The reasons behind Guild Mortgage's IPO launch

While its first days on the stock market have been up and down, Guild Mortgage's IPO will ultimately position the 60-year-old San Diego-based nonbank lender for the next phase of its growth, said CEO Mary Ann McGarry.

"It gives us more accessibility to different sources of capital when and if we need it," McGarry said. "We don't need it right now, but if there's an opportunity to grow and we need funds, it's a good source."

The company started trading on Oct. 22, after it priced its offering at $15 per share; after a bit of volatility during the day, it closed at that price.

Regarding the decision to downsize the offering, McGarry and Guild President Terry Schmidt pointed to some recent volatility in nonbank mortgage stocks, noting that while Guild was marketing the IPO, prices for these companies, including Rocket Cos., dropped by around 10%. Thus the selling shareholders elected to retain more shares than planned.

But that didn't dampen the mood of Guild's management team.

"We're excited, we're in it for the long term and excited for the future. We're looking forward to the next 60 years of growth," McGarry said on Thursday.

McGarry noted some ancillary benefits to launching the IPO.

"It increases our credibility in the marketplace with counterparties, prospective loan officers and potential acquisitions," she said. "It's great brand recognition on a national level."

Guild Mortgage differentiates itself from the competition by seeking "clients for life," McGarry said. The proprietary technology its staff uses helps them to achieve this by handling the process end-to-end, from origination through servicing, and back around to a potential next loan.

The company ranked third in the 2019 J.D. Power mortgage originator customer satisfaction survey and ninth in the 2020 survey that covered servicers.

For 2019, Guild's recapture volume from existing retail clients was $4.9 billion, with a 26% purchase recapture rate, a 64% refinance recapture rate and a 56% overall recapture rate.

Total volume for the year was $21.8 billion.

Guild Mortgage is primarily a branch retail mortgage lender, although it also has a small direct-to-consumer business. There is also a correspondent channel, which made up just 3.5% of 2019's total production.

In 2007, when McCarthy Partners and the current management team acquired control of Guild, they made the decision to focus their efforts on the retail channel.

"This is a capital light model, so we have plenty of cash flow that we generate to continue to operate and grow our business, which is a testament to the return on equity that we've had," said Schmidt. Since 2007 the average ROE has been 34%.

Guild originated $10 billion in the third quarter, up from $7.1 billion one year prior. It expects to report net income between $178 million and $187 million, the prospectus said.

This compares with net income of $123.3 million in the second quarter and $8.5 million in the third quarter of 2019.

It expects third quarter gain on sale to be between 548 and 576 basis points. For the same quarter last year, it was 379 bps.