PennyMac Increases Share in Direct Lending Market

Direct lender loans fueled PennyMac Financial Services business in the third quarter, leading to quarterly earnings gains.

The Westlake Village, Calif.-Based lender and maintainer posted net income of $ 249.3 million for the three months ending September 30, marking a 22% increase from earnings of 204.2 million in the second quarter, but down 53.4% ​​from revenue for the same three months a year ago, to a record $ 535.2 million.

PennyMac’s third-quarter revenue was $ 786.6 million, up from $ 742.3 million three months earlier, an increase of 5.6%. Revenue for the third quarter of the same period a year ago was $ 1.12 billion, up 29.3%. The company reported diluted earnings per share of $ 3.80, beating analysts’ estimates of $ 3.50 per share, according to Yahoo Finance.

“The beat was on higher mortgage bank revenues and lower expenses in both origination and service,” according to analyst Bose George, managing director of Keefe, Bruyette & Woods, in a research note. “This made up for a lack of service due to high prepayment rates. ”

As he had done in the second trimester, PennyMac executives said diverse lines of business were driving the positive results, particularly the growth of direct consumer loans.

“The continued success we see in the channel can be attributed to the increased application of data analytics and the investments we have made in our loan execution and sales process,” said Doug Jones, president and director of the company’s mortgage banking services, in a report on the results. presentation Thursday.

PennyMac’s market share in the direct-to-consumer services market increased to 1.4% at the end of the quarter, from 0.9% at the end of 2020. Its market share for direct-to-brokerage services in the third quarter quarter rose to 2.4%, up from 2.2% at the end of last year. The company estimated that its current corresponding market share remained at 17.7%.

Direct lending channels to consumers and brokers accounted for 84% of the pre-tax income of its production segment. Loan production reported a total of $ 330.6 million before tax, up 35.3% from $ 244.4 million in the second quarter, but down 46% year-on-year from $ 613.3 million.

“Our direct lending channels have a disproportionate impact on the profits of the production segment,” said Andy Chang, COO. “As we continue to develop our leadership positions in direct origination channels, this growth will improve the profitability of our production segment. ”

Consumer direct origination volumes for the quarter were $ 11.1 billion, and for direct brokers, $ 4 billion. The quarterly assemblies of correspondents totaled 44 billion dollars of unpaid balance.

PennyMac also reported pre-tax profit of $ 8 million, down 74.1% from $ 30.9 million in the previous quarter and 92.8% from $ 111.7 million in the third. quarter of last year. Its credit service market share rose to 4.1% of the market, compared to 3.7% at the end of 2020.

Quarterly profit before tax for its investment management segment was $ 1 million, down 75.7% from the $ 4.1 million recorded at the end of the second quarter, as no incentive compensation was ‘was collected in the third quarter, and down 69.7% year-over-year from $ 3.3 million.

Penny mac’s interview The unit will play a larger role for the company in the coming months based on current trends, Chang said.

“Our large and growing portfolio of services will become an increasingly important component of our earnings as interest rates rise, and we believe this provides a competitive advantage for other mortgage banks as the industry rises in volumes. return to more standardized levels, ”he said.

Investors praised the company’s earnings by pushing shares of PennyMac Financial Services, Inc. (PFSI) up 1.9% overnight. After closing the previous day at $ 64.60, shares of PFSI started trading on Friday at $ 65.80 and had further surged 3.1% to $ 67.71 by 11am.

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