Guild Holdings Company Q1 2023 Earnings Call
Good afternoon, ladies and gentlemen, and welcome to the Gilt Holdings Company first quarter 2023 earnings Conference call.
At this time, all participants are in listen only mode.
Later, we will conduct a question and answer session and instructions will follow at that time.
As a reminder, this call will be recorded.
I'll now like to turn the conference over to Investor Relations. Please go ahead.
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 in the industry change. 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 in the section titled risk factors and <unk> Form 10-K, and 10-Q and in 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 to the corresponding GAAP measures can be found in our earnings release furnished today, but as you see now.
So available on Galaxy Investor Relations website.
Now I'd like to turn the call over to Chief Executive Officer, Maryann Mcgarry Marianne.
Thank you Nikki.
Good afternoon, everyone and thank you for joining us.
Today I'm joined by our President Terry Schmid, Chief Financial Officer, Amber Kramer, our Chief operating Officer, David Neyland will join us for Q&A after our prepared remarks.
Our first quarter results were in line with our expectations in the first quarter. We generated 2.7 billion of total in house loan originations compared to 3 billion in the fourth quarter F. 2022.
While these results reflect a challenging backdrop of rising rates and limited inventories, we continue to gain market share as we execute on our growth plans are.
Origination volume from purchase business was 92% compared to the mortgage bankers Association estimate of 80%.
Additionally, our model is built on long term relationships and communities.
Focusing on purchase business, we see more consistency across your interest rate cycles and believe our earnings are more durable and sustainable in all market cycles.
Our servicing platform along with our focus on customer service also supports strong recapture rates.
For the first quarter of 2023, our purchase recapture rate was 24% and we retained servicing rights for 87% of total loans sold in the first quarter of 2023 with a strong retention driving ongoing growth in unpaid balance levels and related fees.
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We were pleased to see an uptick in volume in April and while we can't control the constraints on the housing supply we have taken steps to position Guild to continue to grow market share.
During the quarter and subsequently we have been effectively executing on our growth strategy with.
With the recent acquisitions and organic expansion that Terry will discuss we are further building our foundation to drive growth and we anticipate gaining additional market share as the acquisitions are fully integrated and continue to ramp.
We have a differentiated platform and our acquisitions and product offerings further bolster our position as.
As we continue to integrate our recent acquisitions, we expect to realize enhanced productivity.
In addition, our pipeline of attractive opportunities continues to grow and while we will remain disciplined we believe the current environment provides a compelling window for external growth.
Before turning the call over to Terry I wanted to take a moment to comment on our previously disclosed management succession, which will be effective on July 1st.
It has been an incredible journey for guilt.
And I could not be more proud of what we've accomplished and the foundation, we have created to deliver ongoing growth and shareholder value.
Guilt is a company with a strong culture technology platform and talented people.
Since her a management buyout in 2007, we have delivered tremendous growth and consistent returns due to our balanced business model our focus on customer relationships.
And offering creative product solutions to our customers financing needs.
We believe our combination of strong performance culture.
Culture and longevity is unique.
I will remain on the board of directors and I'm very confident in the team that will be leading the company day to day with Terry Schmitz promotion to CEO , and David Neylon, as President and C O O.
Terry and I have worked together for almost four decades, and David has been with us since before the management buyout in 2007.
As a result, I am certain the transition will be seamless.
And I want to thank the entire guild team for their hard work and commitment to executing on our mission of delivering the promise of a home.
In neighborhoods and communities across the United States.
Terry.
Thank you Marianne.
I will start by expressing my gratitude to you for your vision leadership and partnership over the years you have established a culture that has been foundational to our success.
Where we are today certainly exceeded any expectation I had when we completed the management buy out more than 15 years ago and I'm, even more excited about the ongoing opportunity as we continue to leverage our incredible platform.
Broader market disruptions are driving a flight to quality and guild should be a net beneficiary given our long and successful history through numerous market cycles beginning in 1960.
One of guilds goals is to leverage our scalable platform extend our geographic reach across the country and increase our share in key markets.
During the first quarter and subsequently we completed two acquisitions and added a new district of loan officers.
As previously disclosed in February we added legacy mortgage to the Guild platform, increasing our presence in the southwest with the addition of their operations in the high growth States of Arizona, Colorado, Texas, and New Mexico, where a guild now has the number two share purchase mortgage.
According to Corelogic data.
In April we also added Cherry Creek mortgage to our retail network. Cherry Creek is another example of a synergistic acquisition bring in a complementary business to Guild Cherry.
Cherry Creek has a similar experience to guild with a 36 year history of successfully managing through multiple cycles and focusing on its retail strategy and customer relationships.
With 68 branches in 45 States our acquisition of Cherry Creek provides immediate additional scale.
Furthermore, Cherry Creek has a strong reverse mortgage leadership team that has been in the industry for many years.
We believe having the ability to your current ties and service reverse mortgages will continue to strengthen our product offerings and help us serve more customers.
By integrating reverse mortgages into our traditional platform. We now offer our retail team the opportunity to have a more comprehensive offering for their customers from products focused on the underserved and first time home owners now through to reverse mortgages aligning with our.
Customers for life strategy.
In April we also organically grew our footprint with the addition of a new district made up of 40, New Guild employees and eight branch offices in California to serve home buyers throughout the region.
This group's production was an estimated 350 million in 2022, and we are excited they have joined our team.
Following this addition guild has approximately 1300 and 60 loan officers across more than 300 branches serving customers in 49 states.
As Maryann mentioned, we are laser focused on leveraging guilds platform and network of loan officers to continue to grow market share and to continue to position ourselves to accelerate growth as the market North normalizes.
In the first quarter, we grew market share as we captured a higher percentage of the total industry origination volume than we did in the fourth quarter.
We are encouraged by the recent uptick in volume for April , but do you anticipate there will be ongoing macro pressures in the near term.
We believe our balanced business model of originations and servicing provides the stability to manage through this uncertainty while our disciplined balance sheet management and liquidity. She continued to allow us to take advantage of opportunities as they arise and drive profitable growth over the long term.
I'll now turn the call over to our Chief Financial Officer, Amber to discuss the financials in more detail Amber.
Thank you Terry as is our standard practice my comments will focus on sequential quarter comparison.
For the first quarter of 2023, we generated $2 7 billion of total in house loan origination compared to 3 billion in the fourth quarter net.
Net revenue totaled 104 million compared to $134 million in the prior quarter and we generated a net loss of 37 million or 61 cents per diluted share.
Adjusted net loss was $2 5 million or four cents a share while adjusted EBITDA was a positive $1 1 million.
The adjusted figures for the fourth quarter exclude a $44 million negative change in fair value of Msr's due to valuation assumptions compared to a $17 million charge in the prior quarter.
Focusing on our origination segment our gain on sale margin came in at 343 basis points up from 331 basis points in the fourth quarter.
Pull through adjusted lock volume totaled $3 3 billion in the first quarter compared to $2 8 billion in the prior quarter and we are pleased with the uptake.
Our gain on sale margin on pull through adjusted lock volume was 284 basis points compared to 351 basis points in the prior quarter.
The increase in pull through adjusted volume up 21% over originations creates a negative timing impact for gain on sale on pull through adjusted volume and is not indicative of future expected gain on sale margin.
Well Guild and the broader industry have both seen continued pressure on gain on sale. We remain confident in guild relative positioning given our balanced business model, which focuses on retail origination and servicing of the loans we originate.
We believe this focus results in more durable and sustainable performance across market cycles, we are starting to see some stabilization as excess capacity is contracted but anticipate continued pressure in the near term and further improvement will depend on market rate and spread trends as well as broader inventory levels.
For our servicing segment, we reported a $300000 net loss in the first quarter versus $22 million of earnings in the prior quarter due primarily to $55 million of downward fair value adjustments to the company's mortgage servicing rights due to slight rate decreases.
Our balance sheet remains strong and provides us with the flexibility to continue to invest in our growth in a disciplined manner and our assets consist primarily of high quality loans and MSR.
Turning to liquidity as of March 31, cash and cash equivalents totaled 148 million, while unutilized loan funding capacity was $1 2 billion and the Unutilized mortgage servicing rights line of credit totaled 205 million based on total committed mounts and borrowing base limitations.
Our leverage ratio defined as total secured debt, including funding divided by tangible stockholders' equity was two nine times.
We continue to focus on the best way to efficiently deploy capital, while managing through uncertain times with financial Prudency, our strong balance sheet and liquidity enables us to invest in the business and strategically deploy capital in a disciplined manner to drive growth and shareholder value over time.
During the first quarter, we repurchased approximately 50000 shares at an average stock price of $11.26 per share.
Book value per share at the end of the quarter. It was $19.93, while tangible book value per share was $16.43.
In addition, our capital position in different age and differentiated business model facilitates capitalizing on strategic M&A opportunities that complement our organic growth should they arise as we've done successfully throughout our firm's history.
In April we have generated $1 3 billion of loan originations and 1.3 billion of pull through adjusted lock volume.
As we noted last quarter, we anticipate the current more challenging market conditions to continue through the first half of 2020 three.
As we progressed through this cycle Gil will focus on seeking out additional opportunities, including potential acquisitions, which should position us to accelerate our growth over time as market conditions improve.
We have a well positioned balance sheet, which will support the growth of our platform and that supply continues to moderate we anticipate being a beneficiary of purchase activity and with that we'll open up the call for questions operator.
We will now begin the question and answer session.
12, a question you May press Star then one on your telephone keypad.
If you're using a speakerphone please pick up your handset before pressing the keys.
To withdraw your question. Please press Star then two.
At this time, we will pause momentarily to assemble our roster.
Yeah.
Yeah.
Our first question will come from Don Vendetti with Wells Fargo.
We'll now go ahead.
Yeah.
Congratulations to the Marianne Terry and David.
Or I guess question on the gain on sale of the pull through law I mean definitely lower than we were expecting and I think in January .
You had provided a number much higher can you talk about the accounting and why that is.
This is low.
What you're thinking for April and see.
Sure. So as I noted the originations and therefore sales is up 21% over the pull through adjusted lock volume. So there's a timing difference of the execution, we'd get at time of sale. That's not considered and you can see that historically in Q1 numbers going backwards. Its typical in this first quarter.
As we start to get an uptick in volume and we don't provide guidance, but I will say that you can see from Q4 to Q1, if you exclude the the adjustment that for the loan loss that I talked about on our last earnings call in Q4 were pretty much flat quarter over quarter going into Q1, and that's really what we're continuing.
To see I'm, just not much change and so I think as we noted there's some stabilization, but we're not seeing that pick up quite yet, but I would really focus more on the gain on sale in originations versus the gain on sale on the pull through adjusted lock volume because of that timing difference.
Okay and.
G&A can you talk a little bit about our run rate there.
Two acquisition sort of flowing through.
Yeah. The overall since we had the acquisitions in Q1, there is a slight impact in that and you would have some ramp up as they as their volume is brought on them and we're continuing to monitor just overall cost as you know looking at volume and making changes accordingly.
And you know no big changes other than that you know about 80% of our.
Of our personnel cost are you know are variable. So the other fixed costs is just what we're picking up on the acquisitions and then the run rate of volume will ramp up over time too.
Got it thanks.
Our next question will come from Kyle Joseph with Jefferies.
Now go ahead.
Hey, good afternoon, thanks for taking my questions.
Regarding our Cherry Creek, and then the the California team you guys acquired can.
Can you give us any.
Since one of those are expected to close in any impacts on your leverage profile and then a follow up to that would be capacity for M&A going forward. I know you guys have been very active in the space.
Sure I'll answer that on Cherry Creek, we closed on April 3rd.
So it has officially closed and the California group they on boarded about a month ago.
And the volume about 300 $350 million for the group the the California group in last year Cherry Creek funded about two and a half billion.
Okay.
And Kyle I can answer the question just in terms of our leverage profile and it's not going to swing anything you know we have a strong balance sheet overall and so it's going to really keep us and we're going to be in the same position. We're just increasing our market share of our volume and then overall that'll just flow to the bottom line in terms of.
Revenue and we as you can see have a strong balance sheet with the ability to borrow you know significantly more and were planning to use that capital for organic growth and acquisitions and we think that there's still opportunities out there and you know are keeping our strong balance sheet position to be able to capitalize on those opportunities.
Yeah, we still have a very active pipeline and we're going to we're going to keep executing on our strategy. This year.
Yes, no that makes all the sense in the world.
And then you know not surprisingly is as we think about the origination business versus kind of the U P. B, obviously, you can be as grown as originations have.
Come down how do you guys think about balancing that potentially selling.
MSR is in this environment and and just any thoughts in terms of like potentially hedging that.
We think about our servicing portfolio and our originations as a natural hedge and which really is what you're seeing right now and you know our overall with our adjusted net income about breakeven.
And we do look at our risk profile on our portfolio itself to ensure that you know we're in a strong position as where originations are compared to our portfolio and where the WAC is we've you don't have a strong asset on our servicing portfolio with a low whack them and so we don't believe that there's there's risk in our strategy has been clients for life and we have a strong.
<unk> recapture programs to continue to add to our portfolio, which is a great value proposition for loan officers as well and because we've managed our balance sheet and so while we don't need the cash to sell MSR and so right now we don't have any plans to do so.
Yeah, then the note rates only 3.7% on the the coupon on the portfolio and to <unk> point, we manage.
We managed to how the current par rate is too that the coupon stack and we're looking at if we've got a definitely a smaller group that maybe a year from now refinance a bull, but all of that since we've built all this through our retail channel we've got.
The boots on the ground the loan officers that can recapture that that.
That refinance if it's the right time to recapture it that we've been really successful at that and so that's really been the way we've hedged in we plan to continue to do so but the nice thing is we have options right. We can we can sell the MSR if.
We needed to in the future.
We can borrow against it so and we can service release more products, we've got multiple outlets that we can tap.
Tap into if we needed to change our strategy, but we're sticking with the strategy.
<unk> had so far.
Got it that's it for me thanks, a lot for answering my questions.
Hum.
Our next question will come from Giuliano Bologna with Compass point, you May now go ahead.
Congratulations on the continued strong execution.
And the one thing I'd be curious about and I realized that you've kind of touched on most of our revenues.
The impact of some of the acquisitions on kind of operating expenses.
Martin I'd be curious if there's a way.
Thank you broke the impacts during <unk> and also some potential impacts related to the acquisitions that are in the process of closing.
102, and even beyond <unk>.
Over the next few quarters.
The the impact is minimal I think generally speaking if you look at our adjusted net income at negative two and a half million we'd be about breakeven without the acquisition. So you can see from the revenue and the expenses.
You know, it's not a huge impact materially on the expense side and the gain on sale.
I still what I said earlier with gain on sale overall being flat is what we're seeing there is no change to that.
That's right.
Yeah.
I would say the way we look at this is when we're acquiring these companies is.
We expect.
That five months six that they're in there, they're starting to turn a profit and between month 12 and 18.
They we've recouped any type of net expense that we've had.
And so that's what we.
Expect on these acquisitions as well as that kind of health.
That's very helpful.
And then thinking about.
The strategy going forward.
Obviously, the incredible job expanding through M&A and expanding geographies.
Yeah.
I'd be curious if there are any large markets that are still kind of left on top of his corn or are you looking to fill in some markets, where you might be underpenetrated from a market share of a person.
Yeah. There are some states that we still don't have very much in a lot of states that we don't have we're not in the top five.
So any any area, where any state where we're not in the top five outside of New York [laughter]. We we are interested in and expanding.
So we've got a lot in the Midwest, there's so much opportunity in the south.
And the South east that we'd love to continue to expand there as well.
That's great. Thank you very much and I will come back.
Okay.
But then if you have a question. Please press Star then one.
Our next question will come from Brian <unk> with Wedbush Securities.
No go ahead.
Thanks for taking my question just a quick one on the reverse mortgage business specifically.
Could you kind of just frame what that opportunity looks like you know what got you interested in getting them to reverse mortgage.
Is there any sort of ramp up time associated with getting that extended out to your existing branches.
Yeah last year, we the last 10 years, we've wanted to get into reverse and just there's been a lot of other uses.
Just operationally other areas that we've continued to focus on but this opportunity with Cherry Creek came to us and they they've been in the business they've got some executives that have been in the industry for 20 plus years have a great reputation last year they.
Did about $250 million and you know we think we can expand that dramatically I would say, we're looking at Q <unk>.
Probably Q end of Q2 Q3 to start expanding it in our own retail footprint.
And but they're there they're already growing without our retail footprint. So we believe that there's a lot of opportunity there.
Yeah, I would add this is marianne debt.
What we see in our vision for reverse mortgages with such a low weighted average coupon in our portfolio yet that this product will become more in demand as you have an aging population and this way they can tap into their their equity and.
And stay in their home, which is what we want is to help people stay in their homes as well as <unk>.
You know provide homeownership so.
Yeah, that's gonna be another outlet loved and the outlet another lever we can pull for our our customers and we think there's a good future strong future I had with perverse mortgages.
Great. Thank you.
Yeah.
This concludes our question and there was a question I would like to turn the conference back over to Maryann Mcgarry for any closing remarks.
Thank you.
Thanks, everyone for joining us today.
And.
Have a great evening, and we look forward to updating you on our next call.
Thank you.
Yeah.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.