Q3 2024 Guild Holdings Company Earnings Call
Good afternoon, ladies and gentlemen, and welcome to the Guild Holdings Company third quarter 2024 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 will now turn the conference over to Investor Relations. Please go ahead.
Speaker Change: 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 and industry trends.
Statements are based on the company's current expectations preliminary results for any portion of the quarter may not be indicative of a full quarter of yourself and your subject to management and audit their customary review procedures.
Speaker Change: 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 the section titled risk factors and Gals know series. Most recently filed annual report on Form 10-K, and other reports subsequently filed.
Filled with the U S Securities and Exchange Commission.
Speaker Change: Additionally, today's remarks will refer to certain non-GAAP financial measures reconciliation of non-GAAP financial measures to corresponding GAAP measures can be found in our earnings release furnished today with the FCC and also available on <unk> Investor Relations website.
Speaker Change: I'd now like to turn the call over to Chief Executive Officer, Terry Schmid Terry.
Terry Schmid: Good afternoon, everyone. Thank you for joining us to discuss our third quarter results and strategic update with me today is David Neylon, our president and Andrew Kramer our CFO.
Terry Schmid: We are pleased not only with our third quarter results and the momentum we're building, but also with the benefits. We continue to see from the successful execution of our strategy to invest in market share through the downturn.
Terry Schmid: Guild is very well positioned for better than industry growth as the market normalizes.
Terry Schmid: Let me start by highlighting our third quarter performance, which reflects the strength of our retail model and a sustainable positive trajectory of our business we.
Terry Schmid: We delivered adjusted net income of $31 7 million as well as achieving profitability in our origination segment, which demonstrates the favorable operating leverage in our business.
Terry Schmid: With $6 9 billion of originations in the quarter, we generated strong growth up 6% sequentially from the second quarter and up 59% from the prior year.
Terry Schmid: This performance demonstrates the strength of our retail origination business as we deliver positive results from the successful integration of our acquisitions and robust organic recruiting.
Terry Schmid: We also experienced an increase in pull through adjusted lock volume in part due to rate declines in the third quarter.
Terry Schmid: Additionally, our balanced business model with a focus on purchase market origination coupled with our strategy of retaining servicing rights allows us to generate more reliable cash flow.
Terry Schmid: Looking at our growth outlook. There are several reasons, we are optimistic about our prospects first and foremost and a clear differentiator for Guild is the realization of the growth platform. We've been building through our acquisitions and organic recruiting we expect to see the ongoing benefit of our leadership in the retail origination business.
Terry Schmid: Regardless of the rate environment, while the industry will see the benefits of a more favorable rate environment over time guilds should see enhanced growth and continue to gain share as we also tap into the increasing production of our new loan officers, who we expect to do even more business with the benefit of guilds, leading product and.
Terry Schmid: Knowledge he offerings.
Terry Schmid: We are also continuing to pursue growth and remain focused on achieving profitable long term market share gains.
Terry Schmid: While we will be opportunistic with prospective acquisitions organic recruiting remains robust and reflects the strong Guild story resonating within the industry.
Terry Schmid: With the demonstrated strength of our platform and positive brand in the industry. We are attracting many quality team members.
Terry Schmid: In summary, we're confident in our strategy and our ability to capitalize on market opportunities as they arise.
Terry Schmid: Our investments in market share during the downturn are positioning us for strong performance as the market improves.
Speaker Change: With that I'd like to turn the call over to David for more details on our near term outlook and positioning David.
David Neylon: Thank you Terry.
David Neylon: Our strong originations performance and profitability demonstrate the benefit of our consistent strategic focus on the retail purchase business and building customers for life through our retained servicing strategy. Our competitive advantage lies in our customer relationships and community engagements, which allow us to deliver on our mission of the <unk>.
Terry Schmid: A homeownership and neighborhoods and communities across the country.
Terry Schmid: We continue to put resources and additional talent towards this goal. We are excited to have recently hired nor aguera, who came from Freddie Mac, where she focused on national affordable lending she will be developing and expanding our programs policies and initiatives directed toward attainable homeownership, we have.
Terry Schmid: Also piloted an outreach program focusing on underserved communities in and around St. Louis with Great results alongside nor as initiatives. We intend to begin rolling out this program in select markets across the country to serve more home buyers of the future.
Terry Schmid: With regard to our longer term outlook, we've identified a considerable portion of our loan portfolio that could benefit from new financing opportunities as rates decrease overtime with approximately a quarter of our unpaid balance at rates above 6%.
Terry Schmid: However, as we have demonstrated in prior cycles, we will remain disciplined and won't grow share after your expense a favorable economics.
Terry Schmid: Even with the remaining current uncertainty around rates. We are confident the guild is well positioned in the current market and we should continue to see the benefits of our balanced business model.
Terry Schmid: We retain a significant amount of our loans for servicing which provides reliable earnings and opportunities for future business.
Terry Schmid: We've also continued to invest in our technology, which allows our loan officers to maximize the opportunity within our customer portfolio.
Terry Schmid: Importantly, we support our long term customer relationships that are built on providing the right products and good customer service, which are fundamental to our customer for life strategy.
Terry Schmid: We are proud that our customers recognize this as demonstrated by our net promoter score of 95.4 and killed has recently become the most reviewed lender on Zillow with an average $4 97 out of five stars.
Terry Schmid: While we anticipate that there will still be some inconsistency in quarter over quarter growth until rates further decline in home inventory becomes more available. We are optimistic as we see the realization of the platform enhancements, we have made over the past few years.
Terry Schmid: In conclusion, we believe guild is well positioned to capitalize on market opportunities and continue our growth trajectory. We're excited about the future and remain committed to delivering value to our customers and shareholders.
Speaker Change: I'll now hand over to Amber, who will provide a more detailed financial overview amber.
Speaker Change: Thank you David.
Amber: This is our standard practice my comments will focus on sequential quarter comparisons for the third quarter of 2024, we generated $6 9 billion of total loan originations compared to $6 5 billion in the second quarter.
Amber: Net revenue totaled 159 million compared to $286 million in the prior quarter, which generated a net loss attributable to guild of $67 million compared to a net income of 38 million in the second quarter.
Amber: Adjusted net income was 32 million or 51 cents per diluted share and adjusted EBITDA was 46 million.
Amber: Now turning to our origination segment. We are proud to report that we realized net income of $6 million, marking marketing a profitable quarter for the segment.
Amber: Right the ongoing volatile market conditions. This demonstrates the growth we have made as a business both through acquisitions and organic recruiting and our ability to capture originations across market environments.
Amber: Our gain on sale margin in the third quarter came in at 333 basis points compared to 326 basis points in the prior quarter unfunded origination.
Amber: Year to date gain on sale margin is 337 basis points, which is in line with our expectations.
Speaker Change: Gain on sale margins on pull through adjusted lock volume was 221 basis points compared to 315 basis points in the prior quarter and total pull through adjusted lock volume was $6 9 billion compared to $6 5 billion in the prior quarter.
Amber: For our servicing segment our portfolio grew to 91 billion, we reported a net loss of 75 million compared to a net income of $70 million in the second quarter.
Amber: Loss was primarily due to the downward valuation adjustment of MSR is of 124 million, reflecting the interest rate decline.
Amber: Our servicing portfolio continues to be a valuable source for ongoing cash flow future opportunities for long recapture and it reinforces that our customer for life strategy.
Amber: Furthermore, our business model, which combines the originations in the servicing segment provides for a natural hedge over time as rates decline should translate into higher originations both purchase and refinances.
Amber: Our balance sheet remains strong and provides us with the flexibility to continue to invest in our growth.
Amber: Turning to liquidity as of September 30th cash and cash equivalents totaled $106 million well Unutilized loan funding capacity was 488 million and Unutilized mortgage servicing right lines of credit was 295 million based on total committed amounts and borrowing base limitations.
Amber: Maintaining a well positioned balance sheet continues to be a key priority for guild, our leverage ratio was two times at quarter end, a strong indicator of our prudent financial management.
Amber: Book value per share at the end of the quarter was $18.85 well tangible net book value per share was $15.14.
Amber: We are confident in our ability to navigate any market environment, while simultaneously, making strategic investments to enhance our long term value proposition.
Amber: In addition, we continued our efforts to return capital to shareholders specifically during the third quarter, we repurchased approximately 24000 shares at an average stock price of $14.29 per share.
Amber: As of September 30th 'twenty 'twenty, four there was $10.3 million remaining under the original $20 million share repurchase authorization.
Amber: In October we generated $2 7 billion of loan originations and $1 6 billion of pull through adjusted lock volume.
Amber: While near term market dynamics suggest that there could be some variability as we close out the year.
Amber: Our performance year to date is encouraging marked by significant market share growth in a profitable origination segment.
Amber: Looking forward, we anticipate long term benefits from our organic expansion and strategic acquisitions and investments in our platform all supporting our goal of creating customers for life. However, we acknowledged that while we expect continued growth the market continues to recover at a slower pace than expected. It will take time for the market to fully recover and for us.
Amber: To achieve the accelerated growth we are confident our platform can deliver over time.
Amber: And with that we'll open up the call for questions operator.
Speaker Change: Thank you at this time.
Speaker Change: We'll be conducting a question and answer session. If he would like to ask a question. Please press star 100 telephone keypad, a confirmation tone will indicate your line is in the question queue.
Speaker Change: And anytime you wish to remove your question from the queue. Please press star two for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys, one moment. Please when we poll for questions.
Speaker Change: Our first question is from Eric Hagen with BTG. Please go ahead.
Eric Hagen: Hey, Thanks Hope all is well.
Speaker Change: The fair value Mark of $124 million in the quarter.
Speaker Change: It looks like there was maybe a little bit bigger than we've seen from some of the other servicers I mean I'm curious if you were.
Amber: Or maybe surprised by the size of the Mark and what some of the more specific inputs that changed.
Amber: Changes in the period were and also just how much has been recovered with rates backing up since the end of September.
Speaker Change: Yeah on.
Amber: And the Amber you can kind of sure chime in.
Speaker Change: The 10 year today is at $4 45, and if you look at where it was at 930. It was about 380 and we're back to where the 10 year was in June around the first of July. So that gives you kind of an idea of the direction that you know this this in.
Amber: Chairman is going to be.
Amber: We're gonna definitely reverse if it continues you know at this pace the Amber you want to add more.
Speaker Change: Yeah, I would just say them based on the it's really based on rates the rate change right and we do rate shocks as you can see in our Q and then and it's aligned with that in terms of the change them. We had a similar change if you look back at Q4, I'm twenty-three and and then I was just gonna add what Terry said, which is Oh.
Speaker Change: With the market volatility in the rates changing in October you know as of today and things could change you are seeing a shift the other way, but you know not we didn't expect the rate changes that happen, but in line with how we look at rate shocks overall.
Speaker Change: Got it okay. That's helpful color I mean mortgage rates, obviously backing it up here, but how have you seen margins response since our since the end of September.
Speaker Change: Our our margins have been very steady and you know we're in the purchase business and so I think that bodes well as far as the longevity of the margins and so we're it we've been pretty steady.
Speaker Change: Yeah, and I would just add on that I mean, there is.
Speaker Change: You know in the fourth quarter. There is some market volatility usually anyways in the fourth quarter and it is significant so I think just with.
Speaker Change: The long term locks that we have you might see some differences in our margins overall, but our base margin at the at the branch level M. As Jerry mentioned this study.
Speaker Change: Got it that's helpful. Hey, last one how much of your production came from Academy during the quarter.
Speaker Change: We don't disclose specifically what you know based on what acquisitions. When we did the Academy acquisition. They were running about 20% of our volume from prior year.
Speaker Change: Okay.
Speaker Change: Great. Thank you guys so much.
Speaker Change: Mhm.
Speaker Change: Our next question is from Derek summers with Jefferies.
Derek Summers: Hey, good afternoon, everyone I'm just in terms of you know.
Derek Summers: How are you thinking about product in the near term you know what kind of opportunity you see in terms of tapping home equity whether that be through reverse second lien product or.
Speaker Change: Or otherwise.
Speaker Change: Yeah, I mean, we we have a pretty broad product base and the reverse them, we're seeing that tick up in in recent months. So that you know its going in the dry right direction and the our second programs.
Speaker Change: It's been really successful so those that you know how the equity we've got an option there if rates do stay at an elevated level and then there's you know we're really focused on first time homebuyer and the home buyer of the future and and really trying to make sure that we have you know good programs.
Speaker Change: And I think just having the local president presence and participating in a lot of the grant programs that are available we capture a good share of that market, but we think there's a lot more opportunity and we're going to keep focusing on that as well.
Eric Hagen: Got it and then just in terms of capital allocation in the near term Hum.
Speaker Change: What are you guys thinking about you know just given the move in rates or you know.
Speaker Change: Is there going to be more of our emphasis on bolt on M&A as organic how's it we're getting a recruitment trending where just the anything I may be missing.
Speaker Change: Yeah on the organic side, we've been really successful in doing very very well and the M&A has slowed up a little bit this year, but you know if if rate stay elevated it probably will start you know getting a little bit more active next year, but were.
Speaker Change: We're continuing to continuing to look at both and as opportunities arise. We're gonna be very opportunistic because we have you know a good capital base to be able to do that.
Speaker Change: So you know that's our plan is to continue to do what we've been doing and when opportunities arise we're going to we're going to make sure that we're taking advantage of it.
Speaker Change: Got it thanks, that's all for me.
Speaker Change: Our next question is from Trevor Cranston with citizens.
Speaker Change: Alright. Thanks.
Trevor Cranston: Did you talk a little bit about how you're thinking about.
Speaker Change: Philosophically potentially hedging the MSR asset, particularly now that rates move up.
Speaker Change: Back up to a higher level and it seems like.
Speaker Change: No there isn't necessarily an offsetting well.
Speaker Change: Benefit on your on the origination side when when rates rally.
Speaker Change: Oh for the money of all loans are.
Speaker Change: Yeah, we have not traditionally hedged and Barton, but our hedge instrument and our hedge has always been our natural hedge with production because we're so focused on retail and and purchase business is.
Speaker Change: Always boded well for US and you know just as an example, this last quarter, our volume origination volume increased $380 million and the run off ended up increasing $259 million. So we were still you know well it had a tracking the run off so we felt.
Speaker Change: Like as long as our art production can outpace the run off that you know, where we've positioned pretty well going forward as the amber do you want to add anything to that.
Speaker Change: I mean, I think the big part of it is that Theres a cost to that and then as we just talked about some of the you know the valuations can can go back and forth. There's a cost to the financial hedge them and we believe that you know from a capital allocation standpoint, using that cash to invest it back into growing our origination segment is.
Speaker Change: Use of our cash.
Speaker Change: Okay got it I appreciate the comments thank you.
Speaker Change: Mhm.
Speaker Change: Yes.
Speaker Change: Yeah.
Speaker Change: Our next question is from Giuliano Bologna with Compass point.
Speaker Change: Sure.
Giuliano Bologna: Hello, Good afternoon, Congrats on the Hill continue to excuse me on the origination side, one thing I'd be curious about thinking something like a cadence perspective.
Giuliano Bologna: We are lost or down in October and you start trying to precisely with rates.
Giuliano Bologna: Curious if you know.
Giuliano Bologna: How do you think prepayments fees will trend in the quarter during the fourth quarter, obviously that could be a little mismatch in terms of the front end of the fourth quarter were pretty patient Silvia or higher.
Giuliano Bologna: Your boss or lower I'm curious, if not kill the replenishment rate.
Speaker Change: In the fourth quarter or just a little below.
Speaker Change: There's no question right.
Speaker Change: Yes.
Speaker Change: Yeah, there could be a timing mismatch on that just because of the you know the fundings in early early in the fourth quarter from the from the Refis and prepayments I'm being high from that but I mean, the really from the origination and servicing hedge. This is a long term strategy, it's not month to month or.
Speaker Change: Quarter to quarter. So over time, you know what Terry was describing is really where we see that balance and we know it.
Speaker Change: Replenishes the production I mean does the servicing you know run off the production Replenishes that so I think it's it's the more long term focused even if you have one quarter that you know is there's a little bit of a mismatch on timing.
Speaker Change: That's super helpful and then.
Speaker Change: Hopefully.
Speaker Change: Quick one, but I'm curious just how much excess cash you have in each of them.
Speaker Change: The warehouse lines at this point and then you're just thinking about uses of cash here.
Speaker Change: Awesome, well copper was where it makes sense to focus on more of an idea or I'm curious if you think of the.
Speaker Change: The movement in rates right now.
Speaker Change: Reactivate some M&A trends in this space or if that counts.
Speaker Change: So organic growth is the more important at this point.
Speaker Change: I mean, I think through year end in the organic side is going to be stronger for sure I I do think that if this rate increase you know continues to prolong that there will be some more M&A activity and.
Speaker Change: And we definitely are got a we still have a lot of pockets around the country, where you know we don't have enough of a presence and so theres still a lot of opportunity out there and again you know we plan to take advantage of that if it's if it's available.
Speaker Change: And and I would just add them in.
Speaker Change: In my prepared comments I had mentioned that our.
Speaker Change: Our lines of credit on the MSR lines. The excess was 295 million based on our borrowing base limitations, so and we're borrowing about 20% right now of our MSR fair value them with significant room to borrow more if needed them and we you know strategically keep low lever.
Speaker Change: So that we can be prepared to capitalize on any opportunity that comes as well as ensure that we're prepared in any kind of volatile market of them. If anything else comes up that would use and need capital.
Speaker Change: That's very helpful. I appreciate it and ill jump back in the queue.
Speaker Change: Ladies and gentlemen, we have reached the end of our question and answer session I would like to turn the call back to Terry Schmid for closing remarks.
Speaker Change: Yeah.
Terry Schmid: Thank you everyone for supporting Us and and joining the call and we look forward to speaking next quarter have a good night.
Speaker Change: Thank you. This concludes today's conference you may disconnect your lines at this time.
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