PennyMac Financial Services, Inc. (NYSE: PFSI) today reported
net income of $58.3 million for the second quarter of 2023, or
$1.11 per share on a diluted basis, on revenue of $336.5 million.
Book value per share increased to $69.77 from $68.91 at March 31,
2023.
PFSI’s Board of Directors declared a second quarter cash
dividend of $0.20 per share, payable on August 25, 2023, to common
stockholders of record as of August 15, 2023.
Second Quarter 2023 Highlights
- Pretax income was $72.9 million, up 91 percent from the prior
quarter and down 59 percent from the second quarter of 2022
- Repurchased 0.4 million shares of PFSI’s common stock at an
average price of $60.31 per share for a cost of $26.1 million
- Production segment pretax income of $24.4 million, compared to
pretax loss of $19.6 million in the prior quarter and pretax income
of $9.7 million in the second quarter of 2022
- Total loan acquisitions and originations, including those
fulfilled for PennyMac Mortgage Investment Trust (NYSE: PMT) were
$24.9 billion in unpaid principal balance (UPB), up 9 percent from
the prior quarter and down 7 percent from the second quarter of
2022
- Broker direct interest rate lock commitments (IRLCs) were $2.8
billion in UPB, up 11 percent from the prior quarter and 27 percent
from the second quarter of 2022
- Consumer direct IRLCs were $2.2 billion in UPB, down 2 percent
from the prior quarter and 50 percent from the second quarter of
2022
- Government correspondent IRLCs totaled $10.7 billion in UPB, up
4 percent from the prior quarter and down 5 percent from the second
quarter of 2022
- Conventional correspondent IRLCs for PFSI’s account totaled
$7.5 billion in UPB, up 99 percent from the prior quarter
- Correspondent acquisitions of conventional conforming loans
fulfilled for PMT were $3.0 billion in UPB, down 54 percent from
the prior quarter and 71 percent from the second quarter of
2022
- Servicing segment pretax income was $46.5 million, down from
$57.4 million in the prior quarter and $167.6 million in the second
quarter of 2022
- Pretax income excluding valuation-related items was $75.3
million, down 20 percent from the prior quarter driven by lower
early buyout (EBO) income, higher realization of mortgage servicing
rights (MSR) cash flows, and higher interest expense partially
offset by higher servicing fee revenue and placement fee
income
- Valuation items included:
- $118.9 million in MSR fair value gains, before recognition of
realization of cash flows, more than offset by $155.1 million in
hedging losses
- Net impact on pretax income related to these items was $(36.2)
million, or $(0.51) in earnings per share
- $7.5 million of reversals related to provisions for losses on
active loans
- Servicing portfolio grew to $576.5 billion in UPB, up 2 percent
from March 31, 2023, driven by production volumes which more than
offset prepayment activity
- Investment Management segment pretax income was $2.0 million,
up from $0.3 million in the prior quarter and $0.2 million in the
second quarter of 2022
- Net assets under management (AUM) were $1.9 billion, down 2
percent from March 31, 2023 and 7 percent from June 30, 2022
Notable activity after quarter end
- PFSI exercised its option to extend the maturity for $650
million in term notes secured by Ginnie Mae MSRs originally due in
August 2023 for two years
“PennyMac Financial reported solid results in the second
quarter, reflecting increased production volumes and profitability
from the prior quarter as well as a continued strong contribution
from our large and growing servicing business,” said Chairman and
CEO David Spector. “Strong operating performance was partially
offset by net valuation-related losses that resulted from the
inverted yield curve and elevated hedge costs driven by multi-year
highs in interest rate volatility. Book value per share was up to
$69.77 at quarter end. We continue to operate at high levels of
efficiency while also focusing on investing in technology to
support our balanced, multi-channel production and servicing
platform.”
Mr. Spector continued, “Though the mortgage origination market
remains constrained, I have never felt better about our competitive
position. Our leading correspondent lending activities continue to
drive the organic growth of our servicing portfolio by adding loans
at prevailing mortgage rates, which we expect will provide
meaningful opportunities for our consumer direct division in future
periods when rates decline. I am also extraordinarily proud of the
growth we have achieved in broker direct since our entrance into
the wholesale channel only five years ago. Our scale, platform and
this management team’s ability to adapt to changing market
environments are the reasons I expect PennyMac Financial to
continue leading the industry with strong financial
performance.”
The following table presents the contributions of PennyMac
Financial’s segments to pretax income:
Quarter ended June 30, 2023
Mortgage Banking
Investment Management
Production
Servicing
Total
Total
(in thousands) Revenue Net gains on loans held for sale at
fair value
$
126,249
$
15,170
$
141,419
$
-
$
141,419
Loan origination fees
38,968
-
38,968
-
38,968
Fulfillment fees from PMT
5,441
-
5,441
-
5,441
Net loan servicing fees
-
146,078
146,078
-
146,078
Management fees
-
-
-
7,078
7,078
Net interest expense: Interest income
75,423
97,529
172,952
-
172,952
Interest expense
75,994
102,648
178,642
-
178,642
(571
)
(5,119
)
(5,690
)
-
(5,690
)
Other
528
304
832
2,421
3,253
Total net revenue
170,615
156,433
327,048
9,499
336,547
Expenses
146,200
109,889
256,089
7,541
263,630
Income before provision for income taxes
$
24,415
$
46,544
$
70,959
$
1,958
$
72,917
Production Segment
The Production segment includes the correspondent acquisition of
newly originated government-insured and certain conventional
conforming loans for PennyMac Financial’s own account, fulfillment
services on behalf of PMT and direct lending through the consumer
direct and broker direct channels, including the underwriting and
acquisition of loans from correspondent sellers on a non-delegated
basis.
PennyMac Financial’s loan production activity for the quarter
totaled $24.9 billion in UPB, $21.9 billion of which was for its
own account, and $3.0 billion of which was fee-based fulfillment
activity for PMT. Correspondent locks for PFSI and direct lending
IRLCs totaled $23.2 billion in UPB, up 23 percent from the prior
quarter and 30 percent from the second quarter of 2022.
Production segment pretax income was $24.4 million, compared to
a pretax loss of $19.6 million in the prior quarter and pretax
income of $9.7 million in the second quarter of 2022. Production
segment revenue totaled $170.6 million, up 40 percent from the
prior quarter and down 24 percent from the second quarter of 2022.
The quarter-over-quarter increase was driven primarily by higher
volumes and margins.
The components of net gains on loans held for sale are detailed
in the following table:
Quarter ended June 30,2023 March 31,2023
June 30,2022 (in thousands) Receipt of MSRs
$
562,523
$
286,533
$
398,253
Mortgage servicing rights recapture payable to PennyMac Mortgage
Investment Trust
(509
)
(485
)
(4,752
)
(Provision for) reversal of liability for representations and
warranties, net
(1,131
)
(290
)
45
Cash loss, including cash hedging results
(308,199
)
(271,524
)
(368,554
)
Fair value changes of pipeline, inventory and hedges
(111,265
)
90,151
197,575
Net gains on mortgage loans held for sale
$
141,419
$
104,385
$
222,567
Net gains on mortgage loans held for sale by segment: Production
$
126,249
$
74,726
$
152,895
Servicing
$
15,170
$
29,659
$
69,672
PennyMac Financial performs fulfillment services for certain
conventional conforming and jumbo loans acquired by PMT from
non-affiliates in its correspondent production business. These
services include, but are not limited to, marketing, relationship
management, correspondent seller approval and monitoring, loan file
review, underwriting, pricing, hedging and activities related to
the subsequent sale and securitization of loans in the secondary
mortgage markets for PMT.
Fees earned from the fulfillment of correspondent loans on
behalf of PMT totaled $5.4 million in the second quarter, down 54
percent from the prior quarter and 74 percent from the second
quarter of 2022. The year-over-year decrease in fulfillment fee
revenue was driven by lower conventional acquisition volumes for
PMT’s account as PFSI acquired a higher proportion of the
conventional loans sourced by PMT in the second quarter of
2023.
Net interest expense totaled $0.6 million, compared to net
interest income of $2.9 million in the prior quarter. Interest
income in the second quarter totaled $75.4 million, up from $57.0
million in the prior quarter, and interest expense totaled $76.0
million, up from $54.1 million in the prior quarter, both due to
higher volumes and short-term interest rates.
Production segment expenses were $146.2 million, up 4 percent
from the prior quarter and down 32 percent from the second quarter
of 2022. The increase from the prior quarter was due to increased
loan origination expenses due to higher volumes. The year-over-year
decrease was driven primarily by decreased production in the direct
lending channels and the expense management activities noted in
prior quarters.
Servicing Segment
The Servicing segment includes income from owned MSRs,
subservicing and special servicing activities. Servicing segment
pretax income was $46.5 million, compared to $57.4 million in the
prior quarter and $167.6 million in the second quarter of 2022.
Servicing segment net revenues totaled $156.4 million, down from
$172.1 million in the prior quarter and $278.6 million in the
second quarter of 2022. The quarter-over-quarter decrease was
primarily driven by a $14.5 million decrease in net gains on loans
held for sale related to EBO activity for government-insured and
guaranteed loans purchased out of Ginnie Mae securitizations.
Revenue from net loan servicing fees totaled $146.1 million,
down from $148.8 million in the prior quarter. Revenue from net
loan servicing fees included $36.2 million in net valuation related
declines, compared to $43.0 million of such declines in the prior
quarter. MSR fair value gains, before realization of cash flows,
were $118.9 million in the quarter, and hedging losses were $155.1
million. Revenue from loan servicing fees included $356.5 million
in servicing fees, which were up from the prior quarter due to
continued portfolio growth, reduced by $174.2 million from the
realization of MSR cash flows, which were up from $146.2 million in
the prior quarter due to increased cash flow generated by the MSR
asset during the quarter from servicing and placement fees.
The following table presents a breakdown of net loan servicing
fees:
Quarter ended June 30,2023 March 31,2023
June 30,2022 (in thousands) Loan servicing fees
$
356,471
$
338,057
$
302,350
Changes in fair value of MSRs and MSLs resulting from: Realization
of cash flows
(174,162
)
(146,183
)
(121,724
)
Change in fair value inputs
118,905
(90,264
)
233,826
Hedging (losses) gains
(155,136
)
47,227
(176,005
)
Net change in fair value of MSRs and MSLs
(210,393
)
(189,220
)
(63,903
)
Net loan servicing fees
$
146,078
$
148,837
$
238,447
Servicing segment revenue included $15.2 million in net gains on
loans held for sale related to EBOs. These gains were down from
$29.7 million in the prior quarter and $69.7 million in the second
quarter of 2022. These EBOs are previously delinquent loans that
were brought back to performing status through PennyMac Financial’s
successful servicing efforts.
Net interest expense totaled $5.1 million, versus $6.2 million
in the prior quarter and $30.4 million in the second quarter of
2022. Interest income was $97.5 million, up from $71.5 million in
the prior quarter driven primarily by increased placement fees on
custodial balances. Interest expense was $102.6 million, up from
$77.7 million in the prior quarter due to higher short-term
interest rates and greater outstanding secured debt during the
quarter.
Servicing segment expenses totaled $109.9 million, down 4
percent from the prior quarter. Servicing segment expenses in the
second quarter included $7.5 million in reversals for credit losses
on active loans. The prior quarter included $6.1 million in such
reversals.
The total servicing portfolio grew to $576.5 billion in UPB at
June 30, 2023, an increase of 2 percent from March 31, 2023 and 9
percent from June 30, 2022. PennyMac Financial subservices and
conducts special servicing for PMT, whose servicing portfolio
totaled $234.5 billion in UPB at quarter end, down 1 percent from
March 31, 2023 and up 4 percent from June 30, 2022. PennyMac
Financial’s owned MSR portfolio grew to $342.0 billion in UPB, up 4
percent from March 31, 2023 and 14 percent from June 30, 2022.
The table below details PennyMac Financial’s servicing portfolio
UPB:
June 30,2023 March 31,2023 June 30,2022 (in
thousands) Prime servicing: Owned Mortgage servicing rights and
liabilities Originated
$
319,257,805
$
302,265,588
$
276,627,961
Purchased
18,474,265
19,026,774
20,683,203
337,732,070
321,292,362
297,311,164
Loans held for sale
4,250,706
6,692,155
3,575,712
341,982,776
327,984,517
300,886,876
Subserviced for PMT
234,463,739
236,476,714
226,365,581
Total prime servicing
576,446,515
564,461,231
527,252,457
Special servicing - subserviced for PMT
12,780
13,167
23,001
Total loans serviced
$
576,459,295
$
564,474,398
$
527,275,458
Investment Management Segment
PennyMac Financial manages PMT for which it earns base
management fees and may earn incentive compensation. Net AUM were
$1.9 billion as of June 30, 2023, down 2 percent from March 31,
2023 and 7 percent from June 30, 2022.
Pretax income for the Investment Management segment was $2.0
million, up from $0.3 million in the prior quarter and $0.2 million
in the second quarter of 2022. Base management fees from PMT were
$7.1 million, down 2 percent from the prior quarter and 11 percent
from the second quarter of 2022 due to the decline in AUM. No
performance incentive fees were earned in the second quarter.
The following table presents a breakdown of management fees:
Quarter ended June 30,2023 March 31,2023
June 30,2022 (in thousands) Management fees: Base
$
7,078
$
7,257
$
7,910
Performance incentive
-
-
-
Total management fees
$
7,078
$
7,257
$
7,910
Net assets of PennyMac Mortgage Investment Trust
$
1,931,496
$
1,970,734
$
2,070,640
Investment Management segment expenses totaled $7.5 million,
down 16 percent from the prior quarter and 20 percent from the
second quarter of 2022.
Consolidated Expenses
Total expenses were $263.6 million, down slightly from the prior
quarter and down 21 percent from the second quarter of 2022. The
decrease from the prior year was driven primarily by the expense
management activities noted in prior quarters.
Taxes
PFSI recorded a provision for tax expense of $14.7 million,
resulting in an effective tax rate of 20.1 percent during the
quarter. The tax rate is lower than PFSI’s 2022 effective tax rate
of 28.5 percent due to certain tax benefits recognized during the
quarter.
Management’s slide presentation and accompanying material will
be available in the Investor Relations section of the Company’s
website at pfsi.pennymac.com after the market closes on Thursday,
July 27, 2023. Additionally, the Company will host a live question
and answer (Q&A) session the same day at 5:00 p.m. Eastern
Time. An audio webcast of the Q&A session will be available at
pfsi.pennymac.com and a replay of the event will be available
shortly after its conclusion.
About PennyMac Financial Services, Inc.
PennyMac Financial Services, Inc. is a specialty financial
services firm focused on the production and servicing of U.S.
mortgage loans and the management of investments related to the
U.S. mortgage market. Founded in 2008, the company is recognized as
a leader in the U.S. residential mortgage industry and employs over
4,000 people across the country. For the twelve months ended June
30, 2023, PennyMac Financial’s production of newly originated loans
totaled $97 billion in unpaid principal balance, making it the
second largest mortgage lender in the nation. As of June 30, 2023,
PennyMac Financial serviced loans totaling $576 billion in unpaid
principal balance, making it a top five mortgage servicer in the
nation. Additional information about PennyMac Financial Services,
Inc. is available at pfsi.pennymac.com.
Forward-Looking Statements
This press release contains forward-looking statements within
the meaning of Section 21E of the Securities Exchange Act of 1934,
as amended, regarding management’s beliefs, estimates, projections,
and assumptions with respect to, among other things, the Company’s
financial results, future operations, business plans and investment
strategies, as well as industry and market conditions, all of which
are subject to change. Words like “believe,” “expect,”
“anticipate,” “promise,” “project,” “plan,” and other expressions
or words of similar meanings, as well as future or conditional
verbs such as “will,” “would,” “should,” “could,” or “may” are
generally intended to identify forward-looking statements. Actual
results and operations for any future period may vary materially
from those projected herein and from past results discussed herein.
Factors which could cause actual results to differ materially from
historical results or those anticipated include, but are not
limited to: interest rate changes; declines in real estate or
significant changes in U.S. housing prices or activity in the U.S.
housing market; the continually changing federal, state and local
laws and regulations applicable to the highly regulated industry in
which we operate; lawsuits or governmental actions that may result
from any noncompliance with the laws and regulations applicable to
our business; the mortgage lending and servicing-related
regulations promulgated by the Consumer Financial Protection Bureau
and its enforcement of these regulations; our dependence on U.S.
government-sponsored entities and changes in their current roles or
their guarantees or guidelines; changes to government mortgage
modification programs; the licensing and operational requirements
of states and other jurisdictions applicable to our business, to
which our bank competitors are not subject; foreclosure delays and
changes in foreclosure practices; changes in macroeconomic and U.S.
real estate market conditions; difficulties inherent in adjusting
the size of our operations to reflect changes in business levels;
purchase opportunities for mortgage servicing rights and our
success in winning bids; our substantial amount of indebtedness;
increases in loan delinquencies, defaults and forbearances; our
reliance on PennyMac Mortgage Investment Trust (NYSE: PMT) as a
significant contributor to our mortgage banking business;
maintaining sufficient capital and liquidity and compliance with
financial covenants; our obligation to indemnify third-party
purchasers or repurchase loans if loans that we originate, acquire,
service or assist in the fulfillment of, fail to meet certain
criteria or characteristics or under other circumstances; our
obligation to indemnify PMT if our services fail to meet certain
criteria or characteristics or under other circumstances;
investment management and incentive fees; conflicts of interest in
allocating our services and investment opportunities among us and
our advised entities; the effect of public opinion on our
reputation; our exposure to risks of loss and disruptions in
operations resulting from adverse weather conditions, man-made or
natural disasters, climate change and pandemics; our ability to
effectively identify, manage and hedge our credit, interest rate,
prepayment, liquidity and climate risks; our initiation or
expansion of new business activities or strategies; our ability to
detect misconduct and fraud; our ability to mitigate cybersecurity
risks and cyber incidents; our ability to pay dividends to our
stockholders; and our organizational structure and certain You
should not place undue reliance on any forward- looking statement
and should consider all of the uncertainties and risks described
above, as well as those more fully discussed in reports and other
documents filed by the Company with the Securities and Exchange
Commission from time to time. The Company undertakes no obligation
to publicly update or revise any forward-looking statements or any
other information contained herein, and the statements made in this
press release are current as of the date of this release only.
The Company’s earnings materials contain financial information
calculated other than in accordance with U.S. generally accepted
accounting principles (“GAAP”), such as pretax income excluding
valuation-related items that provide a meaningful perspective on
the Company’s business results since the Company utilizes this
information to evaluate and manage the business. Non-GAAP
disclosure has limitations as an analytical tool and should not be
viewed as a substitute for financial information determined in
accordance with GAAP.
PENNYMAC FINANCIAL SERVICES,
INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
June 30,2023 March 31,2023 June 30,2022
(in thousands, except share amounts) ASSETS Cash
$
1,532,399
$
1,497,903
$
1,415,396
Short-term investment at fair value
8,088
3,584
4,961
Loans held for sale at fair value
4,270,494
6,772,423
3,586,810
Derivative assets
85,517
110,664
103,901
Servicing advances, net
500,122
547,158
570,822
Mortgage servicing rights at fair value
6,510,585
6,003,390
5,217,167
Operating lease right-of-use assets
56,410
61,406
82,078
Investment in PennyMac Mortgage Investment Trust at fair value
1,011
925
1,037
Receivable from PennyMac Mortgage Investment Trust
25,046
35,166
43,234
Loans eligible for repurchase
4,401,098
4,557,325
2,778,768
Other
593,698
513,241
468,081
Total assets
$
17,984,468
$
20,103,185
$
14,272,255
LIABILITIES Assets sold under agreements to
repurchase
$
3,780,524
$
5,764,157
$
2,441,816
Mortgage loan participation purchase and sale agreements
505,712
515,358
502,116
Notes payable secured by mortgage servicing assets
2,472,726
2,471,930
1,793,260
Unsecured senior notes
1,781,756
1,780,833
1,778,055
Derivative liabilities
22,039
49,087
42,702
Mortgage servicing liabilities at fair value
1,940
2,011
2,337
Accounts payable and accrued expenses
258,278
218,433
317,998
Operating lease liabilities
75,956
81,724
102,756
Payable to PennyMac Mortgage Investment Trust
123,287
142,007
98,991
Payable to exchanged Private National Mortgage Acceptance Company,
LLC unitholders under tax receivable agreement
26,099
26,099
27,014
Income taxes payable
1,026,147
1,010,928
885,721
Liability for loans eligible for repurchase
4,401,098
4,557,325
2,778,768
Liability for losses under representations and warranties
30,146
31,103
39,336
Total liabilities
14,505,708
16,650,995
10,810,870
STOCKHOLDERS' EQUITY Common stock--authorized
200,000,000 shares of $0.0001 par value; issued and outstanding
49,857,588, 50,097,030, and 52,938,854 shares, respectively
5
5
5
Retained earnings
3,478,755
3,452,185
3,461,380
Total stockholders' equity
3,478,760
3,452,190
3,461,385
Total liabilities and stockholders’ equity
$
17,984,468
$
20,103,185
$
14,272,255
PENNYMAC FINANCIAL SERVICES,
INC.
CONSOLIDATED STATEMENTS OF
INCOME (UNAUDITED)
Quarter ended June 30,2023 March
31,2023 June 30,2022 (in thousands, except per share
amounts) Revenues Net gains on loans held for sale at
fair value
$
141,419
$
104,385
$
222,567
Loan origination fees
38,968
31,390
39,945
Fulfillment fees from PennyMac Mortgage Investment Trust
5,441
11,923
20,646
Net loan servicing fees: Loan servicing fees
356,471
338,057
302,350
Change in fair value of mortgage servicing rights, mortgage
servicing liabilities
(55,257
)
(236,447
)
112,102
Mortgage servicing rights hedging results
(155,136
)
47,227
(176,005
)
Net loan servicing fees
146,078
148,837
238,447
Net interest expense: Interest income
172,952
128,478
49,864
Interest expense
178,642
131,771
71,127
(5,690
)
(3,293
)
(21,263
)
Management fees from PennyMac Mortgage Investment Trust
7,078
7,257
7,910
Other
3,253
2,363
3,263
Total net revenues
336,547
302,862
511,515
Expenses Compensation
136,982
147,935
198,192
Technology
35,244
36,038
34,621
Loan origination
31,646
27,086
44,931
Professional services
17,888
21,007
20,793
Servicing
14,652
12,632
3,051
Occupancy and equipment
10,066
8,820
9,371
Marketing and advertising
5,578
3,241
13,007
Other
11,574
7,956
10,023
Total expenses
263,630
264,715
333,989
Income before provision for income taxes
72,917
38,147
177,526
Provision for income taxes
14,667
7,769
48,363
Net income
$
58,250
$
30,378
$
129,163
Earnings per share Basic
$
1.17
$
0.61
$
2.38
Diluted
$
1.11
$
0.57
$
2.28
Weighted-average common shares outstanding Basic
49,874
50,154
54,167
Diluted
52,264
53,352
56,642
Dividend declared per share
$
0.20
$
0.20
$
0.20
View source
version on businesswire.com: https://www.businesswire.com/news/home/20230727858581/en/
Media Kristyn Clark kristyn.clark@pennymac.com
805.395.9943
Investors Kevin Chamberlain Isaac Garden
PFSI_IR@pennymac.com 818.224.7028
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