Guild's 3Q income climbs over 2,000% on record originations

Guild Holdings, the latest nonbank mortgage company to go public, had an over 2,000% year-over-year increase in its third-quarter net income, as it benefited from record origination activity in the market.

The company had net income of $182.1 million in the third quarter, up from $8.5 million for the same period last year. Its third-quarter results are in the middle of the range it expected when the company announced its initial public offering in October.

The IPO transaction priced on Oct. 22, so Guild was still a privately held company during the third quarter. Following the earnings release, Guild's stock opened trading at $15.40 per share. That was only the third time since the IPO that it started the day above $15 per share.

When it comes to its origination business, Guild is "selling service, not price. As a result of this, and because we don't pay an intermediary [such as a mortgage broker] to capture the loan, we generate a higher and more consistent gain on sale margin," said Chief Financial Officer Amber Elwell during the conference call.

Guild's origination business had net income of $287.9 million. It had volume of $10 billion, nearly all of it from the retail channel, with a gain-on-sale margin of 562 basis points. For the third quarter of 2019, the origination segment's net income was $77.7 million on production of $7.1 billion and gain on sale margins of 379 bps.

Approximately 50% of that volume was from purchase. Historically, 70% of its originations are for purchases, CEO Mary Ann McGarry said.

The year-over-year growth in production reinforces the strength of Guild's differentiated business model, which includes an emphasis on servicing portfolio retention, McGarry said.

"With most of our production coming from retail, we already have established relationships in place with our clients by the time they enter our servicing segment," added Elwell. "This is why we believe the relationship between the client and loan officer is important to preserve for future transactions, particularly new purchase loans. It creates a stickiness between the client, loan officer and the company."

Meanwhile, the company was able to reduce its net loss in the servicing segment by almost $49 million, logging a $11.7 million loss in 3Q 2020 compared to a much steeper dent of $60.8 million one year prior.

The improvement in losses was partially the result of Guild taking a lower fair value reduction on its mortgage servicing rights portfolio in the third quarter, a $41 million hit versus $91 million for the third quarter last year.

Servicing fee income grew 10% on a year-over-year basis to $40.2 million. It was the result of the increase in its MSR portfolio to $56.4 billion at the end of the third quarter from $48.9 billion one year prior.

However, that income will continue to be affected by borrowers asking for forbearance relief under the CARES Act.

As a result of the forbearances, Guild's 60-day-plus delinquency rate increased to 3.6% at the end of the third quarter from 1.3% one year prior, Elwell said. Forbearance requests as of Sept. 30 totaled 4.3% of its MSRs, which was lower than the Mortgage Bankers Association's survey data for the same period, she pointed out.

Guild is focused on organic growth in the areas where it already does business, as well as moving into new cities through recruiting loan officers, said Terry Schmidt, its president.

Not taking into account past acquisitions, it has averaged a 7% annual increase in loan officer headcount since 2007. However, she added, Guild is looking to continue to make "targeted and accretive acquisitions."

Schmidt cited statistics that indicated the top 10 retail mortgage originators did just 24% of total originations, "which provides a great opportunity to continue to capture market share.

"If we were able to capture an additional 1% of market share in the states where we currently operate, we could add roughly $16 billion in volume annually," she said.