PennyMac Financial’s earnings declined in 2Q

PennyMac Financial Services’s second quarter earnings notched quarterly and annual declines, but the $204 million recorded was historically strong thanks to the company’s large, diversified business-line mix, representatives said.

The company’s second-quarter net income was down from $353 million a year earlier and nearly $377 million the previous fiscal period, and its board moved to support its stock by approving an increase in its repurchase authorization for its common shares to $1 billion to $2 billion.

PennyMac’s second-quarter revenue, at nearly $742 million, was down from nearly $822 million a year earlier and from roughly $945 million the previous fiscal period. While revenue missed Seeking Alpha’s estimate of nearly $799 million, it was more than twice the company’s pre-pandemic level.

The results at PennyMac, which operates alongside an affiliate real estate investment trust, highlight how publicly-traded nonbank mortgage companies could be increasingly reliant on efficiencies of scale in multiple business lines in order to compete in the marketplace as production margins normalize.

“While refinance origination volumes are expected to decline significantly over the next several years as a result of higher interest rates, we believe the outlook for PennyMac Financial remains strong given our large, profitable and growing servicing business; our position as one of the largest producers of purchase-money loans in the U.S.; and the continued expansion of our direct lending business,” said Chief Operating Officer Andy Chang in an earnings webcast.

Pretax income for originations totaled $244 million during the quarter, down annually from $538 million and from $363 million during the first three months of this year. For servicing, pretax income of $3.1 million was up from a loss of $6.2 million a year earlier, but down from $14.2 million in the first quarter of this year. Pretax income for servicing would have been higher if it had not been offset by valuation changes.

The company’s earnings release and call late Thursday initially gave its stock a lift to around $66 per share from $63 and at deadline Friday it had risen further and plateaued near $69.

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