Q2 2023 Guild Holdings Company Earnings Call
Good afternoon, ladies and gentlemen, and welcome achieved did you Holdings company.
It can codeshare Twenty-twenty suite earnings conference call.
At this time, all participants are in listen only mode.
Basically we will conduct a question and answer session and instructions will follow at that time.
As a reminder, this call is being recorded.
I'd now like to turn the conference or the Kid 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.
The company's expected operating and financial performance for future periods and industry trends.
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 and other factors that are described in greater detail under the section titled risk factors in Gilts Form 10-K, and thank you 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 I think affiliations with non-GAAP financial measures to corresponding GAAP measures can be found in our earnings release furnished today with the SEC and are also available on <unk> Investor Relations website.
Now I'd like to turn the call over to Chief Executive Officer, Terry Schmid Terry.
Thank you good afternoon, everyone and thank you for joining us I am very pleased to be conducting my first earnings call as CEO and to be joined by our President and C. O O David Neyland as well as our Chief Financial Officer, Andrew Kramer.
Our second quarter results were in line with our expectations as we accelerated production with total in house loan origination of $4 5 billion up from $2 7 billion in the first quarter. These results reflected our continued strategy to grow market share as we further scale our platform.
We're achieving this through the successful execution of our organic and external growth strategy broader industry challenges persist due to higher interest rates and limited home inventory, which is putting pressure on production volume in industry margins. However, the guild brand within the mortgage industry is stronger.
That has ever been and we believe we are well positioned given several factors that have historically helped us to achieve our long term targets.
From an organic growth perspective, we benefit from our focus on the purchase market in the second quarter, we originated 94% of our closed loan origination volume from purchase business compared to the mortgage bankers Association estimate of 80% for the industry.
Guild also continues to provide innovative new products to meet the needs of even more buyers no matter what is happening in the housing market, we want to get people into homes and help keep them there.
Additionally, cheat our organic growth is continuing to expand our network of loan office loan officers and their referral partners.
All of these attributes combined have contributed to our continued share gains as evidenced in the quarter over quarter origination volume increase of 66% compared to the industry estimated at 39%. According to the July MBA forecast.
In terms of Nonorganic growth fueled continues to grow both in existing markets and by entering new ones with selective acquisitions and team expansion.
We have focused on integrating our three most recent transactions, which are beginning to ramp up on the guild platform and should begin to contribute toward higher originations in the upcoming quarters.
The other distinctive element of guilt model is our in house servicing platform, which serves to keep purposes.
First it provides for a balanced business model, which delivers recurring cash flow through cycles and second it positions us to extend the client lifecycle guilt.
Killed it is continuing to grow our servicing channel and we retained mortgage servicing rights for 84% of the total loans sold in the second quarter of 2023.
This provides both reliable fee income as well as continued interaction with our customers supporting our strong recapture rate we.
We have also prioritized maintaining a strong balance sheet and liquidity position, which supports our ongoing pursuit of additional growth opportunities.
Guild has engaged in several opportunistic acquisitions in the recent years, which has grown our reputation as a valued business partner and we believe the continued muted origination environment will create additional opportunities for us to add smaller businesses to the Guild platform.
Furthermore, beyond supporting our growth initiatives, our strong balance sheet enabled the recent decision by the board of directors to return capital to shareholders in the form of a special dividend. The board believes this is another tool to create and return value to shareholders. In addition to share repurchase.
<unk> and selective acquisitions.
Although the market continues to face many of the same pressures we have been discussing for several quarters related to rising rates and tight home inventories.
I remain encouraged by our continued progress and our ability to gain market share.
We are confident in our positioning given the factors that I discussed and believe that as the market continues to stabilize we will once again realized accelerated growth on top of the market share gains we have been producing in 2023.
I'll now turn the call over to our President and CEO COO, David Neyland David.
As Jerry mentioned, we have continued to effectively navigate the current environment. While we also continue to elevate the Guild brand, we remain focused on providing products for our loan officers to meet the needs of even more buyers, including those aimed at removing barriers to homeownership for example.
We rolled out the 1% Downpayment advantage program in June this product requires the borrower to bring in only 1% down payment as an alternative to the traditional 3% required for conventional programs.
Such programs make homeownership more attainable in today's housing market. It allows guilds loan officers to create deep relationships with customers by helping to find the solution for them during an otherwise challenging environment.
We were also recently recognized as a top guaranteed rural housing lender being the second largest originator of USDA loans nationally. These loans provide special financing opportunities to homebuyers, who live in or would like to purchase a primary residents in rural areas as defined by the USDA.
Yes.
Additionally, our reverse mortgage business, which we meaningfully expanded through our recent acquisition of Cherry Creek mortgage is now fully operational importantly, it is now being rolled out across the entire guild platform and enables our retail team the opportunity to have a more comprehensive.
Ziv offering for their customers.
This includes being able to provide products focused on underserved and first time homeowners through to reverse mortgages aligning well with our customer for life strategy.
With regard to our servicing business, we believe our balanced business model provides stability through market cycles, having an in house platform with customer service agents that are guild employees is what makes the difference and sets us apart.
We are continuing to successfully leverage guilds platform and network of loan officers to continue to grow market share.
And position the business to accelerate growth as the market normalizes, we have a pipeline of potential growth prospects, which continues to expand as we continue to prove guild to be a desirable partner.
The current environment is creating additional opportunities marked by a flight to quality and with guilds rising reputation. We are a beneficiary. We will remain disciplined in our approach, but are encouraged by the prospects for securing future growth opportunities, which should allow us to continue to expand our share and scale our.
Business should drive earnings growth.
I'll now turn the call over to our Chief Financial Officer, Amber to discuss the financials in more detail.
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Thank you David as is our standard practice my comments will focus on sequential quarter comparison for the second quarter of 2023, we generated $4 5 billion of total in house loan originations compared to $2 7 billion in the first quarter and we are pleased with the uptake.
Net revenue totaled $237 million compared to $104 million in the prior quarter and we generated net income of $37 million compared to a net loss of $37 million in the first quarter.
On a per share basis. Our net income was 61 per diluted share adjusted net income was $9 million or <unk> 15 per share and adjusted EBITDA was $17 million.
Focusing on our origination segment, our gain on sale margin came in at 310 basis points compared to 343 basis points in the first quarter.
Pull through adjusted lock volume totaled $4 4 billion in the second quarter compared to $3 3 billion in the prior quarter.
Our gain on sale margin and pull through adjusted lock volume was 314 basis points compared to 284 basis points in the prior quarter.
The gain on sale margins are in line with the market competition and reflects the current environment.
While gil than the broader industry have both seen continued pressure on gain on sale. We remain confident in <unk> relative positioning given our balanced business model, which focuses on retail originations and servicing of the loans we originate.
We believe this focus results in more durable and sustainable performance across market cycles. We are seeing 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.
Our servicing segment, we reported net income of $89 million up from the 300000 net loss in the first quarter with a 3% quarter over quarter increase in unpaid balance of our servicing portfolio to 82 billion.
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 consists primarily of high quality loans and MSR.
Turning to liquidity as of June 30th cash and cash equivalents totaled $106 million, while unutilized loan funding capacity was $900 million and the Unutilized mortgage servicing rights line of credit remained at $205 million based on total committed amounts in borrowing base limitations.
Our leverage ratio defined as total secured debt, including funding divided by tangible stockholders' equity was one one times.
Book value per share at the end of the quarter was $20 52, well tangible net book value per share was $17 <unk>.
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 second quarter, we repurchased approximately 52000 shares at an average stock price of $10 58 per share.
As Terry mentioned, our board of Directors Directors declared a special dividend the dividend of <unk> 50 per share will be paid to shareholders of record on August 23, 2023 and payable on September seven 2023.
In July we have generated $1 5 billion of loan originations and approximately $1 5 billion of pull through adjusted lock volume.
Industry mortgage rates have ticked up again, meaning maintaining the current more challenging market conditions.
We continue to focus on gaining share through serving potential homebuyers with products and services that meet their needs as well as selective acquisition.
We have a well positioned balance sheet, which will support the growth of our platform and as supply continues to moderate we anticipate being a beneficiary of purchase activity.
And with that we'll open up the call for questions operator.
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Our first question comes from David <unk> of Jefferies.
Hey, good afternoon, everyone I'm just.
Just kind of given the activity acquisitions, you guys made.
Since going public I was wondering if you could provide an update on where your geographic mix.
Okay.
The past quarter.
Okay.
Well, we increased our market share in Wisconsin.
And we're in the top five market share in Wisconsin.
But Cherry Creek is really our biggest volume increase and we're in the top three or four in.
In Colorado for for Cherry Creek now.
And the last one in new Mexico, we're number two in new Mexico.
But those the Wisconsin in Mexico haven't been overall the market share nationally it hasnt changed.
<unk>.
Yes.
National percentage, but in those specific locations, we're gaining some good strong market share.
Got it. Thank you and then just regards to the special dividend.
You guys have been running well below non funding debt to equity ratio of about one one times with.
With the dividend.
Any meaningful change in the leverage target moving forward.
We're constantly assessing our current and forecasted cash position and we are currently as he mentioned leveraged very low and do you have the ability to borrow on our MSR for additional cash needs for dividends growth et cetera.
This dividend as a distribution of accumulated earnings over the last couple of years.
So well, we will look at our total cash position and see where we are and it might change slightly given given the dividend that we're doing in September .
Okay got it that's all for me great quarter.
Thank you.
The next question comes from Linda Little of J P. Morgan.
Good afternoon, Thanks for taking my questions today I'm on for Rick.
Just wanted to follow up on your comments about significant share being driven by purchase volume right now that certainly makes sense. So we're it seems like we're looking at ever higher mortgage rates since the back half of the year can you help us sort of square the circle on how youre thinking about that.
Purchase market over the next.
Six to 18 months.
<unk>.
How you are how you are positioned for that but also what youre looking for in terms of.
The shift in that market next into next year as potentially rates come off or do you have a different view on that thank you.
I mean, we're really seeing that the purchase market because of the inventory issues.
It's still going to be very tight for the for the near future and I would say through next year.
The industry were short over 4 million units to be at a healthy.
Real estate environment as far as real estate transactions. So it's going to take several years to get that balance back and so we're just going to keep focused on focusing on.
How can we capture more of that purchase business by adding additional.
<unk> type products that are really designed to get that first time homebuyer in into a home and so we're just going to keep.
Working on our strategy and it will continue.
Continued to stay above the purchase industry and for the NBA, we're well above that and have continued to be in and plan to keep executing that direction.
Yes, I think it's important to mention as well that we're very focused with our M&A activity and our growth.
On similar companies that are really excelling in purchase business as well, so we're able to grow meaningful market share just both internally.
Through through recruitment, but also through some of the M&A activity because theyre very focused like we have been on the purchase business.
We'll continue to do that.
You just answered my follow up question. Thank you.
Okay.
The next question comes from Jonathan Ho.
Now of course.
Disappointments.
Congrats on another.
Operationally one thing I would be curious about getting your.
Perspective on those well obviously have.
A number of acquisitions back to back here and you obviously mentioned the integration of those transactions, but would be curious.
Where do you stand on acquisitions would you be looking pretty much smaller tuck ins or mid sized acquisitions that have a lot more.
Integration of our execution around them at this point or do you want to hold off temporarily while you digest the last transactions.
We're still actively pursuing acquisitions.
And the Cherry Creek, we took on 500 odd.
On board with 500 employees in the first day, they came on board and Theyre in pretty good within 45 days there they're almost.
Going full speed so every.
Every one of these we've gotten better at integrating them. So we're comfortable continuing to work towards adding more of these types of acquisitions and really the size.
Is is.
It matters more about what value added is it going to be to the company rather than the size. So are they are really big purchase shop, what kind of products do they do what are.
Are they in and more importantly culture is a culture fit.
That sounds good.
Thinking about it.
Yes.
The special dividend this quarter.
From a capital allocation perspective, I would be curious when you think about capital return versus transactions and transactions are not the most capital intensive but I'd be curious to get a sense of your.
Your framework for capital allocation with near term given that there's a lot of M&A opportunities.
Yes.
When we're looking at our cash position we're.
Always looking at our operational cash needs, returning shareholder value and having enough capital to invest in growth, while investing in our business as well and then as I mentioned, we do see this dividend is it a distribution of accumulated earnings over the last couple of years and.
As you know we haven't done a dividend since 2021, so because of our strong balance sheet and our low leverage we have the ability to do both and we believe that both create long term shareholder value.
That's great. Thank you. Thank you so much I'll jump back in the queue.
Thank you, ladies and gentlemen, just reminding you cannot fall for Christian welcome to Bristow and won two places often the question queue.
The next question comes from Brian Galena.
Securities.
Hi, Thanks for taking my question.
Just on the you had pretty strong origination growth sequentially. Just wondering if you have the breakout of how much of that was organic versus.
Incremental originations that came from the acquisition.
<unk> do you have that number I know, we don't know, we don't publish that anywhere but you.
We did that Cherry Creek acquisition at the beginning of April and so there was some ramp up associated with that.
But other than that it's you know it's both their seasonality.
Partly it's acquisitions, partly and just our recruiting as well as also been recruiting heavily since the beginning of the year. So that's adding volume.
Okay. Thanks, and then.
Just on <unk>.
I know you brought on the California team. The 40 member team earlier. This year is there a pipeline of you know not necessarily bringing on new mortgage companies, but also new teams as well.
Yes.
Lifeboat.
Okay.
Okay. Thanks.
Yeah.
Thank you ladies and gentlemen, just a final reminder, Ethan I follow the question you're welcome to Bristow.
John .
It appears we have no further questions in the queue I will now turn the call over to Terry Schmid for closing remarks.
Thanks to everybody for joining us today.
We're very pleased with our second quarter results and we will just keep executing on our growth strategy.
We're looking forward to updating you on our next quarter call. Thank you.
Okay.
Thank you ma'am, ladies and gentlemen that concludes todays event.
Thank you for joining us and you may now disconnect your lines.
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