Guild reports improved profits for 2022, affirms appetite for M&As

California-based lender Guild Mortgage posted a higher profit in 2022 thanks to its increased purchase mortgage market share — and now has its eyes set on acquiring other lenders.

Guild, the purchase-focused lender with a distributed retail model, posted a net income of $328 million in 2022 despite posting a loss of $15 million in the fourth quarter of the year. Net income also rose 16% from the previous year’s $283.8 million. 

“Part of our resilience is our concentration on purchase mortgages, including targeting the first-time buyer and diverse market,”  Mary Ann McGarry, chief executive officer, told analysts in its fourth quarter and 2022 earnings call. 

“For the year, we realized 81% of our closed loan origination volume from purchase business compared to the Mortgage Bankers Association (MBA) estimate of 70%,” McGarry said. In the fourth quarter, 93% of Guild’s closed origination volume was derived from purchase business compared to the MBA’s industry estimate of 83%, McGarry added.

Executives noted that Guild will focus on seeking out additional opportunities, including potential acquisitions, particularly as the market consolidates. 

The industry is still rightsizing, and about 20% of the loan officers in the industry let their licenses expire at the year-end, according to the NMLS, Terry Schmidt, president of Guild, noted.

“Looking ahead, we believe we can continue to realize attractive growth through M&A, particularly as we anticipate ongoing dislocation in the market,” Schmidt said. 

In December, Guild acquired Wisconsin-based lender Inlanta Mortgage and added New Mexico-headquartered Legacy Mortgage in February. Through the acquisition, Guild increased its purchase market share to fifth in Wisconsin. It has the second-largest purchase mortgage share in Arizona, Colorado, Texas, and New Mexico, according to the firm.

Without mentioning specifics, executives noted that “there is a lot of interest for a lot of production companies to find out options.”

Guild’s financials

In the origination segment, Guild reported a net loss of $26.6 million in the fourth quarter, compared to the net income of $1.5 million in the previous quarter — which was driven by lower origination volume as a result of higher interest rates.

For the entire year, Guild posted a net income of $64 million in the origination segment, down 84% from the previous year’s $392.8 million. Gain-on-sale margins on originations declined to 331 bps, down 23 bps quarter over quarter. 

Net income attributed to the servicing segment was $21.5 million in the fourth quarter compared to $96.8 million in the prior quarter.

In the fourth quarter of 2022, Guild’s purchase recapture was 25% and the company retained servicing rights for 89% of total loans sold during that period. Guild’s servicing net income jumped to $409 million for the entire year — up significantly compared to the previous year’s $55.6 million.

Guild’s net revenue declined to $134.3 million in the fourth quarter compared to $261.2 million in the previous quarter. For the entire year, the company posted a net revenue of $1.2 billion, down from $1.6 billion in 2021.

Total expenses in 2022 dropped to $744.8 million — including $157.5 million in the fourth quarter. Year over year, expenses dropped 37% from the previous year’s $1.19 billion.

“We have realized approximately $100 million of cost savings on an annualized basis, primarily through headcount reductions, and we will continue to manage the business as market dynamics evolve,” Amber Kramer, CFO of Guild, told analysts.

While executives noted near-term pressure, particularly on gain-on-sale margins from rising interest rates and limited inventory, they emphasized the company’s “strong balance sheet and liquidity” that allowed Guild to continue to invest in expanding market share in the purchase mortgage business.

Guild’s operating cash position was $137.9 million at December 31, 2022. At year-end, unutilized loan funding capacity was $1.6 billion, while the unutilized MSR lines of credit was $215.0 million, based on total committed amounts and borrowing base limitations. 

The lender’s robust balance sheet remains a key differentiator, as does its low leverage and a strong liquidity position, Jefferies Group noted.

“Given its robust balance sheet and relatively strong profitability in 2022, we anticipate Guild continuing to capitalize on market dislocation, either via M&A or ongoing capital returns,” Jefferies Group said in a report.

While the backdrop to the originations market is quite negative, Guild is set to purchase more volume compared to most in the sector, which is why Jefferies noted Guild is “the best positioned mortgage company to weather the current storm.”

Guild generated $1.6 billion of pull-through adjusted lock volume in January, with a sale margin of 377 basis points. January’s gain-on-sale volume includes a slight pickup from the fourth quarter due to timing differences of sales and pull-through adjusted locked volumes quarter over quarter, according to Kramer. 

In February, the lender posted $1.9 billion of pull-through adjusted lock volume.

“Given our profitability and cash generation, we are positioned to capitalize on the current environment to further scale our business so we can reaccelerate our growth as the market turns,” McGarry said.