Q4 2024 Guild Holdings Co Earnings Call
Speaker Change: Good afternoon, ladies and gentlemen, and welcome to the Guild Holdings Company fourth quarter and full year 2024 earnings conference call.
Good afternoon, everyone. Thank you for joining us to discuss our fourth quarter and full year 'twenty 'twenty four results and strategic update with me today is David nail and our President and Chief operating Officer, and Andrew Kramer Our CFO.
Speaker Change: I'm pleased to report that 2024 was our strongest year of growth as a public company marked by exceptional execution of our strategy, we focused on expanding market share to build on our customer for life approach.
Speaker Change: We not only grew our origination segment faster than the industry. We delivered strong earnings and positive return on equity improved by our operational leverage and at the same time generated quality assets and in turn increased our cash flow generation as we grew our mortgage servicing rights in the servicing segment.
Speaker Change: And lastly, all of this was achieved with industry, leading customer satisfaction rankings.
Speaker Change: The momentum we saw throughout the year was remarkable with total originations increasing 57% year over year to 24 billion outpacing the industry origination increase of 22% as published by the mortgage Bankers Association.
Speaker Change: Now, let me share some key financial highlights for the year.
Speaker Change: Net revenue increased 60% to 1 billion, while our expenses in Congo craft increased by only 33%, which means we're realizing the scale benefits we anticipated.
Speaker Change: Our net income attributable to killed was $97 1 million compared to a net loss of 39 million in the prior year, while adjusted net income totaled $90 2 million compared to 48 million.
Speaker Change: And 88% increase.
Speaker Change: Full year adjusted EBITA reached $134 8 million up from $74 8 million in 2023, representing an 80% increase year over year and diluted adjusted earnings per share grew 86% during the same period.
Speaker Change: Additionally, we maintained our strategic focus on purchase originations, which represented 88% of our closed loan volume significantly outperforming the industry average of 72% as reported by the MBA in 'twenty 'twenty four our purchase volume was 16 percentage points better than the M b a compared to <unk>.
Speaker Change: Eight 4% in 2023, we continue to perform ahead of the industry.
Speaker Change: We would not have reached these growth goals without the strength of our sales teams or.
Speaker Change: According to my records, our loan officers, where 28% more productive than the industry average this solid performance underscores the strength of our retail focused model and our ability to execute in challenging market conditions.
Speaker Change: The strength of guilds balanced business model and customers for life strategy shined in 'twenty 'twenty four with healthy growth in our servicing line of business.
Speaker Change: In 2024, we expanded our servicing portfolio to approximately 93 billion an increase of 9% from the prior year, while maintaining a high quality portfolio. We also increased our recapture opportunities with a 44% refinance capture rate, while improving our total 'twenty 'twenty four.
Recapture rates of 35% up from 27% a year ago.
Speaker Change: Additionally, in 'twenty for our servicing business. Once again received its tier one rating, which demonstrates our commitment commitment to high standards and the preservation of homeownership for FHA borrowers.
Speaker Change: Uh-huh tier one ranking is achieved through disciplined servicing practices, our high level of regulatory compliance and.
Speaker Change: And most importantly, the dedication to keeping families in their homes during times of financial difficulties.
This is a distinction all gil stakeholders can be very proud of.
Speaker Change: Looking ahead, we continue to make investments in our integrated technology platforms to mine our database for opportunities in our servicing portfolio to drive leads back to the retail origination business and fulfill our customers for life strategy.
Speaker Change: Since the industry began to face headwinds with the rising rates several years ago, we have successfully increased market share through acquisitions and organic recruitment enabled by our solid balance sheet and prudent financial management.
Speaker Change: Over this time, we acquired the retail lending assets of six mortgage lenders and our success in organic recruiting has been especially noteworthy as the strength of our Guild Brown integrated technology platform and balanced business model continues to attract top producing loan officers.
Speaker Change: Since 'twenty 'twenty, we have almost doubled our loan officers, which has contributed to our above industry average loan production, what's particularly encouraging is that despite a substantial market share gains we still represent less than 2% of the total market, indicating significant runway for continued growth.
Speaker Change: Looking ahead, while we anticipate ongoing rate had ones.
Speaker Change: The old is well positioned for enhanced growth as we realize the benefits of the scale and operational leverage we have built we.
Speaker Change: We will continue to leverage our expanded loan officer networks and remain opportunistic in both recruiting and M&A opportunities our focus remains on making homeownership more accessible through local relationships delivering a best in class consumer experience and utilizing technology to enhance processes and read.
Speaker Change: Production cost.
Speaker Change: We remain confident that our strategy of continuing to grow through the cycle will create long term value for our shareholders as we focus on achieving profitable market share gains.
Speaker Change: I want to thank all of the Guild team members for their continued hard work and commitment to the Guild values.
Speaker Change: Each of which are a critical element of our ongoing success.
Speaker Change: With that I'll turn the call over to David for more detail on our near term outlook and positioning David.
David: Thank you Terry.
Speaker Change: I'll Echo Terry's comments that 2024 was a tremendous year of growth for guilt and we are pleased with the work of our teams as they demonstrated how our strategic conviction to invest through market downturns has positioned killed for long term growth.
Speaker Change: Our expanding market share is delivering the gains we intended to see as we realized a strong performance more scale presents while we also see the opportunity ahead of us to drive even better results with continued growth and precise execution and our lines of business.
Speaker Change: Looking at our fourth quarter results, we generated total originations of $6 7 billion compared to $3 6 billion in the fourth quarter of 2023, and 86% increase year over year.
Speaker Change: Our net income in the fourth quarter was $97 9 million compared to a net loss of $93 1 million in the prior year period, while adjusted EBITDA in the fourth quarter reached $30 9 million compared to $13 2 million in the prior year period. These results were supported by solid.
Performances in both our origination and servicing businesses, including our second sequential quarter of positive net income in our origination segment.
Speaker Change: Our retention and recapture rates remained solid demonstrating the strength of our customer for life strategy and balanced business model.
Speaker Change: We maintain a significant servicing portfolio with an unpaid balance of 93 billion at year end, which continues to provide reliable earnings and future business opportunities.
Speaker Change: This balanced approach combined with our proven and scalable growth strategy positions us well for continued market share gains as we prove to be an industry leader and first time homebuyer business, and then serving that customer for multiple transactions over their homeownership journey.
While we expect some continued headwinds in quarter to quarter variability until we see further rate improvements and increased home inventory.
Speaker Change: Strategic positioning remains strong.
Our focus on the community driven retail purchase business continues to serve us well, particularly as we expand our reach to first time homebuyers and growing market segments, including the Hispanic market, which is expanding at twice the rate of other demographics.
Speaker Change: Looking ahead, we are pleased to expand our efforts to serve new home buyers through our new program called promise of home the combined skills, leading product set with educational events downpayment assistance and local partnerships designed to help more families become homeowners for the first time.
Speaker Change: Beyond originations, we've made significant investments in our platform that are yielding results.
Speaker Change: Our AI initiatives have been well received and we are actively expanding these applications, including additional capabilities of Guild IQ our proprietary eye AI platform that makes our company knowledge base more accessible for loan officers and fulfillment staff.
Speaker Change: We've also expanded our service offerings to make the home buying process more convenient. We recently completed the integration of water to an insurance as we rebranded it to gild insurance services and enhance our customer offerings beyond lending.
Speaker Change: By offering our borrowers and opportunity to receive a quote from multiple insurance carriers are convenient points in both the origination and servicing process. We're further streamlining and deepening their relationship with killed.
Speaker Change: We believe we've built an industry, leading talent base and company culture, So I'm, particularly proud of our team's continued industry leading performance as evidenced by several industry awards further affirming our commitment to our excellence.
Speaker Change: There are a few notable examples for 'twenty 'twenty four we ranked as the most reviewed lender on Zillow Dot com and garnered the most five star reviews on that platform.
Speaker Change: Additionally, we were given accolades by several organizations such as experience Dot Com, where we were recognized as a top 10 performer for mortgages and achievement given to only 1% of participating companies and loan officers.
Speaker Change: Guild was also named the top large independent mortgage banker nationwide by strap Morris mortgage CX best in class program.
Speaker Change: Gil servicing division earned Fannie Mae's star performer recognition for demonstrating measurable results and advancing the mission to preserving homeownership, notably this is our eighth consecutive year in achieving this status.
Speaker Change: Additionally for the second consecutive year killed or is recognized as a top guaranteed rural housing lender by the USDA, which is focused on lending to assist rural families and individuals with low to moderate income for their area and we were also designated as a military friendly company for the second year in a row.
Speaker Change: Looking forward, we remain committed to our opportunistic and strategic growth excellence in customer service enhancing our technology infrastructure and expanding our product offerings. So that we can meet the evolving needs of the marketplace. Our focus remains on delivering value to our customers, while executing our growth strategy and a disciplined.
Speaker Change: [noise] manner.
Amber: And now I'll hand over to Amber, who will provide a more detailed financial overview amber.
Thank you David given a return to more traditional seasonal patterns in the mortgage industry I will provide commentary on both sequential quarter and year over year comparisons.
Amber: For the fourth quarter of 2024, we generated $6 7 billion of total loan originations compared to $3 6 billion in the prior year fourth quarter and $6 9 billion in the third quarter net.
Amber: Net revenue totaled 373 million compared to $57 million in the prior year and $159 million in the third quarter, which generated net income attributable to guild of $98 million compared to a net loss of $93 million in the prior year and a loss of 67 million in the third quarter.
Amber: Adjusted net income was 20 million or 32 cents per diluted share and adjusted EBITDA was $31 million.
Amber: Now turning to our originations segment, we are proud to report that we realized the second sequential quarter of positive net income reporting 1 million. Despite the ongoing volatile market conditions.
Amber: 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 fourth quarter came in at 317 basis points compared to 330 basis points in the prior year fourth quarter, and 333 basis points in the third quarter unfunded originations.
Amber: For the full year the gain on sale margin was 332 basis points.
Amber: Gain on sale margins on pull through adjusted lock volume was 360 basis points up from 347 in the prior year fourth quarter and 321 in the third quarter.
Amber: Total pull through adjusted lock volume was $5 7 billion compared to $3 3 billion in the prior year fourth quarter and $6 9 billion in the third quarter.
Amber: For our servicing segment our portfolio grew to 93 billion, we reported net income of $152 million compared to a net loss of $72 million in the prior year fourth quarter and a net loss of $75 million in the third quarter with the difference is primarily attributable to MSR valuation changes.
Amber: Our servicing portfolio continues to be a valuable source for ongoing cash flow future opportunities for loan recapture them and it reinforces our customer for life strategy.
Amber: Furthermore, our business model, which combines the originations and servicing segments provides for a natural hedge over time and rate declines should translate into higher originations both purchase and refinance this.
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 December 31st cash and cash equivalents totaled $118 million, while unutilized loan funding capacity was $1 3 billion and the Unutilized mortgage servicing rights lines of credit was 235 million based on total committed amount amounts and borrowing base limitations.
Amber: Maintaining a well positioned balance sheet continues to be a key priority for guild, our leverage ratio was one seven times at quarter end, a strong indicator of our prudent financial management.
Amber: Well net book value per share was $16.59. 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 fourth quarter, we repurchased approximately 28000 shares at an average stock price of $13 95 per share.
Amber: As of December 31, 2024, there was $10 million remaining under the original $20 million share repurchase authorization.
Subsequent to year end, the Companys board of directors directors declared a special cash dividend of <unk> 50 per share on company's class a common stock and class B common stock payable on March 31, 2025 to stockholders of record at the close of business on March 17th 2025.
Amber: Quarter to date through February we have generated $3 1 billion of loan originations and $3 6 billion of pull through adjusted lock volume.
Amber: As we look ahead, we recognize that market conditions may continue to show fluctuations yet we're encouraged by our sustained momentum and growing market share, particularly the strength, we're seeing in our originations business.
Amber: Our strategic investments and platform development combined with successful organic growth initiatives and targeted acquisitions position us well to deepen our lasting customer relationships.
Amber: While the broader market recovery continues to progress gradually we remain patient and focused on our long term vision, we have full confidence that our enhanced platform and strategic position will drive accelerated growth as market conditions normalize.
Amber: And with that we'll open up the call for questions operator.
Amber: Okay.
Amber: Thank you we will now be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad.
Speaker Change: A confirmation tone will indicate your line is in the question. Kim You May press star two to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up the handset before pressing your star keys.
Amber: One moment, please while we poll for questions.
Speaker Change: Thank you. Our first question is from Derek Summers with Jefferies. Please proceed with your question.
Derek Summers: Hi, Good afternoon, everyone. Just wondering if <unk> got.
Speaker Change: Any commentary about how the spring home buying season is shaping up and if you are there any key.
Derek Summers: Key rate thresholds.
Derek Summers: That would make the environment more constructive.
Derek Summers: Were.
Derek Summers: Any much seasoning seeing and experiencing the kind of normal seasonality that we always do where in the past spring buying season start heating up you know it is.
Derek Summers: Starting already so we see it to be pretty.
Derek Summers: Similar to how we've seen it in the past.
Derek Summers: You want to add anything to that.
Speaker Change: David or amber.
Speaker Change: Yeah. This is David I would say that I do think borrowers are recognizing that rates are going to remain higher for longer that theres going to be some volatility and so I think that is on the purchase side pulling in some potential buyers that have maybe been sitting on the sideline.
Speaker Change: So we're certainly seeing good activity. However, I do think it is really representative of the seasonality that Terry mentioned.
Speaker Change: But again, where we're positioned well for purchase environment as well as anything if we're right rates were to drop from a potential refinance activity as well.
Speaker Change: Okay.
Speaker Change: Got it and then just on the acquisition you guys have made over the over the past year or so do you view those kind of loan officers as fully integrated just trying to get at more of a sense for kind of same store growth versus acquired growth.
Speaker Change: Yes, we do it it usually takes to get them fully integrated it's a good 60 to 662 months to six months and the last acquisition. We had we just hit the one year anniversary last week for Academy.
Speaker Change: So we've got them.
Speaker Change: Fully fully ramped up.
Speaker Change: Everything is going very well with all actually all of the acquisitions, there really on schedule and where we thought they would be so it's very good.
Speaker Change: And I would just add to that you know last first quarter. We did $3 9 billion I had mentioned that you know through February we've done 3.1 mm. So obviously significant growth quarter over quarter, that's attributable to one academy coming on them you know they started at the end of.
Speaker Change: February so that's additional volume there, but also all of our organic growth that we did throughout the year, that's going to be the increase in our same store sales as well. So we are seeing it on both sides and you.
<unk> seen that that growth in those numbers is promising for the year.
Speaker Change: Got it thank you for taking my questions.
Speaker Change: As a reminder, if you'd like to ask a question. Please press star one on your telephone keypad.
Rick Shane: Our next question is from Rick Shane with J P. Morgan.
Rick Shane: Hey, everybody. Thanks for taking my question this afternoon.
Rick Shane: Couple of things when we look at the.
Rick Shane: <unk> of the retained MSR, it's been drifting down gradually just curious where we should think about that stabilizing and sort of tactically what is driving that drift at this point in the cycle.
Rick Shane: Yeah.
Andrew: Go ahead Andrew.
Andrew: The we retained about 64% so it is slightly lower than what we retain prior quarter, but not significantly.
Andrew: And you know we continue to release, what we've always released unlike the you know the job the jumbo and the bonds.
And it's really related to the execution on the service released overall, where that you know there is a pick up if we sell it service released him you know I think we're looking at overall, what we're selling retain release cash and execution and finding a balance with profitability.
Andrew: Okay.
Andrew: I would you know I think the the thing to look at is just overall we are.
Andrew: What's coming out of our portfolio, we are fulfilling and still having growth in our servicing portfolio and that's ultimately you know, making sure that we have that that hedge over on the originations and servicing them and that's continuing to grow.
Andrew: So there's not necessarily a sweet spot that we're aiming for but monitoring all of the aspects of them of the factors that go into making that decision on a day to day basis.
Andrew: Got it yes.
On a sequential basis, it wasn't down very much but consistently on a year over year basis.
Andrew: It's down 13% to 15% and it does seem to be drifting that way I'm, just so I'm just trying to understand that a little bit better.
Andrew: Yeah, I think it's just when we're in this really heavy purchase market and we are purchased market represented 88%.
Andrew: The service release correspondent pricing can be extremely aggressive and we're always valuing and looking at you know what do we see that the servicing value to be and typically when when the purchase market.
Andrew: It's a little bit in the refi market picks up which is a little bit of what we're seeing right now.
Andrew: The service retained grows a little bit.
Andrew: So naturally if we have more and more of a refinance market.
Andrew: If we recapture more on the refi side and it stays retained.
Andrew: Got it.
This is David here I would just add quickly on that that we would like to get back to a more normalized environment, where we're retaining 80% to 85% of what we originate.
Andrew: Certainly is our goal to retain internally so that we can keep that customer for life relationship and that we can continue to serve that customer for their future mortgage financing needs, but again market conditions macro environment play a role in that.
Andrew: We're certainly working to make sure that we continue to retain the where we can and how much we can going forward.
Andrew: Got it and is that consistent with higher.
Andrew: Uh huh.
Andrew: Employee expenses are associated with purchase because it's a more labor intensive less efficient transaction and so that's part of the offset there which is.
Andrew: The.
Andrew: Incremental income cash income is beneficial because youre in paint employees more on a per unit basis.
Speaker Change: No not necessarily.
Speaker Change: I wouldn't make that connection.
Yeah.
Speaker Change: Got it well thats. It for me I know there are others in the queue.
Speaker Change: Thanks, guys.
Speaker Change: Yes.
Speaker Change: Yeah.
Speaker Change: Our next question is from Eric Hagen with BTG.
Speaker Change: Hey, guys. This is Jay <unk> on for Eric Thanks for taking my questions.
Speaker Change: Can you provide some color on how MSR valuations have responded to the drop in interest rates since year end.
Speaker Change: Are there any hedges in place that you guys have to potentially support any of the mark to market changes. Thank you.
Speaker Change: I think that yeah I'll take it the overall just a couple of points there and obviously as rates drop we would see a drop in the valuation just naturally so I can't speak to actual valuation changes, but I'm just the natural connection there.
Speaker Change: What what Intel valuation changes on.
Speaker Change: And we do have on rate shock in our K and our SEC filings that you can look at what that could pan out to be in dollar amounts.
Speaker Change: Our business model is that it's our origination and servicing is is that natural hedge and so the origination segment acts as a hedge to the servicing valuation changes.
Speaker Change: Alright, great. That's all from me. Thank you guys.
Speaker Change: Uh huh.
Rick Shane: Our next question is from Rick Shane with J P. Morgan.
Rick Shane: Hey, Thanks for taking my follow up I figured I'd get back and then at the end of the Q I had one thing I did want to sort of work through a technical issue. So when we think about the capitalization of the MSR can you help us understand on originated MSR can you help us understand the timing.
Rick Shane: So when is the MSR value.
Rick Shane: Valued and so for example is it valued essentially at time of lock.
Rick Shane: Or is it and then any changes passed that intra quarter are reported through fair value or is it all valued on the last day of the quarter and there are no fair value marks on MSR locked during the quarter.
Speaker Change: Yeah, that's all yeah that's.
Rick Shane: That's all for me.
Rick Shane: Thanks for that one the.
The the valuation in general the servicing valuation will be included in the fair value at time of locks will be included in gain on sale, but and then follow through the loan into inventory and fair value and then ultimately when we sell it alone and that we would at that time accounts.
Rick Shane: The MSR valuation.
Rick Shane: At the end of the month based on the rates at that month as witness how the actual accounting works for it and so any interim month changes wouldn't be any valuation changes only subsequent to sale that you would have any valuation changes that running through the MSR adjustments on the servicing side.
Rick Shane: Got it there was a reason I ask that at the end of the call. Thank you. Thank you for helping me out with that no problem.
Rick Shane: Awesome.
Speaker Change: Thank you there are no further questions at this time I'd like to hand, the floor over to Terry Schmidt for any closing comments.
Speaker Change: Thank you again for participating in our call and I also wanted to just a big shout out to all of our employees who just.
Terry Schmidt: It helped us with a great year. This year. This last year. It was you know it was a challenge and they all they all have banded together and grew this company and more to come more to come so I want to say thank you. Thanks.
Speaker Change: Thanks again everybody.
Speaker Change: Yeah.
Speaker Change: This concludes today's conference call you may disconnect. Your lines at this time. Thank you for your participation.