servicing on this quarter, just a little bit from where it had been I was just curious if there's any particular.
Reason why are you the percentage will do returned service drop this quarter in particular.
Yeah, Great question, Trevor Uhm, that's really a function of the acquisition. They were selling 100 per cent service release, so as we incorporate them into our numbers. It would bring ours down if we looked at Guild, specifically, we were still around 90 per cent and <unk>. What were service releasing is still primarily jumbos and bonds, which both of.
Which we're seeing increased slightly and some non owner occupied but overall still at 90 per cent and we would expect is M. S. R.
<unk> funds on our platform that they will retain in the same.
Uhm percentage that we would.
Okay debit card got Ya.
And then on the the special dividend decoration can you share any thoughts or commentary around.
You know why the decision was made to you're paying special dividend, maybe as opposed to setting a regular quarterly.
And also just any slots you guys had around why you felt like this was a good time to pay a dividend as opposed to maybe.
Your Virginia capital, Okay, So neither <unk> reasonable.
Well as you can see by our cash position. We're in a strong cash position. We review with the board, where we believe our cash will end up at the end of the year. Our priority is investing in the business funding originations and any acquisition originating opportunities that's always gonna be take priority when we look.
At that in our cash balance we felt that the special dividend makes sense as a return to cats of capital to shareholders and at this time, we're not looking at doing any kind of recurring dividend were always assessing what our needs are short term and long term and we will make decisions based on that and where the opportunities.
Are we definitely want to be poised for anything that comes up in terms of acquisitions in recruiting and make sure that we stay in a strong financial position to be able to capitalize on that.
Okay, Great. That's helpful. Thank you.
Our next question comes from the line of Ricocheting with J P. Morgan you May proceed with your questions.
Hi, everybody. Thanks for taking my questions Tonight, I guess, it's MSR day first question is also 396 point or call at 397 million in revenue.
How much of that caffeine I'm, feeling how much of that with capitalization, all kind of dark but with salt.
So our uhm lungs that we added for M. S. Ours was 82 million and a non-cash so they're coming on about 100 basis points right now.
Got it okay that's that.
That's pretty close to what I was getting so when I look at the <unk>.
And were there any sale besides originated loans during the quarter.
No.
Okay. So can we walked through the U P. B so you.
<unk> started the quarter at $65.7 billion, you had $10 billion of origination net after you.
Routine, 72% you retained about $7.3 billion that is why if you go from 65.7 to 68 building is a U T V that there was chaos and amortization.
Seven seven or $7.8 billion Oh, I guess my question is twofold, what is the C. P already decided a 14% would that be assume C. P. R for valuing msr's actual amortization during the order.
That was the C. P R and the M. S. R model and we would have you know run off.
And then.
<unk> normal run off in terms of.
Refinance it and then you know if there's payoffs or uhm foreclosures that will be included in there I'd have to walk through the the number overall that seemed a little high and I'm not sure. If it has to do with RMS.
And how they're playing into that overall.
Got it.
Low prepayments of 5.5 billion and so we sold $2.7 billion of service released.
And it is assumed yeah prepayment rate.
Yep.
Got it so what was the actual prepayment speed during the quarter.
Oh.
Okay.
Hamburger do you have that.
Don't we can always get back to you.
Yeah, I'll get that for you right now.
Yeah.
Yeah, we can get that for you, but it definitely was higher than 14%.
Okay, Yeah, I'm thinking that the 30th maybe and again I, you're using 5 billion of amortization I'm gonna slightly different number but I guess it is.
Is it likely in the thirties.
<unk> low forties.
Mmm.
And it will have to get that for Ya.
That's that's it for me Thank you got.
As a reminder, if you would like to ask a question. Please press star one on your telephone keypad.
The store too if you would like to remove your question from the queue.
Our next question comes from the line of Don and Betty with Wells Fargo and you May proceed with your question.
Amber can you talk a little bit about gain on sale expectations for the fourth quarter or no.
The press release, there was some comments about competition, but can you sort of quantify what you're seeing and also Q3 just came out a lot better I know there was some concern last quarter from my Doctor just in terms of for for the guard what what changed I mean, obviously, it's good to see conservatism.
The numbers coming a better but.
Talk about work or whatever.
Yeah. It did come in better than we expected in Q3, and you know there isn't market fluctuations that were unexpected we don't provide guidance going forward, we still think that we're gonna get two 2019 levels.
Around the 380 basis points and you know starting to see that at the end of Q3 as well Uhm Miss that provides a neat direction for Ya.
Okay, and so what was it that sort of came in so much better in the third quarter discover better understand how that moves that much so just competitive dynamics.
Well rates didn't rise as much as they were expected to and you know there's just the demand was strong so didn't.
Seem to push.
The rates it didn't seem to pusher.
Our gain on sale margin down pricing daughter.
Okay, well like I said a minute it's great to see the estimates conservative. So I was just curious what sort of drove up for Tom. Thank you.
Our next question comes from the line of Rick Shane with J P. Morgan you May proceed with your question.
Hey, guys I owe you a clarification I dial into your 5 billion roughly amortization number which gets to a 30% C. P. R and cause I sort of incorrectly walk through that logic on the call I felt I owed everybody a clearer.
Yeah.
Thank you Rick.
[laughter].
At this time, we have reached the end of the question and answer session I'd like to turn the call back over to Marianne for any closing remarks.
Well, thank you for joining us today and have a great holiday season stay healthy and we look forward to updating you on our next call.
Thank you.
This concludes today's conference you may disconnect. Your lines at this time. Thank you very much for joining and have a great day.
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