Guild Holdings Company

Good afternoon, ladies and gentlemen, and welcome to the Guild Holdings Company fourth quarter and full year 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.

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. Preliminary results for any portion of a quarter may not be indicative of full quarter results and are subject to management and auditor customary review procedures. 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 in GILD's most recently filed annual report on Form 10-K 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 GILD's Investor Relations website. Now, I'd like to turn the call over to Chief Executive Officer Terry Schmidt. Terry?

Good afternoon, everyone. Thank you for joining us to discuss our fourth quarter and full year 2024 results and strategic updates. With me today is David Nalen, our President and Chief Operating Officer, and Amber Kramer, our CFO. 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. 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 that in turn increased our cash flow generation as we grew our mortgage servicing rights in the servicing segment. And lastly, all of this was achieved with industry-leading customer satisfaction rankings. The momentum we saw throughout the year was remarkable, with total originations increasing 57% year-over-year to $24 billion and outpacing the industry origination increase of 22% as published by the Mortgage Bankers Association. Now, let me share some key financial highlights for the year. Net revenue increased 60% to $1 billion, while our expenses in contrast increased by only 33%, which means we're realizing the scale benefits we anticipated. Our net income attributable to GILD 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, an 88% increase. Full year adjusted EBITDA 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. 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 2024, our purchase volume was 16 percentage points better than the MBA compared to 8.4% in 2023. We continued to perform ahead of the industry. We would not have reached these growth goals without the strength of our sales teams. According to MMI records, our loan officers were 28% more productive than the industry average. This solid performance underscores the strength of our retail focus model and our ability to execute in challenging market conditions. The strength of Guild's balanced business model and customers for life strategy shined in 2024 with healthy growth in our servicing line of business. 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 2024 recapture rate to 35%, up from 27% a year ago. Additionally, in 24, our servicing business once again received HUD's Tier 1 rating, which demonstrates our commitment to high standards and the preservation of home ownership for FHA borrowers. A HUD Tier 1 ranking is achieved through disciplined servicing practices, a high level of regulatory compliance, and most importantly, the dedication to keeping families in their homes during times of financial difficulties. This is a distinction all GILD stakeholders can be very proud of. 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. Since the industry began to face headwinds with 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. 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 brand, integrated technology platform, and balanced business model continues to attract top-producing loan officers. Since 2020, we have almost doubled our loan officers, which has contributed to our above-industry average loan production. What's particularly encouraging is that despite our substantial market share gains, we still represent less than 2% of the total market, indicating significant runway for continued growth. Looking ahead, while we anticipate ongoing rate headwinds, the field is well positioned for enhanced growth as we realize the benefits of the scale and operational leverage we have built. We will continue to leverage our expanded loan officer network 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 reduce production costs. We remain confident that our strategy of continuing to grow through this cycle will create long-term value for our shareholders as we focus on achieving profitable market share gains. I want to thank all of the Guild team members for their continued hard work and commitment to the Guild values, each of which are a critical element of our ongoing success. With that, I'll turn the call over to David for more detail on our near-term outlook and positioning. David?

Thank you, Terri. I'll echo Terri's comments that 2024 was a tremendous year of growth for Guild, and we are pleased with the work of our teams as they demonstrated how our strategic conviction to invest through market downturns has positioned Guild for long-term growth. Our expanding market share is delivering the gains we intended to see as we realize the 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 in our lines of business. 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, an 86% increase year over year. 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 originations and servicing businesses. including our second sequential quarter of positive net income in our origination segment. Our retention and recapture rates remain solid, demonstrating the strength of our customer for life strategy and balanced business model. 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. 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 home ownership journey. While we expect some continued headwinds and quarter-to-quarter variability until we see further rate improvements and increased home inventory, our 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 in growing market segments, including the Hispanic market, which is expanding at twice the rate of other demographics. Looking ahead, we are pleased to expand our efforts to serve new homebuyers through our new program called Promise of Home that combines Guild's leading product set with educational events, down payment assistance, and local partnerships designed to help more families become homeowners for the first time. Beyond originations, we've made significant investments in our platform that are yielding results. Our AI initiatives have been well received and we are actively expanding these applications, including additional capabilities of Guild IQ, our proprietary AI platform that makes our company knowledge base more accessible for loan officers and fulfillment staff. We have also expanded our service offerings to make the home buying process more convenient. We recently completed the integration of Waterton Insurance as we rebranded it to Guild Insurance Services and enhanced our customer offerings beyond lending. By offering our borrowers an opportunity to receive a quote from multiple insurance carriers at convenient points in both the origination and servicing process, we are further streamlining and deepening their relationship with Guild. We believe we 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. There are a few notable examples. For 2024, we ranked as the most reviewed lender on Zillow.com and garnered the most five-star reviews on that platform. Additionally, we were given accolades by several organizations such as Experience.com, where we were recognized as a top 10 performer for mortgages, an achievement given to only 1% of participating companies and loan officers. Guild was also named the top large independent mortgage banker nationwide by Stratmore's MortgageCX Best-in-Class program. Guild Servicing Division earned Fannie Mae's Star Performer recognition for demonstrating measurable results in advancing the mission to preserving homeownership. Notably, this is our eighth consecutive year in achieving this status. Additionally, for the second consecutive year, Guild was 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. 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 in a disciplined manner. 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. For the fourth quarter of 2024, we generated $6.7 billion in total loan originations compared to $3.6 billion in the prior year fourth quarter and $6.9 billion in the third quarter. 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 GILD 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. Adjusted net income was $20 million or $0.32 per diluted share and adjusted EBITDA was $31 million. Now turning to our origination segment, we are proud to report that we realized the second sequential quarter of positive net income, reporting one million, despite 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. 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 on funded originations. For the full year, the gain on sale margin was 332 basis points. 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. 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. 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 differences primarily attributable to MSR valuation changes. 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. Furthermore, our business model, which combines the originations and the servicing segments, provides for a natural hedge over time as rate declines should translate into higher originations, both purchase and refinances. Our balance sheet remains strong and provides us with the flexibility to continue to invest in our growth. 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 amounts and borrowing base limitations. Maintaining a well-positioned balance sheet continues to be a key priority for GILD. Our leverage ratio was 1.7 times at quarter end, a strong indicator of our prudent financial management. tangible netbook 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. In addition, we continued our efforts to return capital to shareholders. Specifically, during the fourth quarter, we repurchased approximately 28,000 shares at an average stock price of $13.95 per share. As of December 31st, 2024, there was $10 million remaining under the original $20 million share repurchase authorization. Subsequent to year end, the company's board of directors declared a special cash dividend of 50 cents per share on companies Class A common stock and Class B common stock payable on March 31st, 2025 to stockholders of record at the close of business on March 17th, 2025. Quarter to date through February, we have generated $3.1 billion of loan originations and $3.6 billion of pull-through adjusted lock volume. 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. Our strategic investments in platform development, combined with successful organic growth initiatives and targeted acquisitions, position us well to deepen our lasting customer relationships. While the broader market recovery continues to progress gradually, we remain patient and focus on our long-term vision. We have full confidence that our enhanced platform and strategic position will drive accelerated growth as market conditions normalize. And with that, we'll open up the call for questions.

Operator? Thank you.

We'll now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 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. One moment please while we poll for questions.

Thank you. Our first question is from Derek Summers with Jefferies.

Please proceed with your question.

Hi. Good afternoon, everyone. Just wondering if you could provide any commentary about how the spring home buying season is shaping up, and if there are any key rate thresholds you see that would make the environment more constructive.

pretty much seeing and experiencing the kind of normal seasonality that we always do, where in the past, the spring buying season starts heating up. It's starting already, so we see it to be pretty similar to how we've seen it in the past. You want to add anything to that, David or Amber?

Yeah, this is David. I would say that I do think borrowers are recognizing that rates are going to remain higher for longer, that there's 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. So we're certainly seeing good activity. However, I do think it is really representative of the seasonality that Terry mentioned. But again, we're positioned well for purchase environment as well as anything if rates were to drop from a potential refinance activity as well.

Got it.

And then just on the acquisition you guys have made over the past year or so, do you view those kind of loan officers as fully integrated? Just trying to get more of a sense for kind of same store growth versus acquired growth.

Yes, we do. It usually takes, to get them fully integrated, it's a good two months to six months. And the last acquisition we had, we just hit the one-year anniversary last week for Academy. So we've got them fully ramped up. Everything is going very well with actually all the acquisitions. They're really on schedule. where we thought they would be so it's very good.

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 so obviously significant growth quarter over quarter that's attributable to one Academy coming on you know they started at the end of February so that's additional volume there and But also all of our organic growth that we did throughout the year, that's going to be the increase in the same store sales as well. So we are seeing it on both sides and, you know, seeing that growth in those numbers is promising for the year.

Got it.

Thank you for taking my questions.

As a reminder, if you'd like to ask a question, please press star 1 on your telephone keypad. Our next question is from Rick Shane with JP Morgan.

Hey, everybody. Thanks for taking my question this afternoon. A couple things. When we look at the UPB of the retained MSR, it's been drifting down gradually. I'm just curious where we should think about that stabilizing and sort of tactically what is driving that drift at this point in the cycle.

Yeah, I mean, I think overall in this Go ahead, Amber. We retained about 64%, so it is slightly lower than what we retained prior quarter, but not significantly. And we continue to release what we've always released on the jumbo and the bonds. And it's really related to the execution on the service released overall, where there's a pickup if we sell at service released. You know, I think we're always looking at overall what we're selling retained, released, cash, and execution, and finding a balance with profitability. I would, you know, I think the thing to look at is just overall we are, you know, 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 overall on the originations and servicing, and that's continuing to grow. So there's not necessarily a sweet spot that we're aiming for, but monitoring all of the aspects of the factors that go into making that decision on a day-to-day basis.

Got it. Yeah, I mean, on a sequential basis, it wasn't down very much, but consistently on a year-over-year basis, it's down 13% to 15%. And it does seem to be drifting that way. So I'm just trying to understand that a little bit better.

Yeah, I think it's just when we're in this really heavy purchase market and our purchase market represented 88%, the service release correspondent pricing can be extremely aggressive. And we're always valuing and looking at what do we see the servicing value to be. And typically, when the purchase market subsides a little bit and the refi market picks up, which is a little bit of what we're seeing right now, the service retained grows a little bit. So naturally, if we're in more of a refinance market, we recapture more on the refi side and it stays retained.

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. It 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. And we're certainly working to make sure that we continue to retain where we can and how much we can going forward.

Got it. And is that consistent with higher employee expenses associated with purchase because it's a more labor intensive, less efficient transaction? And so that's part of the offset there, which is the incremental income, cash income is beneficial because you're paying employees more on a per unit basis.

No, not necessarily. I wouldn't make that connection. I mean, I think.

No, I wouldn't either. Yeah. Yeah.

Got it. Well, that's it for me. I know there are others in the queue. Thanks, guys.

Our next question is from Eric Hagan with BTIG.

Hey, guys. This is Jake Katsikas on for Eric. Thanks for taking my questions. Can you provide some color on how MSR valuations have responded to the drop in interest rates since year end? And are there any hedges in place that you guys have to potentially support any of the mark-to-market changes? Thank you.

Amber, you want to take that? Yeah, I'll take it. Overall, just a couple points there. Obviously, as rates drop, we would see a drop in the valuation just naturally. So I can't speak to actual valuation changes, but just the natural connection there would entail valuation changes. And we do have on rate shock in our K, in our SEC filings, that you can look at what that could pan out to be in dollar amounts. Our business model is that it's our origination and servicing is a natural hedge, and so the origination segment acts as a hedge to the servicing valuation changes.

All right, great. That's all from me. Thank you, guys. Our next question is from Rick Shane with JP Morgan.

Hey, thanks for taking my follow-up. I figured I'd get back in at the end of the queue. 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, unoriginated MSR, can you help us understand the timing? So when is the MSR valued? And so, for example, is it valued essentially at time of lock, or is it, and then any changes past 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?

Amber, that's all you. That's all me. Thanks, Rick, for that one. The valuation, in general, the servicing valuation would be included in the fair value at time of lock, so it would be included in gain on sale, and then follow through the loan into inventory and fair value. And then ultimately, when we sell the loan, we would at that time account for the MSR valuation at the end of the month. based on the rates at that month, is how the actual accounting works for it. And so any intra-month changes wouldn't be any valuation changes, only subsequent to sale that you would have any valuation changes running through the MSR adjustments on the servicing side.

Got it. There was a reason I asked that at the end of the call.

Thank you for helping me out with that, guys.

No problem. You're welcome.

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.

Just thank you again for participating in our call. And I also want to just a big shout out to all of our employees who just helped us with a great year this year, this last year. It was, you know, it was a challenge and they all, they all banded together and grew this company and, uh, More to come. So I want to say thank you.

Thanks again, everybody. This concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation.