Guild pany(GHLD) - 2021 Q2 - Quarterly Report

PART I - FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) This section presents the unaudited condensed consolidated financial statements for Guild Holdings Company, including balance sheets, income statements, and cash flows, for the period ended June 30, 2021 Condensed Consolidated Balance Sheets The balance sheet as of June 30, 2021, shows total assets decreased to $4.39 billion from $4.82 billion, primarily due to reduced mortgage loans held for sale and Ginnie Mae loans Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $322,005 | $334,623 | | Mortgage loans held for sale | $2,153,990 | $2,368,777 | | Mortgage servicing rights, net | $578,690 | $446,998 | | Total Assets | $4,393,376 | $4,818,087 | | Liabilities | | | | Warehouse lines of credit | $1,883,665 | $2,143,443 | | Ginnie Mae loans subject to repurchase right | $1,037,640 | $1,277,026 | | Total Liabilities | $3,544,753 | $4,082,095 | | Total Stockholders' Equity | $848,623 | $735,992 | Condensed Consolidated Statements of Income Net income for Q2 2021 sharply declined to $8.9 million from $123.0 million, primarily due to reduced loan origination fees, while six-month net income increased to $169.5 million Consolidated Income Statement Summary (in thousands) | Metric | Q2 2021 | Q2 2020 | Six Months 2021 | Six Months 2020 | | :--- | :--- | :--- | :--- | :--- | | Net Revenue | $294,109 | $435,097 | $820,296 | $605,297 | | Total Expenses | $280,185 | $271,476 | $592,763 | $458,843 | | Net Income | $8,938 | $122,975 | $169,542 | $109,989 | | Basic EPS | $0.15 | N/A | $2.83 | N/A | Condensed Consolidated Statements of Cash Flows Net cash provided by operating activities significantly improved to $290.9 million for the six months ended June 30, 2021, resulting in a $13.1 million decrease in overall cash and cash equivalents Cash Flow Summary for Six Months Ended June 30 (in thousands) | Activity | 2021 | 2020 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $290,882 | $(283,928) | | Net cash used in investing activities | $(1,981) | $(15,649) | | Net cash (used in) provided by financing activities | $(302,018) | $341,304 | | Net (decrease) increase in cash | $(13,117) | $41,727 | Notes to Condensed Consolidated Financial Statements These notes provide critical context on the company's business, the RMS acquisition, fair value measurements, debt covenants, and segment reporting, including a $60.0 million dividend payment - On July 1, 2021, the company completed its acquisition of Residential Mortgage Services Holdings, Inc. (RMS) for a purchase price of $204.9 million, financed with cash and stock[37] - The company declared and paid a cash dividend of $1.00 per share on its Class A and Class B common stock during Q2 2021, totaling $60.0 million[34] - The unpaid principal balance of mortgage loans serviced totaled $66.3 billion at June 30, 2021, up from $60.8 billion at December 31, 2020[72] - The company operates through two reportable segments: Origination, handling loan origination, acquisition, and sale activities, and Servicing, managing the loan servicing portfolio[105][106][107] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's financial performance, highlighting decreased Q2 2021 net income due to margin compression, increased six-month net income, the RMS acquisition, and liquidity analysis - Net income for Q2 2021 decreased significantly to $8.9 million from $123.0 million in Q2 2020, primarily due to a 155 basis point decrease in gain on sale margins on originated loans[118][119] - The acquisition of Residential Mortgage Services Holdings, Inc. (RMS) was completed on July 1, 2021, for $204.9 million, expanding the company's presence[123] - As of June 30, 2021, approximately 2.1% of the loans in the servicing portfolio had elected the forbearance option under the CARES Act, which is below the industry average of 3.9%[125] Key Performance Indicators - Origination | Metric | Q2 2021 | Q2 2020 | Change | | :--- | :--- | :--- | :--- | | Total in-house origination ($) | $8.17B | $8.81B | (7.3)% | | Gain on sale margin (bps) | 405 | 560 | (155) bps | | Purchase % of Originations | 59.3% | 41.9% | +17.4% | | Refinance % of Originations | 40.7% | 58.1% | (17.4)% | Results of Operations This section provides a detailed comparative analysis of financial results, noting a Q2 2021 revenue decrease due to margin compression and a six-month revenue increase driven by higher loan sales and a smaller MSR valuation adjustment Loan Origination Fees and Gain on Sale of Loans, Net (in thousands) | Component | Q2 2021 | Q2 2020 | Six Months 2021 | Six Months 2020 | | :--- | :--- | :--- | :--- | :--- | | Gain on sale of loans | $298,631 | $282,884 | $623,006 | $442,106 | | Fair value of originated MSRs | $74,397 | $76,148 | $173,861 | $114,771 | | Fair value adjustment to MLHS and IRLCs | $33,550 | $87,589 | $(103,510) | $167,200 | | Total | $330,759 | $493,432 | $777,347 | $733,293 | - The MSR valuation adjustment was a loss of $84.8 million in Q2 2021 compared to a loss of $96.2 million in Q2 2020, with the six-month loss at $49.0 million in 2021 versus $204.8 million in 2020[183] - Salaries, incentive compensation, and benefits expense increased by 32.1% for the six months ended June 30, 2021, primarily due to higher incentive compensation tied to a 23.2% increase in origination volume and increased hiring[191][192][193] Segment Results Performance is broken down by Origination and Servicing segments, with Origination's Q2 2021 net income falling due to lower margins, while Servicing improved its Q2 loss and achieved six-month net income Segment Net Income (Loss) (in thousands) | Segment | Q2 2021 | Q2 2020 | Six Months 2021 | Six Months 2020 | | :--- | :--- | :--- | :--- | :--- | | Origination | $78,773 | $254,626 | $238,897 | $323,459 | | Servicing | $(48,850) | $(68,565) | $18,216 | $(147,910) | Liquidity, Capital Resources and Cash Flows The company's liquidity is primarily from operations and debt facilities, with $3.1 billion in available warehouse lines and $165.0 million in MSR notes outstanding, and management believes it is in compliance with all covenants - Primary sources of liquidity include cash flows from operations, borrowings on warehouse lines of credit, and borrowings on MSR notes payable[216] Debt Facilities as of June 30, 2021 (in thousands) | Facility Type | Outstanding Indebtedness | Total Facility Size | | :--- | :--- | :--- | | Warehouse lines of credit | $1,885,322 | $3,125,000 | | Early buyout facility | $43,081 | $75,000 | | MSR notes payable | $165,000 | $440,000 | - The company believes it was in compliance with all operating and financial covenants for its debt facilities and investor agreements as of June 30, 2021[226][228] Item 3. Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, Guild Holdings Company is not required to provide quantitative and qualitative disclosures about market risk - As a smaller reporting company, Guild Holdings Company is not required to provide quantitative and qualitative disclosures about market risk[236] Item 4. Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of June 30, 2021, and is not yet required to evaluate internal control over financial reporting - Management concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by this report[237] - The company is not yet required to have management evaluate the effectiveness of its internal control over financial reporting until its Annual Report for the year ending December 31, 2021[239] PART II - OTHER INFORMATION Item 1. Legal Proceedings The company is involved in various legal and regulatory proceedings, none of which are expected to have a material adverse effect on its financial condition or operations - The company is subject to various legal and regulatory proceedings in the ordinary course of business, but management does not expect them to have a material adverse effect[242] Item 1A. Risk Factors This section outlines significant risks including RMS acquisition integration, COVID-19 impacts, secondary mortgage market disruptions, GSE dependence, interest rate volatility, competition, cybersecurity, and regulatory complexities - Key business risks include potential difficulties in integrating the RMS acquisition and achieving anticipated benefits[245] - The COVID-19 pandemic continues to pose risks, including increased loan forbearances, potential liquidity constraints, and operational disruptions[247][248][249] - The business is highly dependent on the secondary mortgage market and its relationships with Fannie Mae, Freddie Mac, and Ginnie Mae[253][256] - The company is a 'controlled company' due to MCMI's majority voting power, which exempts it from certain NYSE corporate governance requirements[313] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company issued 996,644 shares of Class A common stock on July 1, 2021, as unregistered securities for the RMS acquisition, exempt from registration - On July 1, 2021, the company issued 996,644 shares of Class A common stock as part of the RMS acquisition, which were unregistered securities issued under an exemption[336] Item 6. Exhibits This section provides an index of exhibits filed with the Quarterly Report on Form 10-Q, including the RMS merger agreement, corporate charters, and officer certifications - Lists key legal and financial documents filed with the report, including the RMS merger agreement, corporate charters, and officer certifications[339]