Guild’s profits decline, as total originations fell in second quarter

Decreased volume and lower gain-on-sale margins led to smaller quarterly gains at Guild Holdings (GHLD), and the company expects further slowdowns in the second half of 2021.

In the second quarter, the parent of Guild Mortgage reported net income of $8.9 million, a year-over-year decrease of 92.7% compared to the $123 million recorded in the second quarter of 2020. Income over the most recent period was also down from the first three months of 2021 when profits came in at $160.6 million. Earnings per share equaled $0.15, or $0.87 on an adjusted basis, compared to the previous quarter’s EPS of $2.67, or $1.77, adjusted.

The company posted net revenue of $294.1 million, down 32.4% from $435.1 million in the second quarter last year, and $526.2 million last quarter.

The subdued numbers came even as purchase originations remained robust, with applications for purchase loans up 12% quarter-over-quarter. But increases in purchases were offset by suppressed volumes in refinances, leading to a 12% decline in applications overall.

Gain-on-sale margins 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 gain on sale equaled 457 basis points.

“Margins have increasingly compressed due in part to rising competitive pressures,” said CEO Mary Ann McGarry in the company’s earnings call. “This dynamic led to lower gain-on-sale margins in the second quarter.”

The industry trends contributing to the quarter’s margin declines are not expected to reverse course in the latter half of the year, company leaders said, citing forecasts from the Mortgage Bankers Association. Having already factored in slimmer margins from a second-half slowdown, Guild still predicted that annual earnings would be consistent with long-term historical averages, buoyed by stronger numbers in the first two quarters.

Net income from Guild’s originations segment decreased to $78.8 million for the quarter, down from $254.6 million one year ago and $160.1 million in the first quarter. The company funded approximately $8.2 billion in loans in the period.

Guild’s servicing arm registered a net loss of $48.9 million, primarily attributed to valuation adjustments of mortgage-servicing rights. Last year’s second quarter showed a net loss of $68.6 million, but in the first quarter of this year, the servicing segment had produced net income of $67.1 million. The unpaid balance of loans serviced by Guild grew by approximately 24% from one year ago, climbing up to $65.7 billion.

Investors appeared unperturbed after earnings were revealed. Guild Holdings stock showed little movement, opening Thursday morning at $15.65, up from the previous day’s closing price of $15.60.

After announcing its acquisition of Residential Mortgage Services earlier this year, Guild began the third quarter with a local presence in 11 new states and it added approximately 250 loan officers. While the company had no immediate plans for further expansion, McGarry did not close the door on the possibility.

“We like to be in local communities where we can capture a good market share,” she said. “So we want to be in the top five, and if we're not in the top five, and there's a good cultural fit — whether it's organic or acquisition — we're going to take the opportunity to look at it.”