PennyMac Financial Services, Inc. (NYSE: PFSI) today reported
net income of $30.4 million for the first quarter of 2023, or $0.57
per share on a diluted basis, on revenue of $302.9 million. Book
value per share decreased to $68.91 from $69.44 at December 31,
2022.
PFSI’s Board of Directors declared a first quarter cash dividend
of $0.20 per share, payable on May 26, 2023, to common stockholders
of record as of May 16, 2023.
First Quarter 2023 Highlights
- Pretax income was $38.1 million, down 44 percent from the prior
quarter and 84 percent from the first quarter of 2022
- Repurchased 0.8 million shares of PFSI’s common stock at an
average price of $58.99 per share for a cost of $45.3 million; also
repurchased an additional 0.2 million shares through April 25 at an
average price of $61.24 per share for a cost of $11.0 million
- Issued a new, 5-year $680 million term loan secured by Ginnie
Mae MSRs and servicing advances
- Production segment pretax loss of $19.6 million, compared to
pretax loss of $9.0 million in the prior quarter and pretax income
of $9.3 million in the first quarter of 2022
- Total loan acquisitions and originations, including those
fulfilled for PennyMac Mortgage Investment Trust (NYSE: PMT) were
$22.8 billion in unpaid principal balance (UPB), essentially
unchanged from the prior quarter and down 32 percent from the first
quarter of 2022
- Consumer direct interest rate lock commitments (IRLCs) were
$2.2 billion in UPB, up 31 percent from the prior quarter and down
76 percent from the first quarter of 2022
- Broker direct IRLCs were $2.6 billion in UPB, up 27 percent
from the prior quarter and down 28 percent from the first quarter
of 2022
- Government correspondent IRLCs totaled $10.3 billion in
UPB, down 3 percent from the prior quarter and 17 percent from
the first quarter of 2022
- Conventional correspondent IRLCs for PFSI’s account totaled
$3.8 billion in UPB, down 20 percent from the prior quarter
- Correspondent acquisitions of conventional conforming loans
fulfilled for PennyMac Mortgage Investment Trust (NYSE: PMT) were
$6.6 billion in UPB, down 2 percent from the prior quarter and 32
percent from the first quarter of 2022
- Servicing segment pretax income was $57.4 million, down
from $75.6 million in the prior quarter and $225.2 million in the
first quarter of 2022
- Pretax income excluding valuation-related items was $94.4
million, up 19 percent from the prior quarter driven by higher
servicing fee revenue, placement fee income, and early buyout (EBO)
income partially offset by higher operating expenses and higher
interest expense
- Valuation items included:
- $90.3 million in mortgage servicing rights (MSR) fair value
losses, before recognition of realization of cash flows, partially
offset by $47.2 million in hedging gains
- Net impact on pretax income related to these items was $(43.0)
million, or $(0.59) in earnings per share
- $6.1 million of reversals related to provisions for losses on
active loans
- Servicing portfolio grew to $564.5 billion in UPB, up 2 percent
from December 31, 2022, driven by production volumes which more
than offset prepayment activity
- Investment Management segment pretax income was $0.3 million,
down from $1.2 million in the prior quarter and up from $0.1
million in the first quarter of 2022
- Net assets under management (AUM) were $2.0 billion, up
slightly from December 31, 2022 and down 11 percent from March 31,
2022
“In one of the most challenging mortgage origination markets in
recent history, PennyMac Financial delivered solid net income and
continues to distinguish itself as a best-in-class mortgage
company,” said Chairman and CEO David Spector. “Strong operating
profitability in our servicing segment was partially offset by net
fair value declines on MSRs and hedges primarily due to elevated
hedge costs that resulted from higher interest rate volatility. We
saw improved margins in our broker direct and correspondent lending
channels although production volumes remained low due to
seasonality. We are optimistic about the return to profitability in
this segment as we enter the typical home buying season and given
the work we completed last year to prudently resize our capacity to
the current market environment. We also strengthened our balance
sheet and capital structure this quarter with the issuance of a
$680 million secured term loan from our GMSR financing vehicle at
attractive pricing.”
Mr. Spector continued, “I am very excited for PennyMac
Financial’s future. Our servicing portfolio continues to grow and
our competitive position within the correspondent and broker direct
lending channels has never been better. We are increasingly seeing
new correspondents and brokers turn their attention to Pennymac and
its best-in-class mortgage platform, as a trusted and innovative
business partner. For these reasons, I am confident in PennyMac
Financial’s ability to continue profitably executing against our
strategic plans, while also continuing to grow as a respected
leader in the mortgage industry.”
The following table presents the contributions of PennyMac
Financial’s segments to pretax income:
Quarter ended March 31, 2023 Mortgage Banking
InvestmentManagement Production Servicing
Total Total (in thousands) Revenue Net gains
on loans held for sale at fair value
$
74,726
$
29,659
$
104,385
$
-
$
104,385
Loan origination fees
31,390
-
31,390
-
31,390
Fulfillment fees from PMT
11,923
-
11,923
-
11,923
Net loan servicing fees
-
148,837
148,837
-
148,837
Management fees
-
-
-
7,257
7,257
Net interest income (expense): Interest income
56,993
71,485
128,478
-
128,478
Interest expense
54,083
77,688
131,771
-
131,771
2,910
(6,203
)
(3,293
)
-
(3,293
)
Other
574
(223
)
351
2,012
2,363
Total net revenue
121,523
172,070
293,593
9,269
302,862
Expenses
141,163
114,623
255,786
8,929
264,715
(Loss) income before provision for income taxes
$
(19,640
)
$
57,447
$
37,807
$
340
$
38,147
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 $22.8 billion in UPB, $16.2 billion of which was for its
own account, and $6.6 billion of which was fee-based fulfillment
activity for PMT. Correspondent locks for PFSI and direct lending
IRLCs totaled $18.9 billion in UPB, down 1 percent from the prior
quarter and 25 percent from the first quarter of 2022.
Production segment pretax loss was $19.6 million, compared to a
pretax loss of $9.0 million in the prior quarter and pretax income
of $9.3 million in the first quarter of 2022. Production segment
revenue totaled $121.5 million, down 8 percent from the prior
quarter and 61 percent from the first quarter of 2022. The
quarter-over-quarter decrease was driven primarily by lower net
gains on loans held for sale due to timing, hedging, pricing, and
execution changes.
The components of net gains on loans held for sale are detailed
in the following table:
Quarter ended March 31,2023 December 31,2022
March 31,2022 (in thousands) Receipt of MSRs and
recognition of MSLs in loansale transactions
$
286,533
$
358,462
$
616,302
Mortgage servicing rights recapture payable toPennyMac Mortgage
Investment Trust
(485
)
(512
)
(9,652
)
Provision for representations and warranties, net
(290
)
(444
)
(885
)
Cash loss (1)
(271,524
)
(340,869
)
(54,134
)
Fair value changes of pipeline, inventory andhedges
90,151
85,276
(253,172
)
Net gains on mortgage loans held for sale
$
104,385
$
101,913
$
298,459
Net gains on mortgage loans held for saleby segment: Production
$
74,726
$
84,708
$
221,610
Servicing
$
29,659
$
17,205
$
76,849
(1) Including cash hedging results
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 $11.9 million in the first quarter, down 2
percent from the prior quarter and 29 percent from the first
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 certain of the conventional loans
sourced by PMT in the first quarter of 2023.
Net interest income totaled $2.9 million, down from $6.0 million
in the prior quarter. Interest income in the first quarter totaled
$57.0 million, up from $42.9 million in the prior quarter, and
interest expense totaled $54.1 million, up from $36.8 million in
the prior quarter, both due to higher short-term interest rates and
higher average balances of loans held for sale at fair value.
Production segment expenses were $141.2 million, essentially
unchanged from the prior quarter and down 53 percent from the first
quarter of 2022. 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 $57.4 million, down from $75.6 million in the
prior quarter and $225.2 million in the first quarter of 2022.
Servicing segment net revenues totaled $172.1 million, down from
$199.0 million in the prior quarter and $336.5 million in the first
quarter of 2022. The quarter-over-quarter decrease was primarily
driven by a $34.0 million decrease in net loan servicing fees
partially offset by a $12.5 million increase 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 $148.8 million,
down from $182.8 million in the prior quarter. Revenue from net
loan servicing fees included $43.0 million in net valuation related
declines, while the prior quarter included $9.7 million in net
valuation related gains. MSR fair value losses, before realization
of cash flows, were $90.3 million in the quarter, and hedging gains
were $47.2 million. Revenue from loan servicing fees included
$338.1 million in servicing fees, which were up from the prior
quarter due to continued portfolio growth, reduced by $146.2
million from the realization of MSR cash flows.
The following table presents a breakdown of net loan servicing
fees:
Quarter ended March 31,2023 December 31,2022
March 31,2022 (in thousands) Loan servicing fees
$
338,057
$
321,949
$
291,258
Changes in fair value of MSRs and MSLs resulting from: Realization
of cash flows
(146,183
)
(148,835
)
(111,155
)
Change in fair value inputs
(90,264
)
82,587
324,066
Hedging gains (losses)
47,227
(72,870
)
(217,860
)
Net change in fair value of MSRs and MSLs
(189,220
)
(139,118
)
(4,949
)
Net loan servicing fees
$
148,837
$
182,831
$
286,309
Servicing segment revenue included $29.7 million in net gains on
loans held for sale related to EBOs. These gains were up from $17.2
million in the prior quarter and down from $76.8 million in the
first 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 $6.2 million, versus $2.7 million
in the prior quarter and $27.3 million in the first quarter of
2022. Interest income was $71.5 million, up from $64.5 million in
the prior quarter driven primarily by increased placement fees on
custodial balances. Interest expense was $77.7 million, up from
$67.2 million in the prior quarter due to higher short-term
interest rates and the issuance of a $680 million term loan.
Servicing segment expenses totaled $114.6 million, down 7
percent from the prior quarter. Servicing segment expenses included
$6.1 million in reversals for credit losses on active loans in the
first quarter. The prior quarter included $13.2 million in
provisions for credit losses on active loans.
The total servicing portfolio grew to $564.5 billion in UPB at
March 31, 2023, an increase of 2 percent from December 31, 2022 and
9 percent from March 31, 2022. PennyMac Financial subservices and
conducts special servicing for $236.5 billion in UPB, an increase
of 1 percent from December 31, 2022 and 6 percent from March 31,
2022. PennyMac Financial’s owned MSR portfolio grew to $328.0
billion in UPB, an increase of 3 percent from December 31, 2022 and
11 percent from March 31, 2022.
The table below details PennyMac Financial’s servicing portfolio
UPB:
March 31,2023 December 31,2022 March 31,2022
(in thousands) Prime servicing: Owned Mortgage servicing
rights and liabilities Originated
$
302,265,588
$
295,032,674
$
268,886,759
Acquisitions
19,026,774
19,568,122
21,911,132
321,292,362
314,600,796
290,797,891
Loans held for sale
6,692,155
3,498,214
5,125,298
327,984,517
318,099,010
295,923,189
Subserviced for PMT
236,476,714
233,554,875
222,864,324
Total prime servicing
564,461,231
551,653,885
518,787,513
Special servicing - subserviced for PMT
13,167
20,797
23,047
Total loans serviced
$
564,474,398
$
551,674,682
$
518,810,560
Investment Management Segment
PennyMac Financial manages PMT for which it earns base
management fees and may earn incentive compensation. Net AUM were
$2.0 billion as of March 31, 2023, up slightly from December 31,
2022 and down 11 percent from March 31, 2022.
Pretax income for the Investment Management segment was $0.3
million, down from $1.2 million in the prior quarter and up from
$0.1 million in the first quarter of 2022. Base management fees
from PMT were $7.3 million, unchanged from the prior quarter and
down from $8.1 million in the first quarter of 2022 due to the
decline in AUM. No performance incentive fees were earned in the
first quarter.
The following table presents a breakdown of management fees:
Quarter ended March 31,2023 December 31,2022
March 31,2022 (in thousands) Management fees: Base
$
7,257
$
7,307
$
8,117
Performance incentive
-
-
-
Total management fees
$
7,257
$
7,307
$
8,117
Net assets of PennyMac Mortgage Investment Trust
$
1,970,734
$
1,962,815
$
2,221,938
Investment Management segment expenses totaled $8.9 million, up
3 percent from the prior quarter and down 11 percent from the first
quarter of 2022.
Consolidated Expenses
Total expenses were $264.7 million, down 3 percent from the
prior quarter and 37 percent from the first quarter of 2022. The
decrease from the prior quarter was driven primarily by the
aforementioned decrease in servicing expenses and the decrease from
the first quarter of 2022 was driven by expense management
activities noted in prior quarters.
Taxes
PFSI recorded a provision for tax expense of $7.8 million,
resulting in an effective tax rate of 20.4 percent during the
quarter.
Management’s slide presentation will be available in the
Investor Relations section of the Company’s website at
pfsi.pennymac.com after the market closes on Thursday, April 27,
2023.
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 March
31, 2023, PennyMac Financial’s production of newly originated loans
totaled $98 billion in unpaid principal balance, making it the
third largest mortgage lender in the nation. As of March 31, 2023,
PennyMac Financial serviced loans totaling $564 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;
the discontinuation of LIBOR; 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; decreases in 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 requirements in our charter documents. 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)
March 31,2023 December 31,2022 March
31,2022 (in thousands, except share amounts)
ASSETS Cash
$
1,497,903
$
1,328,536
$
489,799
Short-term investments at fair value
3,584
12,194
78,006
Loans held for sale at fair value
6,772,423
3,509,300
5,119,234
Derivative assets
110,664
99,003
225,071
Servicing advances, net
547,158
696,753
616,874
Mortgage servicing rights at fair value
6,003,390
5,953,621
4,707,039
Operating lease right-of-use assets
61,406
65,866
85,262
Investment in PennyMac Mortgage Investment Trustat fair value
925
929
1,267
Receivable from PennyMac Mortgage Investment Trust
35,166
36,372
27,722
Loans eligible for repurchase
4,557,325
4,702,103
2,721,574
Other
513,241
417,907
546,054
Total assets
$
20,103,185
$
16,822,584
$
14,617,902
LIABILITIES Assets sold under agreements to
repurchase
$
5,764,157
$
3,001,283
$
3,333,444
Mortgage loan participation purchase and sale agreements
515,358
287,592
494,396
Obligations under capital lease
-
-
1,396
Notes payable secured by mortgage servicing assets
2,471,930
1,942,646
1,298,067
Unsecured senior notes
1,780,833
1,779,920
1,777,132
Derivative liabilities
49,087
21,712
90,837
Mortgage servicing liabilities at fair value
2,011
2,096
2,564
Accounts payable and accrued expenses
218,433
262,358
371,908
Operating lease liabilities
81,724
85,550
106,316
Payable to PennyMac Mortgage Investment Trust
142,007
205,011
159,468
Payable to exchanged Private National MortgageAcceptance Company,
LLC unitholders undertax receivable agreement
26,099
26,099
30,530
Income taxes payable
1,010,928
1,002,744
745,873
Liability for loans eligible for repurchase
4,557,325
4,702,103
2,721,574
Liability for losses under representations and warranties
31,103
32,421
42,794
Total liabilities
16,650,995
13,351,535
11,176,299
STOCKHOLDERS' EQUITY Common stock--authorized
200,000,000 shares of $0.0001par value; issued and outstanding
50,097,030, 49,988,492,and 55,341,627 shares, respectively
5
5
6
Retained earnings
3,452,185
3,471,044
3,441,597
Total stockholders' equity
3,452,190
3,471,049
3,441,603
Total liabilities and stockholders’ equity
$
20,103,185
$
16,822,584
$
14,617,902
PENNYMAC FINANCIAL SERVICES,
INC.
CONSOLIDATED STATEMENTS OF
INCOME (UNAUDITED)
Quarter ended March 31,2023 December
31,2022 March 31,2022 (in thousands, except per share
amounts) Revenue Net gains on loans held for sale at
fair value
$
104,385
$
101,913
$
298,459
Loan origination fees
31,390
28,019
67,858
Fulfillment fees from PennyMac Mortgage Investment Trust
11,923
12,184
16,754
Net loan servicing fees: Loan servicing fees
338,057
321,949
291,258
Change in fair value of mortgage servicing rights,
mortgageservicing liabilities and excess servicing spread financing
(236,447
)
(66,248
)
212,911
Mortgage servicing rights hedging results
47,227
(72,870
)
(217,860
)
Net loan servicing fees
148,837
182,831
286,309
Net interest (expense) income: Interest income
128,478
107,322
53,882
Interest expense
131,771
104,028
77,307
(3,293
)
3,294
(23,425
)
Management fees from PennyMac Mortgage Investment Trust
7,257
7,307
8,117
Other
2,363
4,898
3,432
Total net revenue
302,862
340,446
657,504
Expenses Compensation
147,935
133,699
245,547
Technology
36,038
34,896
34,786
Loan origination
27,086
25,002
75,333
Professional services
21,007
16,144
20,103
Servicing
12,632
37,424
(1,246
)
Occupancy and equipment
8,820
9,985
9,469
Marketing and advertising
3,241
3,751
22,403
Other
7,956
11,816
16,589
Total expenses
264,715
272,717
422,984
Income before provision for income taxes
38,147
67,729
234,520
Provision for income taxes
7,769
30,112
60,927
Net income
$
30,378
$
37,617
$
173,593
Earnings per share Basic
$
0.61
$
0.75
$
3.11
Diluted
$
0.57
$
0.71
$
2.94
Weighted-average common shares outstanding Basic
50,154
50,164
55,831
Diluted
53,352
53,088
59,129
Dividend declared per share
$
0.20
$
0.20
$
0.20
View source
version on businesswire.com: https://www.businesswire.com/news/home/20230427005827/en/
Media Kristyn Clark kristyn.clark@pennymac.com
805.395.9943
Investors Kevin Chamberlain Isaac Garden
PFSI_IR@pennymac.com 818.224.7028
PennyMac Financial Servi... (NYSE:PFSI)
Historical Stock Chart
From Apr 2024 to May 2024
PennyMac Financial Servi... (NYSE:PFSI)
Historical Stock Chart
From May 2023 to May 2024