Over 30% of Guild Holding's 2020 volume was produced in the fourth quarter and the first quarter is setting up to be another good one for originations, the company said during its earnings call.
But higher volume did not translate to increased earnings on a quarter-to-quarter basis, as gain on sale margins tightened. That’s a trend that’s likely to continue as
For the full year, Guild originated $35.2 billion, of which $10.6 billion came in the fourth quarter; that is the best quarter in the San Diego-based company's
By comparison, in 2019, Guild originated $21.7 billion. For
But even as its originations were higher in 2020, gain on sale margins slipped between the third and fourth quarters. Net revenues fell to $454.2 million for the fourth quarter from $563.5 million in the third quarter as the gain on sale went to 436 basis points from 562 bps.
"The margin compression on a sequential basis largely reflected normalizing spreads as supply and demand trends converge and competition for refinancing activity remains intense," Amber Elwell, chief financial officer, said on the conference call. "We believe Guild remains well positioned to continue to generate strong gain on sale margins both on an absolute basis and relative to our public company peers in light of several key drivers."
Those include Guild's historical average of 62% purchase origination volume; that it competes on service, not price, when it comes to refinancings; and the company's focus on the retail channel, which is a higher margin business, Elwell said.
Guild's net income in the fourth quarter was $77.7 million, down from $182.1 million for the third quarter, but up from $44.1 million in the fourth quarter of 2019.
For the full year, net income was up a whopping 6,545%, to $370.6 million in 2020 from $5.6 million in 2019.
The origination segment earned $154.5 million in the fourth quarter, down from $287.9 million in the third quarter but up from $49.8 million one year prior. Guild earned $765.3 million from this business unit in 2020, compared with $181.4 million in 2019.
The servicing business was a different story. Because of fair value adjustments to its mortgage servicing rights, Guild lost $24.5 million in the fourth quarter, compared with a loss of $11.7 million in the third quarter and profits of $26.4 million in the fourth quarter of 2019.
For the full year, Guild lost $184.4 million in the segment. That was down from a loss of $138.5 million for 2019.
As for the first two months of 2021, Guild originated $6.1 billion, which is more than it did for the entire first quarter of 2020 at $5.7 billion, Elwell noted. Gain on sale was 302 bps, which is in line with the fourth quarter and ahead of first quarter 2020, she continued.
When asked if Guild was looking at acquisition targets, CEO Mary Ann McGarry indicated the company was.
"We're seeing a lot of [independent mortgage bankers] that are kind of really thinking, maybe it's time to cash in their chips," McGarry said. "So we're seeing activity, the pipeline of sellers is growing and the key is going to be just getting to the right valuation point...we're very careful about price considerations and want to make sure that anything that we're considering will definitely be reasonable."
