Release Date: November 06, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Guild Holdings Co (GHLD, Financial) reported a strong third quarter with adjusted net income of $31.7 million, demonstrating profitability in its origination segment.
- The company achieved a 6% sequential growth in originations from the second quarter and a 59% increase from the prior year, highlighting the strength of its retail origination business.
- Guild Holdings Co (GHLD) has a balanced business model focusing on purchase market originations and retaining servicing rights, which provides reliable cash flow.
- The company is optimistic about its growth prospects due to its strategic acquisitions and robust organic recruiting, positioning it for better than industry growth as the market normalizes.
- Guild Holdings Co (GHLD) continues to invest in technology and customer relationships, achieving a high net promoter score of 95.4 and becoming the most reviewed lender on Zillow with an average rating of 4.97 out of 5 stars.
Negative Points
- Guild Holdings Co (GHLD) reported a net loss of $67 million in the third quarter, compared to a net income of $38 million in the second quarter, primarily due to a downward valuation adjustment of MSRs.
- The company's net revenue decreased significantly from $286 million in the second quarter to $159 million in the third quarter.
- There is ongoing market volatility and uncertainty around interest rates, which could impact Guild Holdings Co (GHLD)'s growth and profitability.
- The servicing segment reported a net loss of $75 million, reflecting challenges in the current interest rate environment.
- Guild Holdings Co (GHLD) anticipates some inconsistency in quarter-over-quarter growth until interest rates decline further and home inventory becomes more available.
Q & A Highlights
Q: The fair value mark of $124 million in the quarter seems larger than expected. Were you surprised by this, and how much has been recovered with rates backing up since the end of September?
A: Terry Schmidt, CEO: The 10-year rate today is at 4.45%, up from about 3.80% at the end of September. This suggests that the impairment will reverse if the trend continues. Desiree Kramer, CFO: The change was primarily due to rate fluctuations, which align with our rate shock assessments. The market volatility in October has shifted things, but the rate changes were unexpected.
Q: How have margins responded since the end of September with mortgage rates backing up?
A: Terry Schmidt, CEO: Our margins have remained steady, particularly because we focus on the purchase business, which supports margin stability. Desiree Kramer, CFO: While there is market volatility in the fourth quarter, our base margin at the branch level remains steady.
Q: How much of your production came from Academy during the quarter?
A: Desiree Kramer, CFO: We don't disclose specific volumes from acquisitions, but when we acquired Academy, they accounted for about 20% of our volume from the prior year.
Q: What opportunities do you see in tapping home equity, such as through reverse or second lien products?
A: Terry Schmidt, CEO: We have a broad product base, and we've seen an uptick in reverse mortgages recently. Our second lien programs have been successful, providing options for those with equity. We are also focused on first-time homebuyers and ensuring we have strong programs for them.
Q: How are you thinking about capital allocation in the near term, especially with the move in rates?
A: Terry Schmidt, CEO: Organic growth has been strong, and while M&A has slowed, elevated rates might increase activity next year. We have a good capital base to be opportunistic with both organic growth and acquisitions.
Q: Could you discuss your approach to potentially hedging the MSR asset, especially with rates at higher levels?
A: Terry Schmidt, CEO: We haven't traditionally used financial hedges, relying instead on our natural hedge through production. Our production has consistently outpaced runoff, which positions us well. Desiree Kramer, CFO: Financial hedges have costs, and we prefer to invest cash into growing our origination segment.
Q: How do you expect prepayment fees to trend in the fourth quarter, and will the replenishment rate remain positive?
A: Desiree Kramer, CFO: There might be a timing mismatch due to early fourth-quarter fundings, but our long-term strategy balances origination and servicing. Over time, production replenishes servicing runoff.
Q: How much excess cash do you have in your warehouse lines, and what are your plans for cash use?
A: Desiree Kramer, CFO: We have $295 million in excess on our MSR lines, borrowing about 20% of our MSR fair value. We maintain low leverage to capitalize on opportunities and prepare for market volatility. Terry Schmidt, CEO: Organic growth will be stronger through year-end, but prolonged rate increases might spur more M&A activity.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
