loanDepot Inc. Q1 2023 Earnings Call
Good afternoon, and welcome to loan depots first quarter 2023 earnings call.
All lines have been placed on mute to prevent any background noise.
After the Speakers' remarks, there will be a question and answer session. If you would like to ask a question. During this time simply press star followed by the number one on your telephone keypad.
I would like to withdraw your question again press Star one.
I would now like to turn the call over Jake Erhard or daily Senior Vice President Investor Relations. Please go ahead.
Good afternoon, everyone and thank you for joining our call I'm, Gary Herder Daily Investor Relations Officer at home Depot today, we will discuss loan depots first quarter 2023 results before we begin I would like to remind everyone that this conference call may include forward looking statements regarding the Companys operating and financial performance and future periods.
All statements other than statements of historical fact are statements that could be deemed forward looking statements, including but not limited to guidance to our pull through weighted rate lock volume origination volume both related gain on sale margin and expense trends. These statements are based on the company's current expectations and available information.
Actual results for future periods may differ materially from these forward looking statements due to risks or other factors that are described in the risk factors section of our filings with the SEC.
A webcast and transcript of this call will be posted on the company's Investor Relations website at investors thought loan depot dot com under the events and presentations tab.
On today's call, we have low depot, President and Chief Executive Officer, Frank Martell, and Chief Financial Officer, Patrick Flanagan to provide an overview of our quarter as well as our financial and operational results outlook and to answer your questions.
We're also joined by our Chief Investment Officer, Jeff degree and LTI mortgage President, Jeff Walsh to help address any questions you might have after our prepared remarks and with that I'll turn things over to Frank to get Us started.
Nicole business operating platforms and processes to support operating leverage and best in class quality and delivery.
And finally pillar for release to optimizing our organizational structure.
We are continuing to execute aggressively against our vision 2025 plan narrowing our losses and putting into place the essential components, which we believe will support longer term market leadership and value creation.
Our focus on profitable revenue growth and the reset of our cost structure, where the key drivers behind the substantial narrowing of operating losses quarter over quarter.
Comparing the first quarter of 2023 to the fourth quarter of 2022, we grew revenues, 22% and reduced costs by 9%, resulting at a 42% reduction in our net losses to $92 million.
Are adjusted net loss narrow from $111 million in the fourth quarter of last year to $60 million in the first quarter of this year higher revenues and reduce total expenses.
The impact on our focus on cost productivity and organizational optimization is clearly evident when we will look at year over year trends.
Comparing the first quarter of 2023, the first quarter of 2022 are adjusted net loss narrow, 26% from 81 million to $60 million. Despite a market driven reduction in our revenues of $278 million.
This performance relax the impact of the more than $500 million and run rate cost savings secured during 2022 as well as our first quarter reductions.
Looking ahead, although the affordability and availability of new and existing homes remains challenging for the industry overall.
At long depot, we expect to continue to benefit from seasonally higher revenues.
As well as our ongoing cost reduction in productivity programs.
Together these positive trends should continue to drive improving financial results over the course of the second quarter and the third quarter of 2023.
Our focus on lowering costs and driving operating leverage should allow us to continue to remain a strong liquidity position.
By my by maintaining a sizeable cash balance.
798 million as of March 31, 2023.
We believe we are positioned to continue to invest in our people are.
Our platforms and processes and benefit from the expected reductions in industry capacity.
While we continue to reset our cost structure. We are also focused on the other pillars of vision 2025, including <unk>.
Capturing profitable revenue growth opportunities.
Significant opponent component of vision 2025 is reorienting, our mortgage origination footprint around purpose driven lending to support first time homebuyers and diverse communities.
We have already garnered recognition in this area.
Earlier this year the Wall Street Journal named US Best mortgage lender for first time homebuyers.
One of the top mortgage lenders in the America, We believe co laser focus on serving first time homebuyers will enable loan depot to build relationships with customers for life, becoming a partner of choice for future lending and other home related transactions.
Our unique multichannel origination strategy contributed to revenue growth in the first quarter.
Direct joint venture and servicing business units all delivered growth in the quarter, while R and market retail was impacted by seasonally lower home buying activity.
Our HELOC product, which provides a powerful financial tool for our customers and managing refinancing or their finances also experienced consistent growth with strong customer adoption during the quarter.
I want to conclude my prepared remarks today by thanking Timo depot and our other key stakeholders for their support.
Our markets remain challenging no doubt.
But I believe this is also a very important period of change and progress for our company.
We are continuing to significantly reset our cost structure and narrow our operating losses.
We have also aggressively shifted our revenue profile towards purchase transactions develop a new and innovative HELOC solution and built up our JV channel and are servicing platform.
With almost $800 million of cash on hand, additional run rate cost reductions identify for action in 2023, and several new growth factors in flight. We believe we are increasingly positioned to navigate through the market downturn and emerge as a stronger and more valuable company.
With that I'll now turn the call over to Pat will take us through our financial results in more detail.
Thanks, Frank and good afternoon, everyone during.
During the first quarter loan origination volume with $5 billion [noise].
Decrease of 23% from the fourth quarter of 2022. This was at the high end of the guidance, we issued last quarter of between $3 billion and $5 billion for.
First quarter volume consisted of three and a half billion in purchase loan originations and 1.4 billion in refinanced loan originations, primarily cash out refinances or.
<unk> waited right lock volume of $5 billion for the first quarter contributed to total revenue of $208 million, which represented a 23% increase for the fourth quarter great locked volume also came in within the guidance, we issued last quarter of between $4 billion and 6 billion.
The increase in revenues, primarily resolve the pyre servicing income and higher loan origination income from an increase in pull through waited right lock volumes driven by lower average market interest rates are pull through waited gain on sale margin for the first quarter came in at 202006 basis points above the guidance we provided of 100.
<unk>, the 220 basis points.
Our higher gain on sale margin was primarily due to a reduction in a repurchase provision is both the repurchase activity and discounts applied decreased substantially this quarter.
Turning now to a servicing portfolio the unpaid principal balance of our servicing portfolio increased to 142 billion as of March 31, 2023, compared to $141 billion as of December 31, 2022. This increase was primarily due to net additions during the quarter. We did not have any bulk sales from the portfolio dirt.
The quarter.
Servicing fee income increased from $107 million in the fourth quarter of 2022, two $119 million in the first quarter of 2023. This was primarily due to the benefit of higher interest rates driving increases and sillery income earned from servicing related deposits held by custodial banks for the better.
Fit of our customers we.
We head you're servicing portfolio. So we did not record the full impact of changes in fair value and the results of our operations. We believe this strategy protects against volatility in our earnings and liquidity R.
Our strategy for hedging the servicing portfolio is dynamic and we adjust our hedge positions in reaction to changing interest rate environments.
We believe are servicing portfolio is well protected against potential rising defaults as of the end of March the weighted average FICO was 739, the weighted average coupon was 3.2% and the weighted average loan to value at origination with 71%. These characteristics contributed to a low delinquency rate with only.
80 basis points over the portfolio more than 90 days past due at quarter end and should generate reliable ongoing revenue during these uncertain economic times.
A major component of our vision 2025 plan is to align our expense base with our expectations for lower origination volume and create efficiencies to improve operating leverage and financial performance over time.
As previously mentioned, we believe that the mortgage market will total approximately 1.5 trillion this year and had been continuing to shrink our expense space for this much smaller market.
Our total expenses for the first quarter of 2023 decreased by $29 million or 9% from prior quarter, driven primarily by lower personnel expenses, including both salaries and volume based commissions and lower G&A expenses.
Or non volume related expenses, excluding commissions and direct origination expenses decreased by $25 million or 9%, which reflects our ongoing work to reduce our control will expenses.
The first quarter included vision 2025 related charges totaling $2.6 million, including 841000 of lease and other asset impairment charges 836000, a personnel related expenses and 910000, a vision 2025 related professional service fees.
Vision 2025 expenses incurred in the fourth quarter of 2022 total of $12 million.
Looking ahead to the second quarter volumes and margins, we expect origination volume.
<unk> of between four and a half and six 5 billion.
We expect pull through waited locked volume of between 5.5, and seven $5 billion and we expect our second quarter pull through waited gain on sale margin to be between 240 and 280 basis points.
We expect total expenses during the second quarter to increase primarily reflecting seasonally higher loan origination volume notwithstanding our expectations of somewhat higher expenses, we believe that seasonally higher lock volumes, continuing improvement and gain on sale margins and further reductions in our controller controllable expenses.
Will help us to continue to narrow our losses in the second quarter.
In light of current market conditions are balance sheet management strategy will be to maintain our capital structure and preserve cash until operating losses, our readers reduced an industrywide gain on sale margins normalized.
As we continue to narrow our losses were financially sound with $841 million, a tangible equity $798 million of unrestricted cash and what we believe are excellent relationships and the support of our financing partners the agencies and other investors.
With that we're ready to turn it back to the operator for Q&A operator.
At this time I would like to remind everyone in order to ask a question.
Number one on your telephone keypad.
Your first question comes from Kyle Joseph and your line is open.
Hey, good afternoon.
Cook modeling question here in terms of the sub servicing expansively expect that to <unk>.
<unk> downward towards zero over time, given the in housing or is that gonna as they are going to be some sort of like leftover there.
Yeah. This is Jeff <unk>.
It should go down to zero there is some tales that.
Are left with a couple of sub services right now, but it should be a trend of zero over time is that is found out.
Got it and then in terms of staffing with kind of a seasonal uptake are you guys comfortable at the level you need to add any more originators or do you think the originators you have on hand have the capacity to handle the seasonal uptick in terms of originations.
Yeah. This is Geoff Walsh.
We're always looking to add good originators with the right profiles, but.
We feel based on what we are estimated the market to be currently that we're we're well positioned with the originators that we have today to to manage that.
[laughter].
Okay got it that's it for me thanks for taking my questions.
And the next question comes from John Davis Your line is open.
This is taylor on for JD, maybe just a start on the gain on sale margin during the quarter.
Heard you mentioned the <unk> impact.
Impact, but is there anything else to call out whether it be mixer.
Geographic concentration during the quarter that <unk> <unk>.
Quarter over quarter relative to expectations.
Yes.
This this past Flanagan, yes.
There was a little bit of a change in mix. So there's a smaller.
A smaller amount as a percentage of jumbo loans, which are are lower gain on sale in basis points and a slightly higher percentage up government originations quarter over quarter, which are also hiring gain on sale margins.
Okay, Great and maybe just one more just based on your origination guidance for two Q.
Could you just give us a sense of what you expect or assuming fur.
<unk> purchase originations just that makes their that'd be great.
This is Pat for a second quarter, we would expect the mix between purchase and <unk> roughly comparable to the first quarter's results.
Okay, great. Thanks.
And began if you would like to ask a question press star I didn't amber wine telephone keypad.
Okay. So with no further questions I will hand call back over to frame your account.
Thank you operator and look thanks to everybody for joining US today. We appreciate your interest in the company is always I want to also thank Pat and the rest of the team.
And really all all of the all of team while depot, we continue to focus on executing Miss our plans.
And we are continuing to reduce our operating losses and.
Here, we expect to continue to make progress on the second the third quarter of this year. So with that I will conclude the call I appreciate your interest.
This concludes today's conference call you may now disconnect.
Mmm.
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