PennyMac Financial Services (PFSI) reported net income of $51.4 million for the second quarter of 2014, on revenue of $130.4 million.

The company posted production revenue of $63.9 million, up 21% from the prior quarter, and servicing revenue of $53.7 million, up 34% from the prior quarter. Investment Management revenue came in at $12.8 million, up 2% from the prior quarter.

PennyMac had earnings of $0.93 per share, $0.34 better than the Capital IQ Consensus Estimate of $0.59. The company's book value per share is $21.27, up from $20.88 at March 31, 2014.  Return on average equity is 19%, up from 10% for the prior quarter.

Total loan production activity was $7.4 billion in unpaid principal balance (UPB), up 44% from the prior quarter, and servicing portfolio reached $93.6 billion in UPB, up 12% from March 31, 2014.

“PennyMac Financial had a strong second quarter with significant earnings contributions and revenue growth in each of our businesses – loan production, loan servicing, and investment management,” said chairman and CEO Stanford L. Kurland. “We believe that our organically built platform, combined with a strong compliance and governance culture, distinguishes PennyMac among mortgage companies. This solid foundation has enabled our continued growth and ability to profitably capture the considerable opportunities in the residential mortgage market.”

Production includes the correspondent acquisition of newly originated mortgage loans for PennyMac Financial’s own account, fulfillment services on behalf of PennyMac Mortgage Investment Trust, and consumer-direct lending.

PennyMac Financial’s loan production activity totaled $7.4 billion in UPB, of which $4.4 billion in UPB was for its own account, and $3.0 billion was fee-based fulfillment activity for PMT. Interest rate lock commitments on correspondent government-insured and consumer-direct loans totaled $5.2 billion in UPB.

Production segment pretax income totaled $32.8 million, an increase of 26% from the first quarter, driven by a 10% increase in net gains on mortgage loans held for sale from the prior quarter.

Servicing segment expenses increased to $33.8 million, a 46% increase from the first quarter, primarily driven by the growth in the servicing portfolio and the initiation of an early buyout program to purchase defaulted loans primarily out of legacy Ginnie Mae pools.

Approximately $7 million in servicing expense during the second quarter was related to employee buyout transactions, which was mostly offset by an increase in the fair value of the MSR asset, as forecasted future costs are reduced by removal of loans from the MSR pool.

The total servicing portfolio reached $93.6 billion in UPB, an increase of 12% from March 31, 2014. Of the total servicing portfolio at June 30, 2014, prime servicing was $89.2 billion in UPB and special servicing was $4.4 billion in UPB.