PennyMac Financial Services, Inc. (NYSE: PFSI) today reported
net income of $92.9 million for the third quarter of 2023, or $1.77
per share on a diluted basis, on revenue of $400.3 million. Book
value per share increased to $71.56 from $69.77 at June 30,
2023.
PFSI’s Board of Directors declared a third quarter cash dividend
of $0.20 per share, payable on November 22, 2023, to common
stockholders of record as of November 13, 2023.
Third Quarter 2023 Highlights
- Pretax income was $126.8 million, up 74 percent from the prior
quarter and down 32 percent from the third quarter of 2022
- Production segment pretax income was $25.2 million, up slightly
from $24.4 million in the prior quarter and down from $38.6 million
in the third quarter of 2022
- Total loan acquisitions and originations, including those
fulfilled for PennyMac Mortgage Investment Trust (NYSE: PMT), were
$25.1 billion in unpaid principal balance (UPB), up slightly from
the prior quarter and down 4 percent from the third quarter of
2022
- Broker direct interest rate lock commitments (IRLCs) were $3.0
billion in UPB, up 6 percent from the prior quarter and 60 percent
from the third quarter of 2022
- Consumer direct IRLCs were $1.7 billion in UPB, down 21 percent
from the prior quarter and 55 percent from the third quarter of
2022
- Government correspondent IRLCs totaled $10.1 billion in UPB,
down 6 percent from the prior quarter and 19 percent from the third
quarter of 2022
- Conventional correspondent IRLCs for PFSI’s account totaled
$10.3 billion in UPB, up 37 percent from the prior quarter
- Correspondent acquisitions of conventional conforming loans
fulfilled for PMT were $2.8 billion in UPB, down 9 percent from the
prior quarter and 73 percent from the third quarter of 2022
- Servicing segment pretax income was $101.2 million, up from
$46.5 million in the prior quarter and down from $145.3 million in
the third quarter of 2022
- Pretax income excluding valuation-related items was $120.0
million, up 59 percent from the prior quarter, primarily driven by
higher servicing fee revenue, net interest income and early buyout
(EBO) income
- Valuation items included:
- $398.9 million in mortgage servicing rights (MSR) fair value
gains, before recognition of realization of cash flows, more than
offset by $423.7 million in hedging losses
- Net impact on pretax income related to these items was $(24.8)
million, or $(0.34) in diluted earnings per share
- $6.0 million of reversals related to provisions for losses on
active loans
- Servicing portfolio grew to $589.4 billion in UPB, up 2 percent
from June 30, 2023, driven by production volumes which more than
offset prepayment activity
- Investment Management segment pretax income was $0.4 million,
down from $2.0 million in the prior quarter and $1.6 million in the
third quarter of 2022
- Net assets under management (AUM) were $1.9 billion, up
slightly from June 30, 2023, and down 3 percent from September 30,
2022
- 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
Notable activity after quarter end
- Issued new, 5-year $125 million term loan secured by Ginnie Mae
MSR and servicing advances
“PennyMac Financial produced outstanding results in the third
quarter, returning to a double-digit annualized return on equity,”
said Chairman and CEO David Spector. “While average mortgage rates
were up 50 basis points from the prior quarter, we demonstrated the
earnings power of our balanced business model with exceptionally
strong operating income from our large and growing servicing
business combined with continued profitability in production. As a
result, book value per share grew 3 percent from the prior
quarter.”
Mr. Spector continued, “PennyMac Financial’s strong financial
and operational performance allowed us to continue gaining market
share in recent periods, driven by continued superior execution in
our correspondent channel and growth in broker-direct lending. Our
strength in production has allowed us to meaningfully and
organically grow our servicing portfolio, which is now approaching
$600 billion in unpaid principal balance. In this environment, with
interest rates expected to stay higher for longer, our servicing
portfolio provides strong profitability with the operational
efficiency and scale we have achieved. Our results this quarter
highlight our management team’s ability to successfully navigate
this challenging mortgage landscape while also positioning PennyMac
Financial to generate increasingly stronger returns over time.”
The following table presents the contributions of PennyMac
Financial’s segments to pretax income:
Quarter ended September 30, 2023 Mortgage Banking
InvestmentManagement Production Servicing
Total Total (in thousands) Revenue Net gains
on loans held for sale at fair value
$
127,821
$
23,553
$
151,374
$
-
$
151,374
Loan origination fees
37,701
-
37,701
-
37,701
Fulfillment fees from PMT
5,531
-
5,531
-
5,531
Net loan servicing fees
-
185,374
185,374
-
185,374
Management fees
-
-
-
7,175
7,175
Net interest income: Interest income
62,150
104,402
166,552
-
166,552
Interest expense
59,614
97,249
156,863
-
156,863
2,536
7,153
9,689
-
9,689
Other
823
1,037
1,860
1,604
3,464
Total net revenue
174,412
217,117
391,529
8,779
400,308
Expenses
149,219
115,913
265,132
8,379
273,511
Income before provision for income taxes
$
25,193
$
101,204
$
126,397
$
400
$
126,797
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 $25.1 billion in UPB, $22.3 billion of which was for its
own account and $2.8 billion of which was fee-based fulfillment
activity for PMT. Correspondent locks for PFSI and direct lending
IRLCs totaled $25.1 billion in UPB, up 8 percent from the prior
quarter and 39 percent from the third quarter of 2022.
Production segment pretax income was $25.2 million, compared to
$24.4 million in the prior quarter and $38.6 million in the third
quarter of 2022. Production segment revenue totaled $174.4 million,
up 2 percent from the prior quarter and down 13 percent from the
third quarter of 2022.
The components of net gains on loans held for sale are detailed
in the following table:
Quarter ended September 30,2023 June 30,2023
September 30,2022 (in thousands) Receipt of MSRs
$
450,936
$
562,523
$
345,077
Mortgage servicing rights recapture payable to PennyMac Mortgage
Investment Trust
(500
)
(509
)
(1,648
)
(Provision for) reversal of liability for representations and
warranties, net
(1,459
)
(1,131
)
118
Cash loss, including cash hedging results
(251,245
)
(308,199
)
(16,795
)
Fair value changes of pipeline, inventory and hedges
(46,358
)
(111,265
)
(158,058
)
Net gains on mortgage loans held for sale
$
151,374
$
141,419
$
168,694
Net gains on mortgage loans held for sale by segment: Production
$
127,821
$
126,249
$
140,683
Servicing
$
23,553
$
15,170
$
28,011
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 $5.5 million in the third quarter, up 2
percent from the prior quarter and down 70 percent from the third
quarter of 2022. The year-over-year decrease in fulfillment fee
revenue was driven by lower conventional acquisition volumes for
PMT’s account. PFSI began acquiring certain conventional loans
sourced through PMT’s correspondent production business in the
fourth quarter of 2022.
Net interest income totaled $2.5 million, compared to net
interest expense of $0.6 million in the prior quarter. Interest
income in the third quarter totaled $62.2 million, down from $75.4
million in the prior quarter, and interest expense totaled $59.6
million, down from $76.0 million in the prior quarter, both
primarily due to lower average financing balances for loans held
for sale at fair value.
Production segment expenses were $149.2 million, up 2 percent
from the prior quarter and down 7 percent from the third quarter of
2022. The increase from the prior quarter was due to higher overall
loan volumes while the decrease from the third quarter of 2022 was
driven primarily by lower volumes in the direct lending channels
and expense management activities in 2022.
Servicing Segment
The Servicing segment includes income from owned MSRs,
subservicing and special servicing activities. The total servicing
portfolio grew to $589.4 billion in UPB at September 30, 2023, an
increase of 2 percent from June 30, 2023, and 9 percent from
September 30, 2022. PennyMac Financial subservices and conducts
special servicing for PMT, whose servicing portfolio totaled $232.9
billion in UPB at quarter end, down 1 percent from June 30, 2023,
and up 1 percent from September 30, 2022. PennyMac Financial’s
owned MSR portfolio grew to $356.5 billion in UPB, up 4 percent
from June 30, 2023, and 16 percent from September 30, 2022.
The table below details PennyMac Financial’s servicing portfolio
UPB:
September 30,2023 June 30,2023 September
30,2022 (in thousands) Prime servicing: Owned Mortgage
servicing rights and liabilities Originated
$
333,372,910
$
319,257,805
$
283,653,037
Purchased
17,924,005
18,474,265
20,182,332
351,296,915
337,732,070
303,835,369
Loans held for sale
5,181,866
4,250,706
4,287,585
356,478,781
341,982,776
308,122,954
Subserviced for PMT
232,903,327
234,463,739
230,959,804
Total prime servicing
589,382,108
576,446,515
539,082,758
Special servicing - subserviced for PMT
10,780
12,780
19,015
Total loans serviced
$
589,392,888
$
576,459,295
$
539,101,773
Servicing segment pretax income was $101.2 million, compared to
$46.5 million in the prior quarter and $145.3 million in the third
quarter of 2022. Servicing segment net revenues totaled $217.1
million, up from $156.4 million in the prior quarter and down from
$266.5 million in the third quarter of 2022. The
quarter-over-quarter increase was driven by higher net loan
servicing fees, net interest income and net gains on loans held for
sale at fair value related to EBO activity.
Revenue from net loan servicing fees totaled $185.4 million, up
from $146.1 million in the prior quarter. Loan servicing fees were
$387.9 million, up from $356.5 million in the prior quarter
primarily due to growth in PFSI’s owned portfolio, reduced by
$177.8 million in realization of MSR cash flows, which was up
slightly from the prior quarter due to larger average MSR fair
values. Net valuation related declines totaled $24.8 million,
compared to $36.2 million of such declines in the prior quarter.
MSR fair value gains, before realization of cash flows, were $398.9
million in the quarter, and hedging losses were $423.7 million,
both primarily due to higher market interest rates.
The following table presents a breakdown of net loan servicing
fees:
Quarter ended September 30,2023 June 30,2023
September 30,2022 (in thousands) Loan servicing fees
$
387,934
$
356,471
$
313,080
Changes in fair value of MSRs and MSLs resulting from: Realization
of cash flows
(177,775
)
(174,162
)
(141,781
)
Change in fair value inputs
398,871
118,905
237,192
Hedging losses
(423,656
)
(155,136
)
(164,749
)
Net change in fair value of MSRs and MSLs
(202,560
)
(210,393
)
(69,338
)
Net loan servicing fees
$
185,374
$
146,078
$
243,742
Servicing segment revenue included $23.6 million in net gains on
loans held for sale related to EBOs, up from $15.2 million in the
prior quarter and down from $28.0 million in the third 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 income totaled $7.2 million, versus net interest
expense of $5.1 million in the prior quarter and net interest
expense of $5.8 million in the third quarter of 2022. Interest
income was $104.4 million, up from $97.5 million in the prior
quarter driven primarily by increased placement fees on custodial
balances due to higher short-term interest rates. Interest expense
was $97.2 million, down from $102.6 million in the prior quarter
due to lower average balances of secured debt outstanding.
Servicing segment expenses totaled $115.9 million, up 5 percent
from the prior quarter primarily due to performance-based
compensation accruals and down 4 percent from the third quarter of
2022 due to expense management activities and lower provisions for
losses on servicing advances.
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 September 30, 2023, up 1 percent from June 30,
2023, and down 3 percent from September 30, 2022.
Pretax income for the Investment Management segment was $0.4
million, down from $2.0 million in the prior quarter and $1.6
million in the third quarter of 2022. Base management fees from PMT
were $7.2 million, up 1 percent from the prior quarter and down 7
percent from the third quarter of 2022 due to the decline in AUM.
No performance incentive fees were earned in the third quarter.
The following table presents a breakdown of management fees:
Quarter ended September 30,2023 June 30,2023
September 30,2022 (in thousands) Management fees:
Base
$
7,175
$
7,078
$
7,731
Performance incentive
-
-
-
Total management fees
$
7,175
$
7,078
$
7,731
Net assets of PennyMac Mortgage Investment Trust
$
1,949,078
$
1,931,496
$
2,017,331
Investment Management segment expenses totaled $8.4 million, up
11 percent from the prior quarter and down 4 percent from the third
quarter of 2022.
Consolidated Expenses
Total expenses were $273.5 million, up 4 percent from the prior
quarter and down 6 percent from the third quarter of 2022. The
increase from the prior quarter was primarily due to higher
production and servicing expenses as mentioned above, and the
decrease from the prior year was primarily due to lower direct
lending volumes and expense management activities in 2022.
Taxes
PFSI recorded a provision for tax expense of $33.9 million,
resulting in an effective tax rate of 26.8 percent 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,
October 26, 2023. Management will also host a conference call and
live audio webcast at 5:00 p.m. Eastern Time to review the
Company’s financial results. The webcast can be accessed at
pfsi.pennymac.com, and a replay 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
September 30, 2023, PennyMac Financial’s production of newly
originated loans totaled $96 billion in unpaid principal balance,
making it the second largest mortgage lender in the nation. As of
September 30, 2023, PennyMac Financial serviced loans totaling $589
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; changes in real estate values,
housing prices and housing sales; 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 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)
September 30,2023 June 30,2023 September
30,2022 (in thousands, except share amounts)
ASSETS Cash
$
1,177,304
$
1,532,399
$
1,558,679
Short-term investment at fair value
5,553
8,088
36,098
Loans held for sale at fair value
5,186,656
4,270,494
4,149,726
Derivative assets
103,366
85,517
164,160
Servicing advances, net
399,281
500,122
455,083
Mortgage servicing rights at fair value
7,084,356
6,510,585
5,661,672
Operating lease right-of-use assets
53,419
56,410
72,138
Investment in PennyMac Mortgage Investment Trust at fair value
930
1,011
884
Receivable from PennyMac Mortgage Investment Trust
27,613
25,046
32,306
Loans eligible for repurchase
4,445,814
4,401,098
3,757,538
Other
465,022
593,698
473,527
Total assets
$
18,949,314
$
17,984,468
$
16,361,811
LIABILITIES Assets sold under agreements to
repurchase
$
4,411,747
$
3,780,524
$
3,487,335
Mortgage loan participation purchase and sale agreements
498,392
505,712
367,473
Notes payable secured by mortgage servicing assets
2,673,402
2,472,726
1,793,972
Unsecured senior notes
1,782,689
1,781,756
1,778,988
Derivative liabilities
41,200
22,039
125,487
Mortgage servicing liabilities at fair value
1,818
1,940
2,214
Accounts payable and accrued expenses
236,611
258,278
358,187
Operating lease liabilities
70,210
75,956
92,380
Payable to PennyMac Mortgage Investment Trust
97,975
123,287
87,978
Payable to exchanged Private National Mortgage Acceptance Company,
LLC unitholders under tax receivable agreement
26,099
26,099
26,675
Income taxes payable
1,059,993
1,026,147
964,307
Liability for loans eligible for repurchase
4,445,814
4,401,098
3,757,538
Liability for losses under representations and warranties
30,491
30,146
37,187
Total liabilities
15,376,441
14,505,708
12,879,721
STOCKHOLDERS' EQUITY Common stock--authorized
200,000,000 shares of $0.0001 par value; issued and outstanding
49,925,752, 49,857,588, and 51,011,021 shares, respectively
5
5
5
Additional paid-in capital
11,475
-
-
Retained earnings
3,561,393
3,478,755
3,482,085
Total stockholders' equity
3,572,873
3,478,760
3,482,090
Total liabilities and stockholders’ equity
$
18,949,314
$
17,984,468
$
16,361,811
PENNYMAC FINANCIAL SERVICES,
INC.
CONSOLIDATED STATEMENTS OF
INCOME (UNAUDITED)
Quarter ended September 30,2023 June
30,2023 September 30,2022 (in thousands, except per
share amounts) Revenues Net gains on loans held for sale
at fair value
$
151,374
$
141,419
$
168,694
Loan origination fees
37,701
38,968
34,037
Fulfillment fees from PennyMac Mortgage Investment Trust
5,531
5,441
18,407
Net loan servicing fees: Loan servicing fees
387,934
356,471
313,080
Change in fair value of mortgage servicing rights and mortgage
servicing liabilities
221,096
(55,257
)
95,411
Mortgage servicing rights hedging results
(423,656
)
(155,136
)
(164,749
)
Net loan servicing fees
185,374
146,078
243,742
Net interest income (expense): Interest income
166,552
172,952
82,994
Interest expense
156,863
178,642
82,965
9,689
(5,690
)
29
Management fees from PennyMac Mortgage Investment Trust
7,175
7,078
7,731
Other
3,464
3,253
3,650
Total net revenues
400,308
336,547
476,290
Expenses Compensation
156,909
136,982
157,793
Technology
39,000
35,244
35,647
Loan origination
28,889
31,646
28,356
Professional services
11,942
17,888
16,230
Servicing
13,242
14,652
20,399
Occupancy and equipment
8,900
10,066
11,299
Marketing and advertising
4,632
5,578
7,601
Other
9,997
11,574
13,493
Total expenses
273,511
263,630
290,818
Income before provision for income taxes
126,797
72,917
185,472
Provision for income taxes
33,927
14,667
50,338
Net income
$
92,870
$
58,250
$
135,134
Earnings per share Basic
$
1.86
$
1.17
$
2.59
Diluted
$
1.77
$
1.11
$
2.46
Weighted-average common shares outstanding Basic
49,902
49,874
52,170
Diluted
52,561
52,264
54,968
Dividend declared per share
$
0.20
$
0.20
$
0.20
View source
version on businesswire.com: https://www.businesswire.com/news/home/20231026552596/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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