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Guild Earnings Buoyed By Increase In Servicing Rights

Steve Goode
May 09, 2022

Company reported net income attributed to the servicing segment of $226.8 million but cutbacks could be coming.

Guild Holdings Co. announced better than expected news at its earnings call on Friday, largely due to a significant increase in mortgage servicing income.

The company reported net income from the servicing segment of $226.8 million compared to $27.3 million in the fourth quarter. Guild also reported that it retained servicing rights on 89% of the loans it sold in the first quarter of 2022.

Despite the positive news, company officials did warn of potential job reductions.

"As is typical for the mortgage industry during declining volume cycles, we are in the process of curtailing excess capacity in our retail workforce with an ongoing focus on maintaining strong profitability across cycles, Guild’s Chief Financial Officer Amber Kramer said during the call.

Guild did not immediately comment how those reductions would be handled, through layoffs, buyouts, or attrition.

Overall, the San Diego-based company reported net income of $208 million in the first quarter, compared to $42.2 million in the prior quarter, a nearly 400% increase. It was also up 30% from a year ago, according to company officials.

Adjusted net income and adjusted EBITDA totaled $32.1 million and $46.7 million, respectively, compared to $22.3 million and $38.6 million, respectively, in the prior quarter.

Guild’s net revenues were also up. The company reported $481.8 million in the first quarter, compared to $343.1 million in the prior quarter.

As is the case with many mortgage companies, loan origination revenues were down in the first quarter, with a total of $6.1 billion, compared to $8.8 billion in the previous quarter. That number presented a 31% decrease over the previous quarter and a 38% decrease over the previous year.

However, company officials said origination segment net income increased 19% quarter-over-quarter to $63.4 million from $53.4 million. The increase was primarily driven by an upward adjustment to the fair value of the contingent liabilities related to acquisitions and partially offset by the decrease in the volume of originations as a result of higher interest rates.

The company also announced that it planned a stock repurchase program of up to $20.0 Million, subsequent to the quarter’s end. The company said it intends to fund the program with cash on hand.

Overall, company officials were pleased with the numbers. 

“Our financial results for the first quarter of 2022 reinforced the benefits of our differentiated originations business and our balanced model,” said Mary Ann McGarry, CEO. “Our scale-enabled servicing platform acted as an effective hedge to softer origination volumes and tighter gain-on-sale margins across the industry, which the MBA signaled is in a cycle of higher interest rates and lower refinance volumes. We achieved strong growth in servicing fees and sizable gains in the underlying value of the MSRs on our balance sheet.”

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