Decreased volume and lower profit margins resulted in smaller quarterly earnings at Guild Holdings (GHLD), and the company expects further slowdowns in the second half of 2021.
In the second quarter, the parent company of Guild Mortgage reported net income of $ 8.9 million, a 92.7% decrease from $ 123 million in the second quarter of 2020. Revenues for the most recent period also decreased from. back in the first three months of 2021 when profits were $ 160.6 million. Earnings per share were $ 0.15, or $ 0.87 on an adjusted basis, compared to earnings per share of $ 2.67 or $ 1.77 on an adjusted basis for the previous quarter.
The company had net sales of $ 294.1 million, 32.4% less than $ 435.1 million in the second quarter of last year and $ 526.2 million in the last quarter.
The muted numbers even came as purchases remained robust, with purchase loan applications up 12% quarter over quarter. However, increases in purchases were offset by suppressed refinancing volumes, which resulted in an overall decrease in claims of 12%.
The profit margin fell 27.6% year over year to 405 basis points from 560 in the second quarter of 2020. In the first quarter of this year, the sales profit was 457 basis points.
"Margins have shrunk in part due to increasing competitive pressure," said CEO Mary Ann McGarry on the company's conference call. "This dynamic led to lower profit margins in the second quarter."
The industry trends that contributed to the quarter's margin declines are unlikely to reverse in the second half of the year, company leaders said, citing projections by the Mortgage Bankers Association. After Guild had already factored in lower margins due to a slowdown in the second half of the year, Guild still forecast that annual earnings would be in line with long-term historical averages, supported by stronger numbers in the first two quarters.
Guild's originations segment net income declined to $ 78.8 million for the quarter, down from $ 254.6 million last year and $ 160.1 million in the first quarter. The company financed approximately $ 8.2 billion in loans during the reporting period.
Guild's servicing arm posted a net loss of $ 48.9 million, primarily due to valuation adjustments to mortgage service rights. The second quarter of last year had a net loss of $ 68.6 million, but for the first quarter of this year the service segment had a net profit of $ 67.1 million. The unpaid balance of Guild-serviced loans increased approximately 24% year over year to $ 65.7 billion.
Investors were unfazed after the earnings were announced. Guild Holdings stock showed little movement, opening Thursday morning at $ 15.65, up from the previous day's closing price of $ 15.60.
After Guild announced the acquisition of Residential Mortgage Services earlier this year, Guild began the third quarter with a local presence in 11 new states and added approximately 250 loan officers. While the company had no immediate plans for further expansion, McGarry didn't rule out the possibility.
"We like to be in local communities where we can get a good market share," she said. "So we want to be in the top 5, and if we're not in the top 5 and there is a good cultural fit – be it organic or acquired – we'll take the opportunity to take a look."