Profit statements

Pennymac Financial Services profit drops 31% in fourth quarter

California-based non-bank mortgage lender Pennymac Financial Services saw record loan production last year, but a significant decline in net profits. Reflecting the landscape of higher rates, in the last three months of 2021, the servicing segment brought more returns to the business than production.

The company reported net income of $1 billion in 2021, down from a record $1.6 billion the previous year. In the fourth quarter, pretax profit was $234.1 million, down 31% from the prior quarter and down 62% from the same period of 2020.

In total, the non-bank recorded a record outstanding balance of $234.5 billion in 2021, up 19% from 2020, according to its latest earnings report. In the direct lending channel, origination volume was $59.8 billion, a 68% year-over-year increase.

David Spector, president and chief executive of Pennymac, said the fourth quarter results reflect a balanced mortgage banking model, “with pre-tax income from our service business exceeding that of our manufacturing business.”

Pennymac’s services portfolio reached $509.7 billion in December 2021, up 3% from the prior quarter and 19% from the same period a year earlier. Production volume compensated for higher than usual down payments.

The maintenance segment’s pretax profit was $126.1 million in the fourth quarter, compared to $8 million in the prior quarter and $42 million in the same period of 2020. The company recorded a decline fair value of $58 million for MSR in the fourth quarter.

The Production segment’s pretax profit was $106.5 million, down 68% from the prior quarter and 81% year-over-year. The company said the performance was “primarily due to lower volumes and margins resulting from a mortgage market in transition and a return to more normal seasonal patterns.”

In the fourth quarter, Pennymac recorded direct consumer interest (IRLC) blocking commitments of $14.2 billion of outstanding principal balance, a reduction of 13% from the prior quarter and 11% from the prior quarter. same period of 2020. Direct broker IRLCs decreased (32%) more than corresponding government IRLCs (21%).

Total acquisitions and loan originations during the fourth quarter were $47.1 billion in outstanding balance, down 20% from the prior quarter and 32% from the fourth quarter of 2020.

According to Spector, the company has increased market share in its most profitable channel, direct-to-consumer, which should improve long-term profits. Other aspects that will help the company achieve its goals are a new focus on branding and marketing and the deployment of transformational technologies in the direct lending channel, the executive said in a statement.

The company estimates its market share in the direct-to-consumer channel at 1.4%, compared to 2.3% in the broker channel and 16.8% in correspondent production, where it is the market leader. In loan service, it is at 4.1%.

Regarding the wholesale channel, in January Pennymac Financial Services announced the launch of a new technology platform and rebranded its brokerage division from PennyMac Broker Direct to Pennymac TPO.

“As the market transitions to a higher rate environment with high levels of competition, we will remain disciplined, leveraging our operational scale, while remaining focused on profitability and shareholder returns,” Spector said.

The mortgage lender has used its profits in recent quarters to buy back shares of its stock. It repurchased about $257.3 million in shares in the fourth quarter and $56 million in January.

PFSI stock closed yesterday at $58.71, down 1.59%. In the afternoon after the earnings release, the shares rose 2.20% to $60.