0001564590-20-056112.txt : 20201204 0001564590-20-056112.hdr.sgml : 20201204 20201203195105 ACCESSION NUMBER: 0001564590-20-056112 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 87 CONFORMED PERIOD OF REPORT: 20200930 FILED AS OF DATE: 20201204 DATE AS OF CHANGE: 20201203 FILER: COMPANY DATA: COMPANY CONFORMED NAME: Guild Holdings Co CENTRAL INDEX KEY: 0001821160 STANDARD INDUSTRIAL CLASSIFICATION: MORTGAGE BANKERS & LOAN CORRESPONDENTS [6162] IRS NUMBER: 852453154 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-39645 FILM NUMBER: 201368234 BUSINESS ADDRESS: STREET 1: 5887 COPLEY DRIVE CITY: SAN DIEGO STATE: CA ZIP: 92111 BUSINESS PHONE: 8585606330 MAIL ADDRESS: STREET 1: 5887 COPLEY DRIVE CITY: SAN DIEGO STATE: CA ZIP: 92111 10-Q 1 ghld-10q_20200930.htm 10-Q ghld-10q_20200930.htm
0001821160 --12-31 Q3 false P4Y7M6D P90D 0.00 0.00 1.00 0.881 1.00 0.894 ghld:LoanFundingProbabilityPullThroughMember ghld:LoanFundingProbabilityPullThroughMember ghld:LoanFundingProbabilityPullThroughMember ghld:LoanFundingProbabilityPullThroughMember ghld:LoanFundingProbabilityPullThroughMember ghld:LoanFundingProbabilityPullThroughMember 0.092 0.092 0.090 0.089 0.155 0.101 0.155 0.102 0.346 0.206 0.300 0.173 2021-01-31 2021-08-31 2021-02-28 2021-06-30 2021-09-30 2021-07-31 2021-04-30 2024-02-29 0001821160 2020-01-01 2020-09-30 xbrli:shares 0001821160 2020-12-01 iso4217:USD 0001821160 2020-09-30 0001821160 2019-12-31 0001821160 us-gaap:GovernmentNationalMortgageAssociationGnmaInsuredLoansMember 2020-09-30 0001821160 us-gaap:GovernmentNationalMortgageAssociationGnmaInsuredLoansMember 2019-12-31 iso4217:USD xbrli:shares 0001821160 2020-07-01 2020-09-30 0001821160 2019-07-01 2019-09-30 0001821160 2019-01-01 2019-09-30 0001821160 us-gaap:CommonStockMember 2018-12-31 0001821160 us-gaap:AdditionalPaidInCapitalMember 2018-12-31 0001821160 us-gaap:RetainedEarningsMember 2018-12-31 0001821160 2018-12-31 0001821160 us-gaap:RetainedEarningsMember 2019-01-01 2019-06-30 0001821160 2019-01-01 2019-06-30 0001821160 us-gaap:CommonStockMember 2019-01-01 2019-06-30 0001821160 us-gaap:AdditionalPaidInCapitalMember 2019-01-01 2019-06-30 0001821160 us-gaap:CommonStockMember 2019-06-30 0001821160 us-gaap:AdditionalPaidInCapitalMember 2019-06-30 0001821160 us-gaap:RetainedEarningsMember 2019-06-30 0001821160 2019-06-30 0001821160 us-gaap:RetainedEarningsMember 2019-07-01 2019-09-30 0001821160 us-gaap:CommonStockMember 2019-09-30 0001821160 us-gaap:AdditionalPaidInCapitalMember 2019-09-30 0001821160 us-gaap:RetainedEarningsMember 2019-09-30 0001821160 2019-09-30 0001821160 us-gaap:CommonStockMember 2019-12-31 0001821160 us-gaap:AdditionalPaidInCapitalMember 2019-12-31 0001821160 us-gaap:RetainedEarningsMember 2019-12-31 0001821160 us-gaap:RetainedEarningsMember 2020-01-01 2020-06-30 0001821160 2020-01-01 2020-06-30 0001821160 us-gaap:CommonStockMember 2020-06-30 0001821160 us-gaap:AdditionalPaidInCapitalMember 2020-06-30 0001821160 us-gaap:RetainedEarningsMember 2020-06-30 0001821160 2020-06-30 0001821160 us-gaap:RetainedEarningsMember 2020-07-01 2020-09-30 0001821160 us-gaap:CommonStockMember 2020-09-30 0001821160 us-gaap:AdditionalPaidInCapitalMember 2020-09-30 0001821160 us-gaap:RetainedEarningsMember 2020-09-30 ghld:Subsidiary 0001821160 us-gaap:SubsequentEventMember 2020-10-01 2020-10-01 xbrli:pure 0001821160 ghld:IPOAndReorganizationMember us-gaap:SubsequentEventMember 2020-10-01 2020-10-21 0001821160 ghld:IPOAndReorganizationMember us-gaap:SubsequentEventMember us-gaap:CommonClassAMember 2020-10-22 2020-10-22 0001821160 ghld:IPOAndReorganizationMember us-gaap:SubsequentEventMember us-gaap:CommonClassAMember 2020-10-22 0001821160 us-gaap:CommonClassAMember ghld:IPOAndReorganizationMember 2020-09-30 0001821160 us-gaap:CommonClassBMember ghld:IPOAndReorganizationMember ghld:McCarthyCapitalMortgageInvestorsLLCMember 2020-09-30 0001821160 us-gaap:CommonClassBMember ghld:IPOAndReorganizationMember ghld:McCarthyCapitalMortgageInvestorsLLCMember 2020-01-01 2020-09-30 0001821160 us-gaap:CommonClassAMember ghld:IPOAndReorganizationMember 2020-01-01 2020-09-30 0001821160 us-gaap:CommonClassAMember us-gaap:IPOMember us-gaap:RestrictedStockUnitsRSUMember ghld:TwoThousandTwentyOmnibusIncentivePlanMember us-gaap:SubsequentEventMember 2020-10-01 2020-10-01 0001821160 us-gaap:CommonClassAMember us-gaap:IPOMember us-gaap:RestrictedStockUnitsRSUMember ghld:TwoThousandTwentyOmnibusIncentivePlanMember srt:MinimumMember us-gaap:SubsequentEventMember 2020-10-01 2020-10-01 0001821160 us-gaap:CommonClassAMember us-gaap:IPOMember us-gaap:RestrictedStockUnitsRSUMember ghld:TwoThousandTwentyOmnibusIncentivePlanMember us-gaap:SubsequentEventMember srt:MaximumMember 2020-10-01 2020-10-01 0001821160 srt:MinimumMember us-gaap:MeasurementInputDiscountRateMember 2020-07-01 2020-09-30 0001821160 srt:MaximumMember us-gaap:MeasurementInputDiscountRateMember 2020-07-01 2020-09-30 0001821160 srt:MedianMember us-gaap:MeasurementInputDiscountRateMember 2020-07-01 2020-09-30 0001821160 srt:MinimumMember us-gaap:MeasurementInputDiscountRateMember 2019-07-01 2019-09-30 0001821160 srt:MaximumMember us-gaap:MeasurementInputDiscountRateMember 2019-07-01 2019-09-30 0001821160 srt:MinimumMember us-gaap:MeasurementInputDiscountRateMember 2020-01-01 2020-09-30 0001821160 srt:MaximumMember us-gaap:MeasurementInputDiscountRateMember 2020-01-01 2020-09-30 0001821160 srt:MinimumMember us-gaap:MeasurementInputDiscountRateMember 2019-01-01 2019-09-30 0001821160 srt:MaximumMember us-gaap:MeasurementInputDiscountRateMember 2019-01-01 2019-09-30 0001821160 srt:MedianMember us-gaap:MeasurementInputDiscountRateMember 2019-07-01 2019-09-30 0001821160 srt:MedianMember us-gaap:MeasurementInputDiscountRateMember 2020-01-01 2020-09-30 0001821160 srt:MedianMember us-gaap:MeasurementInputDiscountRateMember 2019-01-01 2019-09-30 0001821160 us-gaap:FairValueMeasurementsRecurringMember us-gaap:FairValueInputsLevel1Member 2020-09-30 0001821160 us-gaap:FairValueMeasurementsRecurringMember 2020-09-30 0001821160 us-gaap:FairValueMeasurementsRecurringMember us-gaap:FairValueInputsLevel3Member 2020-09-30 0001821160 us-gaap:FairValueMeasurementsRecurringMember us-gaap:FairValueInputsLevel2Member 2020-09-30 0001821160 us-gaap:FairValueMeasurementsRecurringMember us-gaap:FairValueInputsLevel1Member 2019-12-31 0001821160 us-gaap:FairValueMeasurementsRecurringMember 2019-12-31 0001821160 us-gaap:FairValueMeasurementsRecurringMember us-gaap:FairValueInputsLevel3Member 2019-12-31 0001821160 us-gaap:FairValueMeasurementsRecurringMember us-gaap:FairValueInputsLevel2Member 2019-12-31 0001821160 ghld:GinnieMaeMember 2020-01-01 2020-09-30 0001821160 ghld:GinnieMaeMember 2020-09-30 0001821160 us-gaap:FairValueMeasurementsNonrecurringMember us-gaap:FairValueInputsLevel3Member ghld:RealEstateOwnedMember 2020-09-30 0001821160 us-gaap:FairValueMeasurementsNonrecurringMember ghld:RealEstateOwnedMember 2020-09-30 0001821160 us-gaap:FairValueMeasurementsNonrecurringMember us-gaap:FairValueInputsLevel2Member ghld:GinnieMaeMember 2020-09-30 0001821160 us-gaap:FairValueMeasurementsNonrecurringMember ghld:GinnieMaeMember 2020-09-30 0001821160 us-gaap:FairValueMeasurementsNonrecurringMember us-gaap:FairValueInputsLevel2Member 2020-09-30 0001821160 us-gaap:FairValueMeasurementsNonrecurringMember us-gaap:FairValueInputsLevel3Member 2020-09-30 0001821160 us-gaap:FairValueMeasurementsNonrecurringMember 2020-09-30 0001821160 us-gaap:FairValueMeasurementsNonrecurringMember us-gaap:FairValueInputsLevel3Member ghld:RealEstateOwnedMember 2019-12-31 0001821160 us-gaap:FairValueMeasurementsNonrecurringMember ghld:RealEstateOwnedMember 2019-12-31 0001821160 us-gaap:FairValueMeasurementsNonrecurringMember us-gaap:FairValueInputsLevel2Member ghld:GinnieMaeMember 2019-12-31 0001821160 us-gaap:FairValueMeasurementsNonrecurringMember ghld:GinnieMaeMember 2019-12-31 0001821160 us-gaap:FairValueMeasurementsNonrecurringMember us-gaap:FairValueInputsLevel2Member 2019-12-31 0001821160 us-gaap:FairValueMeasurementsNonrecurringMember us-gaap:FairValueInputsLevel3Member 2019-12-31 0001821160 us-gaap:FairValueMeasurementsNonrecurringMember 2019-12-31 0001821160 us-gaap:InterestRateLockCommitmentsMember us-gaap:FairValueInputsLevel3Member 2020-06-30 0001821160 ghld:ContingentLiabilitiesMember us-gaap:FairValueInputsLevel3Member 2020-06-30 0001821160 ghld:RealEstateOwnedMember us-gaap:FairValueInputsLevel3Member 2020-06-30 0001821160 us-gaap:InterestRateLockCommitmentsMember us-gaap:FairValueInputsLevel3Member 2020-07-01 2020-09-30 0001821160 ghld:ContingentLiabilitiesMember us-gaap:FairValueInputsLevel3Member 2020-07-01 2020-09-30 0001821160 ghld:RealEstateOwnedMember us-gaap:FairValueInputsLevel3Member 2020-07-01 2020-09-30 0001821160 us-gaap:InterestRateLockCommitmentsMember us-gaap:FairValueInputsLevel3Member 2020-09-30 0001821160 ghld:ContingentLiabilitiesMember us-gaap:FairValueInputsLevel3Member 2020-09-30 0001821160 ghld:RealEstateOwnedMember us-gaap:FairValueInputsLevel3Member 2020-09-30 0001821160 us-gaap:InterestRateLockCommitmentsMember us-gaap:FairValueInputsLevel3Member 2019-12-31 0001821160 ghld:ContingentLiabilitiesMember us-gaap:FairValueInputsLevel3Member 2019-12-31 0001821160 ghld:RealEstateOwnedMember us-gaap:FairValueInputsLevel3Member 2019-12-31 0001821160 us-gaap:InterestRateLockCommitmentsMember us-gaap:FairValueInputsLevel3Member 2020-01-01 2020-09-30 0001821160 ghld:ContingentLiabilitiesMember us-gaap:FairValueInputsLevel3Member 2020-01-01 2020-09-30 0001821160 ghld:RealEstateOwnedMember us-gaap:FairValueInputsLevel3Member 2020-01-01 2020-09-30 0001821160 us-gaap:InterestRateLockCommitmentsMember us-gaap:FairValueInputsLevel3Member 2019-06-30 0001821160 ghld:ContingentLiabilitiesMember us-gaap:FairValueInputsLevel3Member 2019-06-30 0001821160 ghld:RealEstateOwnedMember us-gaap:FairValueInputsLevel3Member 2019-06-30 0001821160 us-gaap:InterestRateLockCommitmentsMember us-gaap:FairValueInputsLevel3Member 2019-07-01 2019-09-30 0001821160 ghld:ContingentLiabilitiesMember us-gaap:FairValueInputsLevel3Member 2019-07-01 2019-09-30 0001821160 ghld:RealEstateOwnedMember us-gaap:FairValueInputsLevel3Member 2019-07-01 2019-09-30 0001821160 us-gaap:InterestRateLockCommitmentsMember us-gaap:FairValueInputsLevel3Member 2019-09-30 0001821160 ghld:ContingentLiabilitiesMember us-gaap:FairValueInputsLevel3Member 2019-09-30 0001821160 ghld:RealEstateOwnedMember us-gaap:FairValueInputsLevel3Member 2019-09-30 0001821160 us-gaap:InterestRateLockCommitmentsMember us-gaap:FairValueInputsLevel3Member 2018-12-31 0001821160 ghld:ContingentLiabilitiesMember us-gaap:FairValueInputsLevel3Member 2018-12-31 0001821160 ghld:RealEstateOwnedMember us-gaap:FairValueInputsLevel3Member 2018-12-31 0001821160 us-gaap:InterestRateLockCommitmentsMember us-gaap:FairValueInputsLevel3Member 2019-01-01 2019-09-30 0001821160 ghld:ContingentLiabilitiesMember us-gaap:FairValueInputsLevel3Member 2019-01-01 2019-09-30 0001821160 ghld:RealEstateOwnedMember us-gaap:FairValueInputsLevel3Member 2019-01-01 2019-09-30 0001821160 us-gaap:ComputerEquipmentMember 2020-09-30 0001821160 us-gaap:ComputerEquipmentMember 2019-12-31 0001821160 us-gaap:FurnitureAndFixturesMember 2020-09-30 0001821160 us-gaap:FurnitureAndFixturesMember 2019-12-31 0001821160 us-gaap:LeaseholdImprovementsMember 2020-09-30 0001821160 us-gaap:LeaseholdImprovementsMember 2019-12-31 0001821160 us-gaap:SoftwareDevelopmentMember 2020-09-30 0001821160 us-gaap:SoftwareDevelopmentMember 2019-12-31 0001821160 us-gaap:SoftwareAndSoftwareDevelopmentCostsMember 2020-09-30 0001821160 us-gaap:SoftwareAndSoftwareDevelopmentCostsMember 2019-12-31 0001821160 us-gaap:NondesignatedMember ghld:LoanOriginationFeesAndGainOnSaleOfLoansNetMember 2020-07-01 2020-09-30 0001821160 us-gaap:NondesignatedMember ghld:LoanOriginationFeesAndGainOnSaleOfLoansNetMember 2019-07-01 2019-09-30 0001821160 us-gaap:NondesignatedMember ghld:LoanOriginationFeesAndGainOnSaleOfLoansNetMember 2020-01-01 2020-09-30 0001821160 us-gaap:NondesignatedMember ghld:LoanOriginationFeesAndGainOnSaleOfLoansNetMember 2019-01-01 2019-09-30 0001821160 us-gaap:InterestRateLockCommitmentsMember us-gaap:NondesignatedMember 2020-09-30 0001821160 us-gaap:ForwardContractsMember us-gaap:NondesignatedMember 2020-09-30 0001821160 us-gaap:InterestRateLockCommitmentsMember us-gaap:NondesignatedMember 2019-12-31 0001821160 us-gaap:ForwardContractsMember us-gaap:NondesignatedMember 2019-12-31 0001821160 us-gaap:NondesignatedMember 2020-09-30 0001821160 us-gaap:NondesignatedMember 2019-12-31 0001821160 srt:MinimumMember 2020-09-30 0001821160 srt:MaximumMember 2020-09-30 0001821160 srt:WeightedAverageMember 2020-09-30 0001821160 srt:MinimumMember 2019-12-31 0001821160 srt:MaximumMember 2019-12-31 0001821160 srt:WeightedAverageMember 2019-12-31 0001821160 us-gaap:NondesignatedMember 2020-07-01 2020-09-30 0001821160 us-gaap:NondesignatedMember 2020-01-01 2020-09-30 0001821160 us-gaap:NondesignatedMember 2019-07-01 2019-09-30 0001821160 us-gaap:NondesignatedMember 2019-01-01 2019-09-30 0001821160 srt:MinimumMember 2020-01-01 2020-09-30 0001821160 srt:MaximumMember 2020-01-01 2020-09-30 0001821160 srt:WeightedAverageMember 2020-01-01 2020-09-30 0001821160 srt:MinimumMember 2019-01-01 2019-12-31 0001821160 srt:MaximumMember 2019-01-01 2019-12-31 0001821160 srt:WeightedAverageMember 2019-01-01 2019-12-31 0001821160 2019-01-01 2019-12-31 0001821160 ghld:FNMAOrFHLMCMember 2020-01-01 2020-09-30 0001821160 ghld:WarehouseLinesOfCreditMember ghld:EightHundredMillionMasterRepurchaseFacilityAgreementMaturityOnJanuaryTwoThousandAndTwentyOneMember 2020-09-30 0001821160 ghld:WarehouseLinesOfCreditMember ghld:EightHundredMillionMasterRepurchaseFacilityAgreementMaturityOnJanuaryTwoThousandAndTwentyOneMember 2019-12-31 0001821160 ghld:WarehouseLinesOfCreditMember ghld:TwoHundredAndFiftyMillionMasterRepurchaseFacilityAgreementMaturityOnAugustTwoThousandAndTwentyOneMember 2020-09-30 0001821160 ghld:WarehouseLinesOfCreditMember ghld:TwoHundredAndFiftyMillionMasterRepurchaseFacilityAgreementMaturityOnAugustTwoThousandAndTwentyOneMember 2019-12-31 0001821160 ghld:WarehouseLinesOfCreditMember ghld:SevenHundredMillionMasterRepurchaseFacilityAgreementMaturityOnFebruaryTwoThousandAndTwentyOneMember 2020-09-30 0001821160 ghld:WarehouseLinesOfCreditMember ghld:SevenHundredMillionMasterRepurchaseFacilityAgreementMaturityOnFebruaryTwoThousandAndTwentyOneMember 2019-12-31 0001821160 ghld:WarehouseLinesOfCreditMember ghld:TwoHundredMillionMasterRepurchaseFacilityAgreementMaturityOnJuneTwoThousandAndTwentyOneMember 2020-09-30 0001821160 ghld:WarehouseLinesOfCreditMember ghld:TwoHundredMillionMasterRepurchaseFacilityAgreementMaturityOnJuneTwoThousandAndTwentyOneMember 2019-12-31 0001821160 ghld:WarehouseLinesOfCreditMember ghld:TwoHundredAndNinetyNineMillionMasterRepurchaseFacilityAgreementMaturityOnSeptemberTwoThousandAndTwentyOneMember 2020-09-30 0001821160 ghld:WarehouseLinesOfCreditMember ghld:TwoHundredAndNinetyNineMillionMasterRepurchaseFacilityAgreementMaturityOnSeptemberTwoThousandAndTwentyOneMember 2019-12-31 0001821160 ghld:WarehouseLinesOfCreditMember ghld:FiveHundredMillionMasterRepurchaseFacilityAgreementMaturityOnJulyTwoThousandAndTwentyOneMember 2020-09-30 0001821160 ghld:WarehouseLinesOfCreditMember ghld:FiveHundredMillionMasterRepurchaseFacilityAgreementMaturityOnJulyTwoThousandAndTwentyOneMember 2019-12-31 0001821160 ghld:WarehouseLinesOfCreditMember ghld:TwoHundredMillionMasterRepurchaseFacilityAgreementMaturityOnAprilTwoThousandAndTwentyOneMember 2020-09-30 0001821160 ghld:WarehouseLinesOfCreditMember ghld:SeventyFiveMillionMasterRepurchaseFacilityAgreementMaturityOnFebruaryTwoThousandAndTwentyFourMember 2020-09-30 0001821160 ghld:WarehouseLinesOfCreditMember ghld:SeventyFiveMillionMasterRepurchaseFacilityAgreementMaturityOnFebruaryTwoThousandAndTwentyFourMember 2019-12-31 0001821160 ghld:WarehouseLinesOfCreditMember 2020-09-30 0001821160 ghld:WarehouseLinesOfCreditMember 2019-12-31 0001821160 ghld:WarehouseLinesOfCreditMember ghld:EightHundredMillionMasterRepurchaseFacilityAgreementMaturityOnJanuaryTwoThousandAndTwentyOneMember 2020-01-01 2020-09-30 0001821160 ghld:WarehouseLinesOfCreditMember ghld:TwoHundredAndFiftyMillionMasterRepurchaseFacilityAgreementMaturityOnAugustTwoThousandAndTwentyOneMember 2020-01-01 2020-09-30 0001821160 ghld:WarehouseLinesOfCreditMember ghld:SevenHundredMillionMasterRepurchaseFacilityAgreementMaturityOnFebruaryTwoThousandAndTwentyOneMember 2020-01-01 2020-09-30 0001821160 ghld:WarehouseLinesOfCreditMember ghld:TwoHundredMillionMasterRepurchaseFacilityAgreementMaturityOnJuneTwoThousandAndTwentyOneMember 2020-01-01 2020-09-30 0001821160 ghld:WarehouseLinesOfCreditMember ghld:TwoHundredAndNinetyNineMillionMasterRepurchaseFacilityAgreementMaturityOnSeptemberTwoThousandAndTwentyOneMember 2020-01-01 2020-09-30 0001821160 ghld:WarehouseLinesOfCreditMember ghld:FiveHundredMillionMasterRepurchaseFacilityAgreementMaturityOnJulyTwoThousandAndTwentyOneMember 2020-01-01 2020-09-30 0001821160 ghld:WarehouseLinesOfCreditMember ghld:TwoHundredMillionMasterRepurchaseFacilityAgreementMaturityOnAprilTwoThousandAndTwentyOneMember 2020-01-01 2020-09-30 0001821160 ghld:WarehouseLinesOfCreditMember ghld:SeventyFiveMillionMasterRepurchaseFacilityAgreementMaturityOnFebruaryTwoThousandAndTwentyFourMember 2020-01-01 2020-09-30 0001821160 ghld:TwoHundredAndFiftyMillionMasterRepurchaseFacilityAgreementMaturityOnAugustTwoThousandAndTwentyOneMember 2020-01-01 2020-09-30 0001821160 ghld:TwoHundredMillionMasterRepurchaseFacilityAgreementMaturityOnJuneTwoThousandAndTwentyOneMember us-gaap:InterestRateFloorMember 2020-01-01 2020-09-30 0001821160 ghld:TwoHundredMillionMasterRepurchaseFacilityAgreementMaturityOnJuneTwoThousandAndTwentyOneMember 2020-01-01 2020-09-30 0001821160 ghld:TwoHundredAndNinetyNineMillionMasterRepurchaseFacilityAgreementMaturityOnSeptemberTwoThousandAndTwentyOneMember us-gaap:SubsequentEventMember 2020-10-01 2020-10-01 0001821160 ghld:TwoHundredAndNinetyNineMillionMasterRepurchaseFacilityAgreementMaturityOnSeptemberTwoThousandAndTwentyOneMember 2020-01-01 2020-09-30 0001821160 ghld:TwoHundredMillionMasterRepurchaseFacilityAgreementMaturityOnAprilTwoThousandAndTwentyOneMember us-gaap:InterestRateFloorMember 2020-01-01 2020-09-30 0001821160 ghld:SeventyFiveMillionMasterRepurchaseFacilityAgreementMaturityOnFebruaryTwoThousandAndTwentyFourMember us-gaap:InterestRateFloorMember 2020-01-01 2020-09-30 0001821160 ghld:SeventyFiveMillionMasterRepurchaseFacilityAgreementMaturityOnFebruaryTwoThousandAndTwentyFourMember srt:MaximumMember 2020-01-01 2020-09-30 0001821160 us-gaap:RevolvingCreditFacilityMember ghld:GovernmentNationalMortgageAssociationMember us-gaap:LondonInterbankOfferedRateLIBORMember 2014-01-01 2014-01-31 0001821160 us-gaap:RevolvingCreditFacilityMember ghld:GovernmentNationalMortgageAssociationMember 2014-01-01 2014-01-31 0001821160 us-gaap:RevolvingCreditFacilityMember ghld:GovernmentNationalMortgageAssociationMember 2020-06-30 0001821160 us-gaap:RevolvingCreditFacilityMember ghld:GovernmentNationalMortgageAssociationMember 2020-09-30 0001821160 us-gaap:RevolvingCreditFacilityMember ghld:GovernmentNationalMortgageAssociationMember 2019-12-31 0001821160 us-gaap:RevolvingCreditFacilityMember ghld:GovernmentNationalMortgageAssociationMember 2020-01-01 2020-09-30 0001821160 us-gaap:RevolvingCreditFacilityMember ghld:FederalHomeLoanMortgageCorporationMember 2020-07-01 2020-07-31 0001821160 us-gaap:RevolvingCreditFacilityMember ghld:FederalHomeLoanMortgageCorporationMember 2017-07-31 0001821160 us-gaap:RevolvingCreditFacilityMember ghld:FederalHomeLoanMortgageCorporationMember 2018-07-31 0001821160 us-gaap:RevolvingCreditFacilityMember ghld:FederalHomeLoanMortgageCorporationMember 2020-07-31 0001821160 us-gaap:RevolvingCreditFacilityMember ghld:FederalHomeLoanMortgageCorporationMember 2020-09-30 0001821160 us-gaap:RevolvingCreditFacilityMember ghld:FederalHomeLoanMortgageCorporationMember 2019-12-31 0001821160 ghld:FederalNationalMortgageAssociationMember ghld:TermNoteMember 2019-09-30 0001821160 ghld:FederalNationalMortgageAssociationMember ghld:NewTermNoteMember 2019-09-01 2019-09-30 0001821160 ghld:FederalNationalMortgageAssociationMember ghld:NewTermNoteMember 2019-09-30 0001821160 ghld:FederalNationalMortgageAssociationMember us-gaap:FederalFundsEffectiveSwapRateMember ghld:NewTermNoteMember 2019-09-01 2019-09-30 0001821160 ghld:FederalNationalMortgageAssociationMember us-gaap:EurodollarMember ghld:NewTermNoteMember 2019-09-01 2019-09-30 0001821160 ghld:FederalNationalMortgageAssociationMember ghld:NewTermNoteMember 2020-09-30 0001821160 ghld:FederalNationalMortgageAssociationMember ghld:NewTermNoteMember 2019-12-31 0001821160 ghld:TermLoanMember us-gaap:SubsequentEventMember 2020-10-01 2020-10-01 0001821160 ghld:OfficeSpaceAndEquipmentMember 2020-01-01 2020-09-30 0001821160 us-gaap:OperatingExpenseMember ghld:OfficeSpaceAndEquipmentMember 2020-07-01 2020-09-30 0001821160 us-gaap:OperatingExpenseMember ghld:OfficeSpaceAndEquipmentMember 2019-07-01 2019-09-30 0001821160 us-gaap:OperatingExpenseMember ghld:OfficeSpaceAndEquipmentMember 2020-01-01 2020-09-30 0001821160 us-gaap:OperatingExpenseMember ghld:OfficeSpaceAndEquipmentMember 2019-01-01 2019-09-30 0001821160 ghld:USDepartmentOfHousingAndUrbanDevelopmentMember 2020-01-01 2020-09-30 0001821160 us-gaap:SubsequentEventMember 2020-10-20 2020-10-20 0001821160 us-gaap:SubsequentEventMember 2020-10-20 0001821160 ghld:GuildManagementLLCMember 2014-11-30 0001821160 ghld:GuildManagementIIILLCMember 2017-04-01 2017-04-30 0001821160 ghld:GuildMortgageCompanyLLCMember 2019-01-01 2019-01-01 0001821160 ghld:GuildMortgageCompanyLLCMember 2020-01-01 2020-09-30 0001821160 srt:ExecutiveOfficerMember 2020-07-01 2020-09-30 0001821160 srt:ExecutiveOfficerMember 2019-07-01 2019-09-30 0001821160 srt:ExecutiveOfficerMember 2020-01-01 2020-09-30 0001821160 srt:ExecutiveOfficerMember 2019-01-01 2019-09-30 0001821160 ghld:FannieMaeAndFreddieMacMember 2020-09-30 0001821160 ghld:FannieMaeAndFreddieMacMember 2020-01-01 2020-09-30 0001821160 us-gaap:InvestorMember srt:MinimumMember 2020-01-01 2020-09-30 0001821160 ghld:FannieMaeAndFreddieMacMember srt:MinimumMember 2020-01-01 2020-09-30 0001821160 us-gaap:InvestorMember 2019-12-31 ghld:Segment ghld:State ghld:Loan 0001821160 ghld:ProductionMember us-gaap:ReportableSubsegmentsMember 2020-07-01 2020-09-30 0001821160 ghld:ServicingMember us-gaap:ReportableSubsegmentsMember 2020-07-01 2020-09-30 0001821160 us-gaap:ReportableSubsegmentsMember 2020-07-01 2020-09-30 0001821160 us-gaap:AllOtherSegmentsMember 2020-07-01 2020-09-30 0001821160 ghld:ProductionMember us-gaap:ReportableSubsegmentsMember 2019-07-01 2019-09-30 0001821160 ghld:ServicingMember us-gaap:ReportableSubsegmentsMember 2019-07-01 2019-09-30 0001821160 us-gaap:ReportableSubsegmentsMember 2019-07-01 2019-09-30 0001821160 us-gaap:AllOtherSegmentsMember 2019-07-01 2019-09-30 0001821160 ghld:ProductionMember us-gaap:ReportableSubsegmentsMember 2020-01-01 2020-09-30 0001821160 ghld:ServicingMember us-gaap:ReportableSubsegmentsMember 2020-01-01 2020-09-30 0001821160 us-gaap:ReportableSubsegmentsMember 2020-01-01 2020-09-30 0001821160 us-gaap:AllOtherSegmentsMember 2020-01-01 2020-09-30 0001821160 ghld:ProductionMember us-gaap:ReportableSubsegmentsMember 2019-01-01 2019-09-30 0001821160 ghld:ServicingMember us-gaap:ReportableSubsegmentsMember 2019-01-01 2019-09-30 0001821160 us-gaap:ReportableSubsegmentsMember 2019-01-01 2019-09-30 0001821160 us-gaap:AllOtherSegmentsMember 2019-01-01 2019-09-30

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2020

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____ to _____

Commission File Number: 001-39645

 

GUILD HOLDINGS COMPANY

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

85-2453154

( State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer
Identification No.)

5887 Copley Drive

San Diego, California

92111

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (858) 560-6330

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Class A common stock, $0.01 par value per share

 

GHLD

 

The New York Stock Exchange

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).     Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

  

Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

  

Smaller reporting company

 

 

 

 

 

 

 

 

Emerging growth company

 

 

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     Yes      No  

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.     Yes      No  

As of December 1, 2020, the registrant had 19,666,981 shares of Class A common stock, $0.01 par value per share, outstanding.

 

 


Table of Contents

 

 

 

Page

PART I.

FINANCIAL INFORMATION

 

Item 1.

Condensed Consolidated Financial Statements (Unaudited)

1

 

Condensed Consolidated Balance Sheets

1

 

Condensed Consolidated Statements of Income (Loss)

2

 

Condensed Consolidated Statements of Changes in Stockholder’s Equity

3

 

Condensed Consolidated Statements of Cash Flows

4

 

Notes to Unaudited Condensed Consolidated Financial Statements

5

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

28

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

49

Item 4.

Controls and Procedures

50

PART II.

OTHER INFORMATION

 

Item 1.

Legal Proceedings

52

Item 1A.

Risk Factors

52

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

52

Item 3.

Defaults Upon Senior Securities

52

Item 4.

Mine Safety Disclosures

52

Item 5.

Other Information

52

Item 6.

Exhibits

53

Signatures

54

 

 

i


CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q (this “Report”) contains forward-looking statements. These forward-looking statements reflect our current views with respect to, among other things, future events and our financial performance. These statements are often, but not always, made through the use of words or phrases such as “may,” “should,” “could,” “predict,” “potential,” “believe,” “will likely result,” “expect,” “continue,” “will,” “anticipate,” “seek,” “estimate,” “intend,” “plan,” “projection,” “would” and “outlook,” or the negative version of those words or other comparable words or phrases of a future or forward-looking nature. These forward-looking statements are not historical facts and are based on current expectations, estimates and projections about our industry, management’s beliefs and certain assumptions made by management, many of which, by their nature, are inherently uncertain and beyond our control. Accordingly, we caution you that any such forward-looking statements are not guarantees of future performance and are subject to risks, assumptions and uncertainties that are difficult to predict. Although we believe that the expectations reflected in these forward-looking statements are reasonable as of the date made, actual results may prove to be materially different from the results expressed or implied by the forward-looking statements.

Important factors that could cause our actual results to differ materially from those indicated in these forward-looking statements include, but are not limited to, the following: any changes in macro-economic conditions and in U.S. residential real estate market conditions, including changes in prevailing interest rates or monetary policies and the effects of the ongoing COVID-19 pandemic; any disruptions in the secondary home loan market and their effects on our ability to sell the loans that we originate; any changes in certain U.S. government-sponsored entities and government agencies, including Federal National Mortgage Association (“FNMA”), the Federal Home Loan Mortgage Corporation (“FHLMC”), Government National Mortgage Association (“GNMA”), the Federal Housing Administration (“FHA”), the United States Department of Agriculture Rural Development (“USDA”) and the United States Department of Veteran’s Affairs (“VA”), or their current roles; the effects of any termination of our servicing rights; the effects of our existing and future indebtedness on our liquidity and our ability to operate our business; any failure to maintain and improve the technological infrastructure that supports our origination and servicing platform; any failure to maintain or grow our historical referral relationships with our referral partners; any failure to continue the historical levels of growth in our market share in the mortgage origination and servicing industry; any decline in our ability to recapture loans from borrowers who refinance; our inability to attract, integrate and retain qualified personnel; our failure to identify, develop and integrate acquisitions of other companies or technologies, or any diversion of our management’s attention due to the foregoing; inaccuracies in the estimates of the fair value of the substantial portion of our assets that are measured on that basis (including our mortgage servicing rights, or “MSRs”); the failure of the internal models that we use to manage risk and make business decisions to produce reliable or accurate results; the costs of potential litigation and claims; the degree of business and financial risk associated with certain of our loans; any cybersecurity breaches or other attacks involving our computer systems or those of our third-party service providers; any changes in applicable technology and consumer outreach techniques; our inability to secure additional capital, if needed, to operate and grow our business; the impact of operational risks, including employee or consumer fraud, the obligation to repurchase sold loans in the event of a documentation error, and data processing system failures and errors; any repurchase or indemnification obligations caused by the failure of the loans that we originate to meet certain criteria or characteristics; the seasonality of the mortgage origination industry; any failure to protect our brand and reputation; the risks associated with adverse weather conditions and man-made or natural events; our exposure to additional income tax liabilities and changes in tax laws, or disagreements with the Internal Revenue Service (“IRS”) regarding our tax positions; any failure to adequately protect our intellectual property and the costs of any potential intellectual property disputes; any non-compliance with the complex laws and regulations governing our industry and the related costs associated with maintaining and monitoring compliance; any changes in the laws and regulations governing our industry that would require us to change our business practices, raise compliance costs or other costs of doing business; our control by, and any conflicts of interest with, McCarthy Capital Mortgage Investors, LLC (“MCMI”); the significant influence on our business that members of our board and management team are able to exercise as stockholders; our dependence, as a holding company, upon distributions from Guild Mortgage Co. to meet our obligations; the risks related to our becoming a public company; the risks related to our status as an “emerging growth company” and a “controlled company”; the risks related to our Class A common stock and our dual class common stock structure; and the other risks, uncertainties and factors set forth in our prospectus (filed as part of the Registration Statement on Form S-1 filed by the Company with the Securities and Exchange Commission (Registration No. 333-249225), as amended) (the “Prospectus”), including those set forth under “Risk Factors.”

The foregoing factors should not be construed as exhaustive and should be read together with the other cautionary statements included in this Report. If one or more events related to these or other risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, actual results may differ materially from what we anticipate. Many of the important factors that will determine these results are beyond our ability to control or predict. Accordingly, you should not place undue reliance on any such forward-looking statements. Any forward-looking statement speaks only as of the date on which it is made, and, except as otherwise required by law, we do not undertake any obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise. New factors emerge from time to time, and it is not possible for us to predict which will arise. In addition, we cannot assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.

 

 

 


 

PART I—FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements (Unaudited)

GUILD MORTGAGE COMPANY

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except par value)

 

 

 

September 30,

2020

 

 

December 31,

2019

 

 

 

(unaudited)

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

247,293

 

 

$

101,735

 

Restricted cash

 

 

5,010

 

 

 

5,000

 

Mortgage loans held for sale

 

 

2,239,150

 

 

 

1,504,842

 

Ginnie Mae loans subject to repurchase right

 

 

1,175,589

 

 

 

404,344

 

Accounts and interest receivable

 

 

29,907

 

 

 

34,611

 

Derivative asset

 

 

186,016

 

 

 

19,922

 

Mortgage servicing rights, net

 

 

392,191

 

 

 

418,402

 

Goodwill

 

 

62,834

 

 

 

62,834

 

Other assets

 

 

59,153

 

 

 

55,723

 

Total assets

 

$

4,397,143

 

 

$

2,607,413

 

 

 

 

 

 

 

 

 

 

Liabilities and Stockholder's Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Warehouse lines of credit

 

$

1,912,261

 

 

$

1,303,187

 

Notes payable

 

 

208,000

 

 

 

218,000

 

Ginnie Mae loans subject to repurchase right

 

 

1,176,768

 

 

 

412,490

 

Accounts payable and accrued expenses

 

 

72,226

 

 

 

35,338

 

Accrued compensation and benefits

 

 

85,761

 

 

 

45,297

 

Investor reserves

 

 

19,241

 

 

 

16,521

 

Income tax payable

 

 

13,907

 

 

 

 

Due to parent company

 

 

427

 

 

 

12,427

 

Contingent liabilities due to acquisitions

 

 

22,090

 

 

 

8,073

 

Derivative liability

 

 

10,790

 

 

 

4,863

 

Note due to related party

 

 

5,136

 

 

 

6,606

 

Deferred compensation plan

 

 

75,329

 

 

 

52,302

 

Deferred tax liability

 

 

106,309

 

 

 

86,278

 

Total liabilities

 

 

3,708,245

 

 

 

2,201,382

 

 

 

 

 

 

 

 

 

 

Commitments and contingencies (Note 11)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholder's Equity

 

 

 

 

 

 

 

 

Common stock, $100 par value; 2,000 shares authorized; 928 issued and outstanding at

   September 30, 2020 and December 31, 2019

 

 

93

 

 

 

93

 

Additional paid-in capital

 

 

21,992

 

 

 

21,992

 

Retained earnings

 

 

666,813

 

 

 

383,946

 

Total stockholder's equity

 

 

688,898

 

 

 

406,031

 

Total Liabilities and Stockholder's Equity

 

$

4,397,143

 

 

$

2,607,413

 

 

See accompanying notes to condensed consolidated financial statements

1


 

GUILD MORTGAGE COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)

(Dollars in thousands)

(unaudited)

 

 

 

For the three months ended

 

 

For the nine months ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Revenue

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loan origination fees and gain on sale of loans, net

 

$

565,009

 

 

$

270,093

 

 

$

1,298,302

 

 

$

597,596

 

Loan servicing and other fees

 

 

40,159

 

 

 

36,540

 

 

 

116,469

 

 

 

104,977

 

Valuation adjustment of mortgage servicing rights

 

 

(41,006

)

 

 

(90,968

)

 

 

(245,816

)

 

 

(251,190

)

Interest income

 

 

14,905

 

 

 

18,846

 

 

 

41,854

 

 

 

44,173

 

Interest expense

 

 

(15,488

)

 

 

(16,738

)

 

 

(42,929

)

 

 

(39,871

)

Other (expense) income

 

 

(35

)

 

 

5

 

 

 

(39

)

 

 

1,186

 

Net revenue

 

 

563,544

 

 

 

217,778

 

 

 

1,167,841

 

 

 

456,871

 

Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Salaries, incentive compensation and benefits

 

 

273,560

 

 

 

176,716

 

 

 

650,458

 

 

 

418,032

 

General and administrative

 

 

27,271

 

 

 

18,497

 

 

 

75,463

 

 

 

47,121

 

Occupancy, equipment and communication

 

 

14,317

 

 

 

13,421

 

 

 

41,272

 

 

 

40,363

 

Depreciation and amortization

 

 

1,540

 

 

 

1,812

 

 

 

4,686

 

 

 

5,636

 

Provision for foreclosure losses

 

 

547

 

 

 

1,497

 

 

 

2,407

 

 

 

2,271

 

Total expenses

 

 

317,235

 

 

 

211,943

 

 

 

774,286

 

 

 

513,423

 

Income (loss) before income tax expense

   (benefit)

 

 

246,309

 

 

 

5,835

 

 

 

393,555

 

 

 

(56,552

)

Income tax expense (benefit)

 

 

64,223

 

 

 

(2,661

)

 

 

100,688

 

 

 

(18,050

)

Net income (loss)

 

$

182,086

 

 

$

8,496

 

 

$

292,867

 

 

$

(38,502

)

 

See accompanying notes to condensed consolidated financial statements

2


 

GUILD MORTGAGE COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER’S EQUITY

FOR THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019

(Dollars in thousands, except per share data)

(unaudited)

 

 

 

Shares

 

 

Amount

 

 

Additional

Paid-In

Capital

 

 

Retained

Earnings

 

 

Total

 

Balance at December 31, 2018

 

 

942

 

 

$

94

 

 

$

22,317

 

 

$

418,530

 

 

$

440,941

 

Common stock dividends ($13,465 per share)

 

 

 

 

 

 

 

 

 

 

 

(12,500

)

 

 

(12,500

)

Stock repurchase

 

 

(14

)

 

 

(1

)

 

 

(325

)

 

 

(7,661

)

 

 

(7,987

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

(46,998

)

 

 

(46,998

)

Balance at June 30, 2019

 

 

928

 

 

 

93

 

 

 

21,992

 

 

 

351,371

 

 

 

373,456

 

Net income

 

 

 

 

 

 

 

 

 

 

 

8,496

 

 

 

8,496

 

Balance at September 30, 2019

 

 

928

 

 

$

93

 

 

$

21,992

 

 

$

359,867

 

 

$

381,952

 

Balance at December 31, 2019

 

 

928

 

 

$

93

 

 

$

21,992

 

 

$

383,946

 

 

$

406,031

 

Common stock dividends ($10,772 per share)

 

 

 

 

 

 

 

 

 

 

 

(10,000

)

 

 

(10,000

)

Net income

 

 

 

 

 

 

 

 

 

 

 

110,781

 

 

 

110,781

 

Balance at June 30, 2020

 

 

928

 

 

 

93

 

 

 

21,992

 

 

 

484,727

 

 

 

506,812

 

Net income

 

 

 

 

 

 

 

 

 

 

 

182,086

 

 

 

182,086

 

Balance at September 30, 2020

 

 

928

 

 

$

93

 

 

$

21,992

 

 

$

666,813

 

 

$

688,898

 

 

See accompanying notes to condensed consolidated financial statements 

3


 

GUILD MORTGAGE COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

(unaudited)

 

 

 

For the nine months ended

September 30,

 

 

 

2020

 

 

2019

 

Cash Flows from Operating Activities

 

 

 

 

 

 

 

 

Net income (loss)

 

$

292,867

 

 

$

(38,502

)

Adjustments to reconcile net income (loss) to net cash used in operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization of fixed assets

 

 

4,686

 

 

 

5,636

 

Valuation adjustment of mortgage servicing rights

 

 

245,816

 

 

 

251,190

 

Valuation adjustment of mortgage loans held for sale

 

 

(52,904

)

 

 

(9,093

)

Valuation adjustment of derivatives

 

 

(160,167

)

 

 

(26,628

)

Provision for investor reserves

 

 

10,009

 

 

 

6,805

 

Provision for foreclosure losses

 

 

2,407

 

 

 

2,271

 

Changes in estimated fair value of contingent liabilities due to acquisitions

 

 

27,905

 

 

 

7,277

 

Gain on sale of mortgage loans excluding fair value of other financial instruments, net

 

 

(897,467

)

 

 

(467,573

)

Deferred income taxes

 

 

20,031

 

 

 

(33,647

)

Other

 

 

(1,224

)

 

 

2,148

 

Investor reserves

 

 

(7,289

)

 

 

(5,338

)

Foreclosure loss reserve

 

 

(2,362

)

 

 

(2,672

)

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Origination of mortgage loans held for sale

 

 

(24,657,750

)

 

 

(15,696,586

)

Proceeds on sale of and payments from mortgage loans held for sale

 

 

24,873,813

 

 

 

15,425,424

 

Accounts and interest receivable

 

 

4,659

 

 

 

4,757

 

Other assets

 

 

6,024

 

 

 

9,746

 

Mortgage servicing rights

 

 

(219,605

)

 

 

(101,753

)

Accounts payable and accrued expenses

 

 

37,088

 

 

 

10,087

 

Accrued compensation and benefits

 

 

40,464

 

 

 

20,554

 

Contingent liability payments

 

 

(7,552

)

 

 

(649

)

Deferred compensation plan liability

 

 

22,683

 

 

 

(2,987

)

Proceeds from real estate owned conveyed to HUD

 

 

1,096

 

 

 

4,435

 

Purchase and advances of real estate owned

 

 

(954

)

 

 

(2,926

)

Net cash used in operating activities

 

 

(417,726

)

 

 

(638,024

)

Cash Flows from Investing Activities

 

 

 

 

 

 

 

 

Proceeds from the sale of property & equipment

 

 

35

 

 

 

59

 

Purchase of property and equipment

 

 

(6,988

)

 

 

(2,368

)

Payment made on behalf of affiliate

 

 

(12,035

)

 

 

(1,193

)

Acquisitions

 

 

 

 

 

(8,817

)

Net cash used in investing activities

 

 

(18,988

)

 

 

(12,319

)

Cash Flows from Financing Activities

 

 

 

 

 

 

 

 

Borrowings on warehouse lines of credit

 

 

24,083,543

 

 

 

15,292,047

 

Repayments on warehouse lines of credit

 

 

(23,473,255

)

 

 

(14,575,327

)

Borrowings on MSR notes payable

 

 

67,000

 

 

 

22,250

 

Repayments on MSR notes payable

 

 

(77,000

)

 

 

(29,250

)

Contingent liability payments

 

 

(6,336

)

 

 

(2,318

)

Net change in notes payable

 

 

(1,670

)

 

 

7,089

 

Repurchase of stock

 

 

 

 

 

(7,987

)

Dividends paid

 

 

(10,000

)

 

 

(12,500

)

Net cash provided by financing activities

 

 

582,282

 

 

 

694,004

 

Increase in cash, cash equivalents and restricted cash

 

 

145,568

 

 

 

43,661

 

Cash, cash equivalents and restricted cash, beginning of period

 

106,735

 

 

62,755

 

Cash, cash equivalents and restricted cash, end of period

 

$

252,303

 

 

$

106,416

 

Supplemental information

 

 

 

 

 

 

 

 

Net cash paid for interest

 

$

31,567

 

 

$

29,062

 

Net cash paid for taxes

 

$

15,525

 

 

$

2,918

 

Net assets acquired due to acquisition

 

$

 

 

$

10,552

 

Cash and cash equivalents

 

$

247,293

 

 

$

101,416

 

Restricted cash

 

 

5,010

 

 

 

5,000

 

Total cash, cash equivalents and restricted cash shown in the consolidated statements of

   cash flows

 

$

252,303

 

 

$

106,416

 

 

See accompanying notes to condensed consolidated financial statements.

 

 

 

4


 

GUILD MORTGAGE COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except as otherwise indicated)

1. Business, Basis of Presentation, and Accounting Policies

The accompanying condensed consolidated financial statements have been prepared as of September 30, 2020 and as of that date include all of the assets, liabilities and results of operations of Guild Mortgage Company (the “Company” or “Guild” or “our”), a California corporation, and all of its wholly owned subsidiaries. The Company has four wholly owned subsidiaries; Guild Administration Corp., Mission Village Insurance Agency, Guild Insurance, LLC and Guild Financial Express, Inc. The activities of the subsidiaries are related to the Company’s mortgage banking operations. All intercompany accounts and transactions have been eliminated in consolidation. As of September 30, 2020 the Company was a wholly owned subsidiary of Guild Mortgage Company, LLC (“GMC LLC”), a privately owned California limited liability company. Subsequent to September 30, 2020 the Company underwent a reorganization in connection with its initial public offering (the “Offering” or “IPO”).

Basis of Presentation

Our condensed consolidated financial statements are unaudited. They have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial information. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. Our Consolidated Balance Sheet as of December 31, 2019 has been derived from our audited consolidated financial statements at that date. Our condensed consolidated interim financial statements should be read in conjunction with our consolidated financial statements and notes thereto for the year ended December 31, 2019, which include a complete set of footnote disclosures, including our significant accounting policies. In our opinion, these condensed consolidated financial statements include all normal and recurring adjustments considered necessary for a fair statement of our results of operations, financial position and cash flows for the periods presented. However, our results of operations for any interim period are not necessarily indicative of the results that may be expected for a full fiscal year or for any other future period.

Management Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Although management is not currently aware of any factors that would significantly changes its estimates and assumptions, actual results could materially differ from those estimates.

Subsequent Events

At the time of issuance of this report, the Company has evaluated subsequent events from the balance sheet date through December 3, 2020, the date on which the financial statements were issued. Refer to Note 11, Commitments and Contingencies for disclosure on changes to the Company’s legal proceedings.

On October 1, 2020 the Company declared and distributed $27.6 million to its sole shareholder, Guild Mortgage Company, LLC prior to the completion of the IPO.

In March 2020, the World Health Organization (“WHO”) declared the outbreak of a novel coronavirus (COVID-19) as a pandemic, which continues to spread throughout the United States. Through December 3, 2020 the Company remains fully functional in both its origination and servicing operations. While the pandemic could cause certain branches to temporarily close, most of the significant job functions can be performed remotely. The Company has taken steps to ensure business can continue as necessary should branches be forced to temporarily close. The Company continues to monitor guidance published by the WHO, Centers for Disease Control and Prevention, local and federal government agencies and the MBA and is in continual communication with its investors regarding the developments in the mortgage industry. The Company is unaware of any known adverse material risk or event that should be recognized in the financial statements at this time.

IPO and Reorganization

Prior to the completion of the Offering, GMC LLC contributed 100% of the shares of the Company to Guild Holdings Company (“Holdings”) and the Company was converted to a California limited liability company. As a result, Holdings is the sole member of the Company. On October 22, 2020 Guild Holdings Company completed the IPO of 6,500,000 shares of Class A common stock,

5


GUILD MORTGAGE COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except as otherwise indicated)

 

 

$0.01 par value, at an offering price of $15.00 per share.  Guild Holdings Company is a publicly traded company whose Class A common stock is traded on the New York Stock Exchange under the ticker symbol “GHLD”. Prior to the completion of the offering, the Company consummated an internal reorganization.

As a result of the IPO and the reorganization:

 

Guild Holdings Company is the sole management member of Guild Mortgage Company, LLC (formally Guild Mortgage Company), which owns a direct interest in its subsidiaries.

 

Guild Holdings Company is a holding company which has no material assets, other than its ownership of Guild Mortgage Company, LLC, and its indirect interest in the subsidiaries of Guild Mortgage Company, LLC and has no independent means of generating revenue or cash flow.

 

1,440,334 shares of Guild Holdings Company’s Class A common stock were reserved for equity-based awards.

 

40,333,019 shares of Class B common stock were issued to McCarthy Capital Mortgage Investors at the completion of the Offering.  The Class B common stock has a par value of $0.01 per share and 10 votes per share.

 

The public stockholders own 6,500,000 shares of Class A common stock, which represent 1.5% of the combined voting power of Guild Holdings Company.

 

Stock-Based Compensation

In connection with the IPO, equity-based awards were issued under the Guild Holdings Company 2020 Omnibus Incentive Plan including 1,440,334 Restricted Stock Units (“RSUs”) of Class A common stock. These RSUs were issued subsequent to September 30, 2020 at a $15 per share price for a total value of $21,605,010. The RSUs vest over two to four years with an average weighted life of 2.8 years.

Cash, Cash Equivalents and Restricted Cash

Restricted cash as of September 30, 2020 and September 30, 2019 consisted of deposits restricted under the terms of our warehouse lines of credit.

 

 

 

September 30, 2020

 

 

September 30, 2019

 

Cash and cash equivalents

 

$

247,293

 

 

 

101,416

 

Restricted cash

 

 

5,010

 

 

 

5,000

 

Total cash, cash equivalents and restricted cash shown in the

   Condensed Consolidated Statements of Cash Flows

 

$

252,303

 

 

 

106,416

 

 

Loans subject to repurchase right from Ginnie Mae

For certain loans sold to Ginnie Mae, the Company as the servicer has the unilateral right to repurchase any individual loan in a Ginnie Mae securitization pool if that loan meets defined criteria, including being delinquent more than 90 days. Once the Company has the unilateral right to repurchase the delinquent loan, the Company has effectively regained control over the loan and must re-recognize the loan on the Condensed Combined Balance Sheet and establish a corresponding finance liability regardless of the Company’s intention to repurchase the loan.

Derivative Financial Instruments

The Company enters into interest rate lock commitments (“IRLCs”), forward commitments to sell mortgage loans and to be announced trades, which are considered derivative financial instruments. These items are accounted for as free-standing derivatives and are included in the Condensed Consolidated Balance Sheets at fair value. The Company treats all of its derivative instruments as economic hedges; therefore, none of its derivative instruments qualify for designation as accounting hedges.

6


GUILD MORTGAGE COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except as otherwise indicated)

 

 

The Company enters into IRLCs to originate residential mortgage loans at specified interest rates and within a specified period of time, with customers who have applied for a loan and meet certain credit and underwriting criteria. IRLCs on mortgage loans in process that have not closed, but are intended to be sold, are considered to be derivatives and changes in fair value are recorded in the Condensed Consolidated Statements of Income (Loss) as part of Loan Origination Fees and Gain on Sale of Loans, net. Fair value is based upon changes in the fair value of the underlying mortgages, estimated to be realizable upon sale into the secondary market, net of estimated incentive compensation expenses. Fair value estimates also consider loan commitments not expected to be exercised by customers for unforeseen reasons, commonly referred to as “fallout”.

IRLCs and uncommitted mortgage loans held for sale expose the Company to the risk that the value of the mortgage loans held and mortgage loans underlying the commitments may decline due to increases in mortgage interest rates during the life of the commitments. To protect against this risk, the Company enters into derivative loan instruments such as forward loan sales commitments, mandatory delivery commitments, options and futures contracts. These derivatives are recorded at fair value. Management expects the changes in the fair value of these derivatives to have a negative correlation to the changes in fair value of the derivative loan commitments and mortgage loans held for sale, thereby reducing earnings volatility. The changes in fair value are recorded in the Condensed Consolidated Statements of Income (Loss) as part of Loan origination fees and gain on sale of loans, net. The Company considers various factors and strategies to determine the portion of the mortgage pipeline and mortgage loans held for sale it wants to economically hedge. See Notes 2 and 5 for additional information.

Escrow and Fiduciary Fund

As a loan servicer, the Company maintains segregated bank accounts in trust for investors and escrow balances for mortgagors, which are excluded from the Company’s Condensed Consolidated Balance Sheet. These accounts totaled $1.7 billion and $1.0 billion at September 30, 2020 and December 31, 2019, respectively.

Income Taxes

On March 27, 2020, Congress enacted the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) to provide certain relief as a result of the COVID-19 pandemic. The CARES Act, among other things, includes provisions relating to net operating loss carryback periods, alternative minimum tax credit refunds, and modifications to the net interest deduction limitations. The CARES Act did not have a material impact on the Company’s condensed consolidated financial statements for the nine months ended September 30, 2020. The Company continues to monitor any effects on its financial statements that may result from the CARES Act.

Risks and Uncertainties

In the normal course of business, companies in the mortgage banking industry encounter certain economic, liquidity, and regulatory risks.

Economic risk includes interest rate risk and credit risk.

Interest rate risk

The Company’s mortgage loans held for sale, commitments to originate loans, and mortgage servicing rights are subject to interest rate risk. For mortgage loans held for sale and commitments to originate loans, to the extent that a rising interest rate environment exists, the Company may experience a decrease in loan production and decreases in value, which may negatively impact the Company’s operations. To mitigate this risk the Company uses hedging strategies designed to ensure any fluctuations in rates would not have a material impact on the Company’s financial position. For the Company’s mortgage servicing rights, to the extent that a declining interest rate environment exists, the Company may experience decreases in the fair value of the portfolio, which may negatively impact the Company’s financial position. For the three and nine months ended September 30, 2020 and 2019, the Company experienced material declines in the valuation of its MSR portfolio due to significant declines in interest rates. Since the Company also has a large origination platform, the Company was able to mitigate this risk by recapturing a significant portion of the runoff through refinances.

7


GUILD MORTGAGE COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except as otherwise indicated)

 

 

Credit risk

Credit risk is the risk of default that may result from borrowers’ inability or unwillingness to make contractually required payments during the period in which loans are being held for sale. The Company considers credit risk associated with these loans to be insignificant as it holds the loans for a short period of time, typically less than a month, and historically the Company has not experienced any material losses due to credit risk on mortgage loans held for sale.

The Company sells loans to investors without recourse. As such, the investors have assumed the risk of loss or default by the borrower. However, the Company is usually required by these investors to make certain standard representations and warranties relating to credit information, loan documentation and collateral. To the extent that the Company does not comply with such representations, or there are early payment defaults, the Company may be required to repurchase the loans or indemnify these investors for any losses from borrower defaults, defects in the collateral or errors made in the credit decision.

The Company is also subject to counterparty credit risk in the event of contractual nonperformance by its trading counterparties to its various over-the-counter derivative financial instruments. The Company manages this credit risk by selecting only counterparties that it believes to be financially strong, spreading the credit risk among many such counterparties, placing contractual limits on the amount of unsecured credit extended to any single counterparty, and entering into netting agreements with the counterparties as appropriate. The master netting agreements contain a legal right to offset amounts due to and from the same counterparty. Derivative assets in the Condensed Consolidated Balance Sheets represent derivative contracts in a gain position net of loss positions with the same counterparty and, therefore, also represent the Company’s maximum counterparty credit risk. The Company incurred no credit losses due to nonperformance of any of its counterparties during the periods ended September 30, 2020 and 2019.

Liquidity risk

The Company encounters liquidity risk as the business requires substantial cash to support its operating activities. As a result, the Company is dependent on its lines of credit, and other financing facilities in order to finance its continued operations. If the Company’s principal lenders decided to terminate or not to renew these credit facilities with the Company, the loss of borrowing capacity could have an adverse impact on the Company’s financial statements unless the Company found a suitable alternative source. To mitigate this risk, the Company has multiple financing facilities with different lenders and varied maturity dates. Historically, the Company has not had a line of credit involuntarily terminated by a lender.

Regulatory risk

The Company is subject to extensive and comprehensive regulation under federal, state and local laws in the United States. These laws and regulations significantly affect the way in which the Company does business and can restrict the scope of the Company’s existing business and limit the Company’s ability to expand product offerings or pursue acquisitions, or can make costs to service or originate loans higher, which could impact financial results. The Company continually monitors its regulatory environment for any changes that could have a significant impact on operations.

Accounting Standards Issued but Not Yet Adopted

As an emerging growth company (“EGC”), the Jumpstart Our Business Startups Act (“JOBS Act”) allows the company to delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are applicable to private companies. The company has elected to use the extended transition period under the JOBS Act until such time the company is not considered to be an EGC. The adoption dates are discussed below to reflect this election.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). This update amends various aspects of existing guidance for leases and requires additional disclosures about leasing arrangements. It will require companies to recognize lease assets and lease liabilities by lessees for those leases classified as operating leases under previous GAAP. Topic 842 retains a distinction between finance leases and operating leases. The classification criteria for distinguishing between finance leases and operating leases are substantially similar to the classification criteria for distinguishing between capital leases and operating leases in the previous lease guidance. In November 2019, the FASB issued ASU 2019-10 which extended the effective date of ASU 2016-02. The Company is in the process of assessing whether it will still be considered an EGC at December 31, 2020. Should the Company lose its EGC status the new guidance will be effective January 1, 2020 and will be applied in the Company’s annual filing. The Company is currently in the process of evaluating the impact of the adoption of the new guidance on its financial statements.

8


GUILD MORTGAGE COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except as otherwise indicated)

 

 

In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326). This update requires expected credit losses for financial instruments held at the reporting date to be measured based on historical experience, current conditions and reasonable and supportable forecasts. The update eliminates the probable initial recognition threshold in current GAAP and instead reflects an entity’s current estimate of all expected credit losses. Previously, when credit losses were measured under GAAP, an entity generally only considered past events and current conditions in measuring the incurred loss. In November 2019, the FASB issued ASU 2019-10 which extended the effective date of ASU 2016-13. The Company is in the process of assessing whether it will still be considered an EGC at December 31, 2020. Should the Company lose its EGC status the new guidance will be effective January 1, 2020 and will be applied in the Company’s annual filing. The Company is currently in the process of evaluating the impact of the adoption of the new guidance on its financial statements.

In August 2018, the FASB issued ASU 2018-15, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 35-40). This update provides guidance on accounting for a cloud computing arrangement that includes a license to internal-use software. This generally means that an intangible asset is recognized for the software license and, to the extent that the payments attributable to the software license are made over time, a liability also is recognized. If a cloud computing arrangement does not include a software license, the entity should account for the arrangement as a service contract which would generally mean to expense the service as incurred. The new guidance will be effective for the Company beginning January 1, 2021 and early adoption is permitted. The Company is currently in the process of evaluating the impact of the adoption of the new guidance on its financial statements.

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740). This update provides amendments to simplify and reduce complexity when accounting for income taxes as well as eliminating certain exceptions. The new guidance will be effective for the Company beginning January 1, 2022 with early adoption permitted. The Company is currently in the process of evaluating the impact of the adoption of the new guidance on its financial statements.

In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. Subject to meeting certain criteria, the new guidance provides optional expedients and exceptions to applying contract modification accounting under existing GAAP, to address the expected phase out of the London Inter-bank Offered Rate (“LIBOR”) by the end of 2021. This guidance is effective upon issuance and allows application to contract changes as early as January 1, 2020. The Company is in the process of reviewing its funding facilities and financing facilities that utilize LIBOR as the reference rate and is currently evaluating the potential impact that the adoption of this ASU will have on the condensed consolidated financial statements and related disclosures.

2. Fair Value Measurements

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. Inputs used to measure fair value are prioritized within a three-level fair value hierarchy. This hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows:

Level One – Level One inputs are unadjusted, quoted prices in active markets for identical assets or liabilities which the Company has the ability to access at the measurement date.

Level Two – Level Two inputs are observable for that asset or liability, either directly or indirectly, and include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, observable inputs for the asset or liability other than quoted prices and inputs derived principally from or corroborated by observable market data by correlation or other means. If the asset or liability has a specified contractual term, the inputs must be observable for substantially the full term of the asset or liability.

Level Three – Level Three inputs are unobservable inputs for the asset or liability that reflect the Company’s assessment of the assumptions that market participants would use in pricing the asset or liability, including assumptions about risk, and are developed based on the best information available.

The Company’s assets and liabilities are carried at cost, and because of their short-term nature, are believed to approximate current fair value, with the exception of mortgage loans held for sale, mortgage servicing rights, derivatives, real estate owned, Government National Mortgage Association (“GNMA”) loans subject to repurchase right and contingent liabilities due to acquisitions.

9


GUILD MORTGAGE COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except as otherwise indicated)

 

 

The Company updates the valuation of each instrument recorded at fair value on a monthly or quarterly basis, evaluating all available observable information which may include current market prices or bids, recent trade activity, changes in the levels of market activity and benchmarking of industry data. The assessment also includes consideration of identifying the valuation approach that would be used currently by market participants. If it is determined that a change in valuation technique or its application is appropriate, or if there are other changes in availability of observable data or market activity, the current methodology will be analyzed to determine if a transfer between levels of the valuation hierarchy is appropriate. Such reclassifications are reported as transfers into or out of a level as of the beginning of the quarter that the change occurs.

Fair value is based on quoted market prices, when available. If quoted prices are not available, fair value is estimated based upon other observable inputs. Unobservable inputs are used when observable inputs are not available and are based upon judgments and assumptions, which are the Company’s assessment of the assumptions market participants would use in pricing the asset or liability. These inputs may include assumptions about risk, counterparty credit quality, the Company’s creditworthiness and liquidity and are developed based on the best information available. When a determination is made to classify an asset or liability within Level Three of the valuation hierarchy, the determination is based upon the significance of the unobservable factors to the overall fair value measurement of the asset or liability. The fair value of assets and liabilities classified within Level Three of the valuation hierarchy also typically includes observable factors and the realized or unrealized gain or loss recorded from the valuation of these instruments would also include amounts determined by observable factors.

Recurring Fair Value Measurements

The Company’s fair value measurements are evaluated within the fair value hierarchy, based on the nature of the inputs used to determine the fair value at the measurement date. At September 30, 2020 and December 31, 2019, the Company had the following assets and liabilities that are measured at fair value on a recurring basis:

Trading Securities – Trading securities are classified within Level One of the valuation hierarchy. Valuation is based upon quoted prices for identical instruments traded in active markets. Level One trading securities include securities traded on active exchange markets, such as the New York Stock Exchange. Trading securities are included within prepaid expenses and other assets on the Condensed Consolidated Balance Sheets.

Derivative Instruments – Derivative instruments are classified within Level Two and Level Three of the valuation hierarchy, and include the following:

Interest Rate Lock Commitments: IRLCs are classified within Level Three of the valuation hierarchy. IRLCs represent an agreement to extend credit to a mortgage loan applicant, or an agreement to purchase a loan from a third-party originator, whereby the interest rate on the loan is set prior to funding. The fair value of IRLCs is based upon the estimated fair value of the underlying mortgage loan, including the expected net future cash flows related to servicing the mortgage loan, net of estimated incentive compensation expenses, and adjusted for: (i) estimated costs to complete and originate the loan and (ii) an adjustment to reflect the estimated percentage of IRLCs that will result in a closed mortgage loan under the original terms of the agreement (pull-through rate). The pull-through rate is considered a significant unobservable input and is estimated based on changes in pricing and actual borrower behavior using a historical analysis of loan closing and fallout data. On a quarterly basis, actual loan pull-through rates are compared to the modeled estimates to confirm the assumptions are reflective of current trends. Generally, a change in interest rates is accompanied by a directionally opposite change in the assumption used for the pull-through percentage, and the impact to fair value of a change in pull-through would be partially offset by the related change in price.

Forward Delivery Commitments: Forward delivery commitments are classified within Level Two of the valuation hierarchy. Forward delivery commitments fix the forward sales price that will be realized upon the sale of mortgage loans into the secondary market. The fair value of forward delivery commitments is primarily based upon the current agency mortgage-backed security market to-be-announced pricing specific to the loan program, delivery coupon and delivery date of the trade. Best efforts sales commitments are also entered into for certain loans at the time the borrower commitment is made. These best efforts sales commitments are valued using the committed price to the counterparty against the current market price of the IRLC or mortgage loan held for sale.

Option contracts are a type of forward commitment that represents the rights to buy or sell mortgage-backed securities at specified prices in the future. Their value is based upon the underlying current to-be-announced pricing of the agency mortgage-backed security market, and market-based volatility. See Note 5 for additional information on the derivative instruments.

10


GUILD MORTGAGE COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except as otherwise indicated)

 

 

Mortgage Loans Held for Sale – The fair value of MLHS is based on secondary market pricing for loans with similar characteristics, and as such, is classified as a Level Two measurement. For Level Two MLHS, fair value is estimated through a market approach by using either: (i) the fair value of securities backed by similar mortgage loans, adjusted for certain factors to approximate the fair value of a whole mortgage loan, including the value attributable to servicing rights and credit risk, (ii) current commitments to purchase loans or (iii) recent observable market trades for similar loans, adjusted for credit risk and other individual loan characteristics. The agency mortgage-backed security market is a highly liquid and active secondary market for conforming conventional loans whereby quoted prices exist for securities at the pass-through level and are published on a regular basis. The Company has the ability to access this market and it is the market into which conforming mortgage loans are typically sold.

Mortgage Servicing Rights – Mortgage Servicing Rights (“MSRs”) are classified within Level Three of the valuation hierarchy due to the use of significant unobservable inputs and the lack of an active market for such assets. The fair value of MSRs is estimated based upon projections of expected future cash flows considering prepayment estimates, the Company’s historical prepayment rates, portfolio characteristics, interest rates based on interest rate yield curves, implied volatility and other economic factors. The Company obtains valuations from an independent third party on a quarterly basis, and records an adjustment based on this third-party valuation.

Contingent Liabilities due to acquisitions – Contingent liabilities represent future obligations of the Company to make payments to the former owners of its acquired companies. The Company determines the fair value of its contingent liabilities using a discounted cash flow approach whereby the Company forecasts the cash outflows related to the future payments, which are based on a percentage of net income specified in the purchase agreements. The Company then discounts these expected payment amounts to calculate the present value, or fair value, as of the valuation date. The Company’s management evaluates the underlying projections used in determining fair value each period and makes updates to these underlying projections.

The Company uses a risk-adjusted discount rate to value the contingent liabilities which is considered a significant unobservable input, and as such, the liabilities are classified as a Level Three measurement. Management’s underlying projections adjust for market penetration and other economic expectations, and the discount rate is risk-adjusted for key factors such as uncertainty in the mortgage banking industry due to its reliance on external influences (interest rates, regulatory changes, etc.), upfront payments, and credit risk. An increase in the discount rate will result in a decrease in the fair value of the contingent liabilities. Conversely, a decrease in the discount rate will result in an increase in the fair value of the contingent liabilities. For the three months ended September 30, 2020 the range of the risk adjusted discount rate was 15.0% - 20.0%, with a median of 20%. For each of the three months ended September 30, 2019 and the nine months ended September 30, 2020 and 2019 the range of the risk adjusted discount rate was 8.0% - 20.0%, with a median of 15.0%. Adjustments to the fair value of the contingent liabilities (other than payments) are recorded as a gain or loss and are included within general and administrative expenses on the Condensed Consolidated Statements of Income (Loss).

The following table summarizes the Company’s assets and liabilities measured at fair value on a recurring basis at September 30, 2020:

 

Description

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Trading securities

 

$

63

 

 

$

 

 

$

 

 

$

63

 

Derivative

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate lock commitments

 

 

 

 

 

 

 

 

186,016

 

 

 

186,016

 

Mortgage loans held for sale

 

 

 

 

 

2,239,150

 

 

 

 

 

 

2,239,150

 

Mortgage servicing rights, net

 

 

 

 

 

 

 

 

392,191