Guild Holdings Company (NYSE:GHLD) Q4 2023 Earnings Call Transcript
Guild Holdings Company (NYSE:GHLD) Q4 2023 Earnings Call Transcript March 12, 2024
Guild Holdings Company isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good afternoon, ladies and gentlemen, and welcome to the Guild Holdings Company Fourth Quarter 2023 Earnings Conference Call. At this time all participants are in a listen-only mode. [Operator Instructions] As a reminder, this call will be recorded. I would now like to turn the conference over to Investor Relations. Please go ahead.
Unidentified Company Representative: 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. These statements are based on the company’s current expectations. Actual results for future periods may differ materially from those 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 Guild’s most recently filed Form 10-Q and in other reports subsequently 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 with the SEC and are also available on Guild’s Investor Relations website. I’d now like to turn the call over to Chief Executive Officer, Terry Schmidt. Terry?
Terry Schmidt: Good afternoon, everyone, and thank you for joining us to discuss our fourth quarter and full year results and a strategic update. I am joined by our President, David Neylan; as well as our Chief Financial Officer, Amber Kramer. Throughout 2023, in the fourth quarter, we have remained consistent with our strategy to grow market share by being a lender of choice in the communities we serve across the country. I am proud of our achievements throughout the year as we grew our market share, delivered full year positive adjusted net income and executed on attractive acquisitions. We accomplished this amidst the macro headwinds that we and others in the industry have been discussing, including elevated interest rates and tight housing inventory.
For the full year 2023, we generated $15 billion of in-house originations, 93% of which were from purchase business, and we generated a net loss of $39 million and adjusted net income of $48 million. By being disciplined and focusing on maintaining a robust capital position, we have successfully completed complementary and compelling acquisitions and team additions, which position us for accelerated growth when the cycle turns. Including the post year-end announcement of our acquisition of Academy Mortgage, which David will discuss, we have completed five transactions over the past year and a half. Each of these transactions helps us to further our strategic growth of growing market share by adding new geographies, loan officers, products and enhanced relationships, which support our focus on the purchase market.
These transactions have helped to lift Guild to become the eighth largest nonbank retail mortgage lender. In addition, according to the MLS data, we have increased our number of licensed individuals by 34% since just prior to the first of these transactions in November of 2022. This illustrates our success at growing and retaining our sales teams and positioning them to take full advantage of the next cycle in the housing market. We’ve also continued to enhance our product depth with the addition of reverse mortgages and builder products, among others which, in turn, enhance relationships with key partners such as [ph] builders. All of this growth has been facilitated by our consistent focus on execution, and we are confident it will continue to distinguish Guild in the marketplace and allow us to create meaningful value for our stockholders over time.
The market conditions were challenging throughout the year with higher interest rates and limited home inventory. Despite this backdrop, we continue to grow our market share. We prioritized being integrated members of the communities we serve and the foundation of our approach is our relationship-based loan sourcing strategy and being able to provide our customers with innovative products that serve their needs. While we anticipate the current headwinds will continue through much of 2024, we are encouraged by our market share growth and disciplined approach, which should deliver results when sentiment improves and the rate environment eases. Today, more than ever, we are confident in our model and that the platform that we have established.
This includes our focus on purchase mortgage originations as well as our strategy of retaining our servicing, allowing us to generate more reliable cash flow. Maintaining our customer relationships that supports our customer for life philosophy positions us to be the lender of choice for our customers for future transactions. Furthermore, we continue to view the current environment as an opportunity to be even better positioned as the cycle turns. We have maintained a disciplined approach to capital management as demonstrated by our year-end leverage ratio of 1.3 times, which allows us to selectively pursue growth opportunities. We have built a brand with a stellar reputation. And in fact, in the 2023 Mortgage CX best-in-class awards by the STRATMOR Group, Guild had the most overall winners in the Large Independent Mortgage Bankers category with six of the top 10 loan officers working for Guild.
By maintaining our reputation for integrity and service, we are able to continue to attract loan officers, potential M&A prospects and customers. We are proud of our ability to continue to execute on our plan, expand our platform and create value for our stockholders. And now I’d like to turn the call over to David Neylan. David?
David Neylan: Thank you, Terry. In the fourth quarter, we delivered total in-house loan originations of $3.5 billion compared to $4.3 billion in the third quarter, reflecting both market headwinds and seasonality. We anticipate we will see continued pressure on originations in the coming quarters, aligned with higher rates and limited housing supply. However, on a relative basis, we benefit from our focus on the purchase mortgage market. In the fourth quarter, we originated 93% of our closed loan origination volume from purchase business compared to the Mortgage Bankers estimate of 81% for the industry for the same period. As Terry mentioned, subsequent to quarter end, we acquired the retail lending assets of Academy Mortgage Corporation, a privately held Utah-based lender that is licensed to operate in 49 states and Washington, D.C. Academy boasts approximately 200 branches and more than 1,000 employees who have transitioned to Guild, including more than 600 licensed mortgage originators.
The addition of Academy Mortgage represents a 25% increase to origination volume based on results through the third quarter of 2023 according to data from Inside Mortgage Finance Publications. Just like the other transactions we have completed in the previous several quarters, we pursued a combination with Academy due to their close alignment to our culture, values, an approach of having local sales and fulfillment that supports our customers for life strategy. Additionally, we are encouraged by our ability to attract organic talent and M&A opportunities over the past several quarters and that we are being recognized as a partner of choice as the platform for local retail mortgage originators speaking long-term growth and stability. We have continued to pursue our goal of facilitating homeownership in the communities that we serve.
And to that end, throughout the year, we introduced a number of new products that make sustainable homeownership attainable including rate buydown programs, down payment assistance and options for no lender fee refinancing. The entire industry faces ongoing pressure. However, we remain confident that Guild’s balanced business model and strategy that we have always adhered to is one that will again prove to be successful in this cycle and will allow us to continue to increase our market share and deliver attractive earnings growth over time. I will now turn the call over to our Chief Financial Officer, Amber Kramer, to discuss the financials in more detail. Amber?
Amber Kramer: Thank you, David. As is our standard practice, my comments will focus on sequential quarter comparisons. For the fourth quarter of 2023, we generated $3.5 billion of total in-house loan originations compared to $4.3 billion in the third quarter. Net revenue totaled $57 million compared to $257 million in the prior quarter, which generated a net loss of $93 million compared to net income of $54 million in the third quarter. The 2023 results were negatively impacted by fair value adjustments with respect to the company’s MSRs. Adjusted net income was $13 million or $0.20 per diluted share and adjusted EBITDA was $13.2 million. For the full year 2023, we generated $15 billion of total in-house loan originations compared to $19.1 billion in 2022.
Net revenue totaled $0.7 billion compared to $1.2 billion in the prior year, which generated a net loss of $39 million compared to a net income of $329 million in the prior year. Adjusted net income was $48 million and adjusted EBITDA was $75 million for the full year 2023. Focusing on our origination segment, our gain on sale margins came in at 330 basis points compared to 377 basis points in the third quarter on funded origination. Gain on sale margins on pull-through adjusted lock volume was 347 basis points compared to 389 basis points in the prior quarter and total pull-through adjusted lock volume was $3.3 billion compared to $4.1 billion in the prior quarter. For our Servicing segment, our portfolio grew to $85 billion. We reported net loss of $72 million compared to net income of $84 million in the third quarter.
The loss was due to a non-cash downward valuation adjustment of MSRs of $122 million, reflecting the interest rate decline we saw in the fourth quarter. Our servicing portfolio continues to be a valuable source for ongoing cash flow, future opportunities for loan recapture, and it reinforces our Customer for Life strategy. Our balance sheet remains strong and provides us with the flexibility to continue to invest in our growth. Turning to liquidity. As of December 31, cash and cash equivalents totaled $120 million while unutilized loan funding capacity was $1 billion and unutilized mortgage servicing rights lines of credit was $336 million based on total committed amounts and borrowing base limitations. Our leverage ratio defined as total secured debt including funded fundings divided by tangible stockholders’ equity was 1.3 times.
Book value per share at the end of the quarter was $19.36 while tangible net book value per share was $15.90. We believe we are well positioned to manage through the current more challenging operating environment while allowing us to investments to create additional value. In addition, during the fourth quarter, we repurchased approximately 98,000 shares at an average stock price of $11.69 per share. On March 7, 2024, our Board of Directors extended the share repurchase program to May 5, 2025. As of December 31, 2023, there were $11.2 million remaining under the original $20 million share repurchase authorization. In the first two months of 2024, we generated $2.2 billion of loan originations and $2.6 billion of pull-through adjusted lock volume.
We closed on the acquisition of Academy Mortgage at the end of February and consistent with the experience of prior acquisitions, we anticipate a short-term earnings impact as loan originators integrate into our pipeline and production volume starts to ramp up on the Guild platform. We anticipate continued pressure on origination volume and gain on sale margins. However, we remain confident in our balanced business model, which we believe results in more durable and sustainable performance across market cycles. And with that, we’ll open up the call for questions. Operator?
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