Guild Mortgage is going public – Let’s look at the numbers

San Diego-based lender and servicer posted $110M in profit in first half of 2020, up from a $47M loss during 1H of 2019

Add lender-servicer Guild Mortgage to the ranks of the nonbank mortgage lenders going public. 

According to an amended S-1 submitted to the Securities and Exchanges Commission on Thursday, Guild, through parent firm Guild Holdings, is expected to price its initial public offering between $17 and $19 per share as early as next week.

The retail and correspondent lender plans to issue 8.5 million Class A shares (plus an option for the underwriters, Wells Fargo, BofA Securities and JPMorgan Chase, to purchase 1.275 million additional shares). At the $18 midpoint, Guild Holdings would raise about $153 million. Because of the strength of Class B shares, owner McCarthy Partners Management will control 95% of voting rights despite owning just 21% of common stock. 

By the looks of it, unnamed investors will be the beneficiaries of the IPO, likely the private equity backers at McCarthy. “All of the shares of Class A common stock being sold in this offering are being sold by the selling stockholders,” the amended S-1 from Thursday reads. “Guild will not receive any of the proceeds from the sale of the shares in this offering.”

San Diego-headquartered Guild, led by Mary Ann McGarry, has made six acquisitions since 2007, which has helped increase its production dramatically. Between December 2007 and the year that ended June 30, origination volume grew annually from $1.4 billion to $27.8 billion, and servicing grew from $2.5 billion to $52.8 billion as of June 30, the lender said in its prospectus. 

Through the six months ending June 30, Guild posted a profit of $110.8 million, up from a $47 million loss in the first six months of 2019, Guild said in its S-1. For the first six months of 2020, Guild made $322.9 million from its originations business but lost $148 million from mortgage servicing. Through June 30, Guild had $148.5 million in cash and $1.98 billion in mortgage loans held for sale. It also had $336 million in mortgage servicing rights, down from $418 million it had at the end of 2019, due to faster prepayments and a decline in the value of MSRs.

“Management believes that maintaining both an origination segment and a servicing segment provides us with a more balanced business model in both rising and declining interest rate environments, compared to other industry participants that predominately focus on either origination or servicing, instead of both,” the company said.

At capacity, Guild has sold MSR notes and tapped credit lines to generate cash to pump into its originations business, the prospectus said.

“Salaries, commission and benefits expense increased by $135.6 million or 56.2% for the six months ended June 30, 2020 compared to that for the six months ended June 30, 2019,” Guild said in its S-1. “This increase resulted from increased variable incentive compensation paid to our origination teams and our hiring of additional employees to support the increases in our origination and servicing volumes.”

With origination volume at $10 billion in the third quarter of this year, Guild expects to post net income between $178 million and $187 million for the third quarter.

Per the prospectus, 55% of mortgages originated in the first half of the year were refinancings. It retained servicing on 85% of its loans. Gain-on-sale margin was a fat 504 bps, up from 383 bps year-over-year.

As of June 30, the 60-plus day delinquency rate on Guild’s servicing portfolio was 3.5%, compared to a 60-plus day delinquency rate of 1.5% as of the end of February 2020. Guild reported $3.7 billion in assets and $3.12 billion in liabilities as of June 30. 

Per the prospectus, Guild does about 97% of its originations through its retail channel with a retail footprint in 31 states. Its origination volume in the third quarter was $10 billion. HMDA data shows 64.5% of Guild’s loans in 2019 were conventional, 21.2% were FHA loans, and 12.9% were VA. 

The company revealed in its prospectus that it also has seven warehouse lines of credit related to master repurchase agreements, which give the lender up to $2.9 billion in borrowing capacity.

Guild will trade on the New York Stock Exchange under the ticker symbol GHLD.

Other IMBs and servicers to file paperwork to go public in recent weeks include Caliber Home Loans, Finance of America, United Wholesale Mortgage and AmeriHome Loans.

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