PennyMac Financial Services Earnings 2021-03-31

Balance Sheet	Income Statement	Cash Flow
Assets, Equity	Rev, G Profit, Net Income	Ops, Inv, Fin

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

Form 10-Q

(Mark One)

☒

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2021

☐

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-38727

PennyMac Financial Services, Inc.

(Exact name of registrant as specified in its charter)


Delaware		83-1098934
(State or other jurisdiction of		(IRS Employer
incorporation or organization)		Identification No.)


3043 Townsgate Road, Westlake Village, California		91361
(Address of principal executive offices)		(Zip Code)

(818) 224-7442

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
Common Stock, $0.0001 par value		PFSI		New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer ☒		Accelerated filer ☐

Non-accelerated filer ☐		Smaller reporting company ☐
		Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.


Class		Outstanding at May 4, 2021
Common Stock, $0.0001 par value		66,734,198

Table of Contents

PENNYMAC FINANCIAL SERVICES, INC.

FORM 10-Q

March 31, 2021

TABLE OF CONTENTS


		Page
	Special Note Regarding Forward-Looking Statements	3

PART I. FINANCIAL INFORMATION		6

Item 1.	Financial Statements (Unaudited):	6
	Consolidated Balance Sheets	6
	Consolidated Statements of Income	7
	Consolidated Statements of Changes in Stockholders’ Equity	8
	Consolidated Statements of Cash Flows	9
	Notes to Consolidated Financial Statements	10
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	58
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	74
Item 4.	Controls and Procedures	76

PART II. OTHER INFORMATION		77

Item 1.	Legal Proceedings	77
Item 1A.	Risk Factors	78
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	78
Item 3.	Defaults Upon Senior Securities	78
Item 4.	Mine Safety Disclosures	78
Item 5.	Other Information	78
Item 6.	Exhibits	79

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q (“Report”) contains certain forward-looking statements that are subject to various risks and uncertainties. Forward-looking statements are generally identifiable by use of forward-looking terminology such as “may,” “will,” “should,” “potential,” “intend,” “expect,” “seek,” “anticipate,” “estimate,” “approximately,” “believe,” “could,” “project,” “predict,” “continue,” “plan” or other similar words or expressions.

Forward-looking statements are based on certain assumptions, discuss future expectations, describe future plans and strategies, contain financial and operating projections or state other forward-looking information. Examples of forward-looking statements include the following:

●

projections of our revenues, income, earnings per share, capital structure or other financial items;

●

descriptions of our plans or objectives for future operations, products or services;

●

forecasts of our future economic performance, interest rates, profit margins and our share of future markets; and

●

descriptions of assumptions underlying or relating to any of the foregoing expectations regarding the timing of generating any revenues.

Our ability to predict results or the actual effect of future events, actions, plans or strategies is inherently uncertain. Although we believe that the expectations reflected in such forward-looking statements are based on reasonable assumptions, our actual results and performance could differ materially from those set forth in the forward-looking statements. There are a number of factors, many of which are beyond our control that could cause actual results to differ significantly from management’s expectations. Some of these factors are discussed below.

You should not place undue reliance on any forward-looking statement and should consider the following uncertainties and risks, as well as the risks and uncertainties discussed elsewhere in this Report and the section entitled “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2020, filed with the Securities and Exchange Commission (“SEC”) on February 25, 2021.

Factors that could cause actual results to differ materially from historical results or those anticipated include, but are not limited to:

●

our exposure to risks of loss resulting from adverse weather conditions, man-made or natural disasters, the effect of climate change, and pandemics, such as COVID-19;

●

failure to modify, resell or refinance early buyout loans and or defaults of early buyout loans beyond our expectations;

●

the continually changing federal, state and local laws and regulations applicable to the highly regulated industry in which we operate;

●

lawsuits or governmental actions if we do not comply with the laws and regulations applicable to our businesses;

●

the mortgage lending and servicing-related regulations promulgated by the Consumer Financial Protection Bureau (“CFPB”) 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;

●

foreclosure delays and changes in foreclosure practices;

●

the licensing and operational requirements of states and other jurisdictions applicable to our businesses, to which our bank competitors are not subject;

●

our ability to manage third-party service providers and vendors and their compliance with laws, regulations and investor requirements;

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●

changes in macroeconomic and U.S. real estate market conditions;

●

difficulties inherent in growing loan production volume;

●

difficulties inherent in adjusting the size of our operations to reflect changes in business levels;

●

maintaining sufficient capital and liquidity to support business growth including compliance with financial covenants;

●

changes in prevailing interest rates;

●

our substantial amount of indebtedness;

●

increases in loan delinquencies and defaults;

●

our reliance on PennyMac Mortgage Investment Trust (“PMT”) as a significant source of financing for, and revenue related to, our mortgage banking business;

●

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 exposure to counterparties that are unwilling or unable to honor contractual obligations, including their obligation to indemnify us or repurchase defective mortgage loans;

●

our ability to realize the anticipated benefit of potential future acquisitions of mortgage servicing rights (“MSRs”);

●

our obligation to indemnify PMT if our services fail to meet certain criteria or characteristics or under other circumstances;

●

decreases in the returns on the assets that we select and manage for our clients, and our resulting management and incentive fees;

●

the extensive amount of regulation applicable to our investment management segment;

●

conflicts of interest in allocating our services and investment opportunities among ourselves and PMT;

●

the effect of public opinion on our reputation;

●

our recent growth;

●

our ability to effectively identify, manage, monitor and mitigate financial risks;

●

our initiation of new business activities or expansion of existing business activities;

●

our ability to detect misconduct and fraud;

●

our ability to effectively deploy new information technology applications and infrastructure;

●

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.

Other factors that could also cause results to differ from our expectations may not be described in this Report or any other document. Each of these factors could by itself, or together with one or more other factors, adversely affect our business, results of operations and/or financial condition.

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Forward-looking statements speak only as of the date they are made, and we undertake no obligation to update any forward-looking statement to reflect the impact of circumstances or events that arise after the date the forward-looking statement was made.

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

PENNYMAC FINANCIAL SERVICES, INC.

CONSOLIDATED BALANCE SHEETS (UNAUDITED)


	March 31,		December 31,
	2021		2020

	(in thousands, except share amounts)
ASSETS
Cash	$	441,870	$	532,716
Short-term investments at fair value		24,850		15,217
Loans held for sale at fair value (includes $13,267,667 and $11,457,678 pledged to creditors)		13,385,789		11,616,400
Assets purchased from PennyMac Mortgage Investment Trust under agreements to resell pledged to creditors		—		80,862
Derivative assets		530,852		711,238
Servicing advances, net (includes valuation allowance of $156,315 and $181,433; $373,110 and $413,484 pledged to creditors)		550,150		579,528
Mortgage servicing rights at fair value (includes $3,265,073 and $2,577,964 pledged to creditors)		3,268,910		2,581,174
Operating lease right-of-use assets		74,795		74,934
Investment in PennyMac Mortgage Investment Trust at fair value		1,470		1,105
Receivable from PennyMac Mortgage Investment Trust		68,644		87,005
Loans eligible for repurchase		12,312,393		14,625,447
Other (includes $114,342 and $166,418 pledged to creditors)		638,257		692,169
Total assets	$	31,297,980	$	31,597,795
LIABILITIES
Assets sold under agreements to repurchase	$	10,848,477	$	9,654,797
Mortgage loan participation purchase and sale agreements		518,747		521,477
Obligations under capital lease		10,468		11,864
Notes payable secured by mortgage servicing assets		1,296,285		1,295,840
Unsecured senior notes		1,288,198		645,820
Excess servicing spread financing payable to PennyMac Mortgage Investment Trust at fair value		—		131,750
Derivative liabilities		68,557		42,638
Mortgage servicing liabilities at fair value		46,026		45,324
Accounts payable and accrued expenses		355,429		308,398
Operating lease liabilities		96,069		94,193
Payable to PennyMac Mortgage Investment Trust		164,469		140,306
Payable to exchanged Private National Mortgage Acceptance Company, LLC unitholders under tax receivable agreement		35,165		35,165
Income taxes payable		751,855		622,700
Liability for loans eligible for repurchase		12,312,393		14,625,447
Liability for losses under representations and warranties		38,428		32,688
Total liabilities		27,830,566		28,208,407

Commitments and contingencies – Note 16

STOCKHOLDERS’ EQUITY
Common stock—authorized 200,000,000 shares of $0.0001 par value; issued and outstanding, 66,961,401 and 70,905,532 shares, respectively		7		7
Additional paid-in capital		762,585		1,047,052
Retained earnings		2,704,822		2,342,329
Total stockholders' equity		3,467,414		3,389,388
Total liabilities and stockholders’ equity	$	31,297,980	$	31,597,795

The accompanying notes are an integral part of these consolidated financial statements.

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PENNYMAC FINANCIAL SERVICES, INC.

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)


	Quarter ended March 31,
	2021		2020

	(in thousands, except per share amounts)
Revenues
Net gains on loans held for sale at fair value:
From non-affiliates	$	768,589	$	266,366
From PennyMac Mortgage Investment Trust		(14,248)		77,916
		754,341		344,282
Loan origination fees:
From non-affiliates		95,845		53,591
From PennyMac Mortgage Investment Trust		8,192		3,980
		104,037		57,571
Fulfillment fees from PennyMac Mortgage Investment Trust		60,835		41,940
Net loan servicing fees:
Loan servicing fees:
From non-affiliates		210,753		198,653
From PennyMac Mortgage Investment Trust		19,093		14,521
Other		29,599		28,755
		259,445		241,929
Change in fair value of mortgage servicing rights and mortgage servicing liabilities		223,463		(1,035,213)
Change in fair value of excess servicing spread financing payable to PennyMac Mortgage Investment Trust		(1,037)		14,522
Mortgage servicing rights hedging results		(442,151)		1,036,570
		(219,725)		15,879
Net loan servicing fees		39,720		257,808
Net interest (expense) income:
Interest income:
From non-affiliates		81,694		71,346
From PennyMac Mortgage Investment Trust		387		1,218
		82,081		72,564
Interest expense:
To non-affiliates		106,433		59,538
To PennyMac Mortgage Investment Trust		1,280		1,974
		107,713		61,512
Net interest (expense) income		(25,632)		11,052
Management fees from PennyMac Mortgage Investment Trust		8,449		9,055
Change in fair value of investment in and dividends received from PennyMac Mortgage Investment Trust		401		(857)
Results of real estate acquired in settlement of loans		780		(707)
Other		1,755		1,681
Total net revenues		944,686		721,825
Expenses
Compensation		258,829		168,436
Loan origination		87,392		46,004
Technology		33,672		19,107
Servicing		19,183		42,166
Professional services		13,286		13,404
Occupancy and equipment		9,038		8,038
Other		17,278		9,940
Total expenses		438,678		307,095
Income before provision for income taxes		506,008		414,730
Provision for income taxes		129,140		108,487
Net income	$	376,868	$	306,243
Earnings per share
Basic	$	5.45	$	3.89
Diluted	$	5.15	$	3.73
Weighted average shares outstanding
Basic		69,113		78,689
Diluted		73,117		82,008
Dividend declared per share	$	0.20	$	0.12

The accompanying notes are an integral part of these consolidated financial statements.

Table of Contents

PENNYMAC FINANCIAL SERVICES, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED)


	Quarter ended March 31, 2021
				Additional				Total
	Number of	Par		paid-in		Retained		stockholders'
	shares	value		capital		earnings		equity

	(in thousands)
Balance, December 31, 2020	70,906	$	7	$	1,047,052	$	2,342,329	$	3,389,388
Net income	—		—		—		376,868		376,868
Stock-based compensation	707		—		4,001		—		4,001
Issuance of common stock in settlement of directors' fees	1		—		51		—		51
Repurchase of common stock	(4,653)		—

Price	30.76	EPS	4
Shares	80	P/E	8
MCap	2,473	P/FCF	-1
Net Debt	-202	EBIT	531
TEV	2,271	TEV/EBIT	4
TTM 2019-09-30, in MM, except price, ratios

10-Q	2021-03-31	Filed 2021-05-06
10-K	2020-12-31	Filed 2021-02-25
10-Q	2020-09-30	Filed 2020-11-06
10-Q	2020-06-30	Filed 2020-08-06
10-Q	2020-03-31	Filed 2020-05-07
10-K	2019-12-31	Filed 2020-02-28
10-Q	2019-09-30	Filed 2019-11-04
10-Q	2019-06-30	Filed 2019-08-13
10-Q	2019-06-30	Filed 2019-08-06
10-Q	2019-03-31	Filed 2019-05-06
10-Q	2019-03-31	Filed 2019-05-13
10-K	2018-12-31	Filed 2019-03-05
10-Q	2018-12-31	Filed 2019-02-13
10-K	2018-09-30	Filed 2018-12-26
10-Q	2018-06-30	Filed 2018-08-13
10-Q	2018-03-31	Filed 2018-05-14
10-Q	2017-12-31	Filed 2018-02-12
10-K	2017-09-30	Filed 2017-12-18
10-Q	2017-06-30	Filed 2017-08-14
10-Q	2017-03-31	Filed 2017-05-15
10-Q	2016-12-31	Filed 2017-02-13
10-K	2016-09-30	Filed 2016-12-19
10-Q	2016-06-30	Filed 2016-08-11
10-Q	2016-03-31	Filed 2016-05-12
10-Q	2015-12-31	Filed 2016-02-11
10-K	2015-09-30	Filed 2015-12-17
10-Q	2015-06-30	Filed 2015-08-12
10-Q	2015-03-31	Filed 2015-05-12
10-Q	2014-12-31	Filed 2015-02-13
10-K	2014-09-30	Filed 2014-12-22
10-Q	2014-06-30	Filed 2014-08-13
10-Q	2014-03-31	Filed 2014-05-13
10-Q	2013-12-31	Filed 2014-02-13
10-K	2013-09-30	Filed 2013-12-23
10-Q	2013-06-30	Filed 2013-08-13
10-Q	2013-03-31	Filed 2013-05-13
10-Q	2012-12-31	Filed 2013-02-13
10-K	2012-09-30	Filed 2012-12-20
10-Q	2012-06-30	Filed 2012-08-13
10-Q	2012-03-31	Filed 2012-05-14
10-Q	2011-12-31	Filed 2012-02-13
10-K	2011-09-30	Filed 2011-11-30
10-Q	2011-06-30	Filed 2011-08-12
10-Q	2011-03-31	Filed 2011-05-13
10-Q	2010-12-31	Filed 2011-02-14
10-K	2010-09-30	Filed 2010-11-30
10-Q	2010-08-13	Filed 2010-08-13
10-Q	2010-03-31	Filed 2010-05-14
10-Q	2009-12-31	Filed 2010-02-12

8-K	2020-11-05
8-K	2020-10-15
8-K	2020-10-14
8-K	2020-09-29
8-K	2020-09-24
8-K	2020-09-21
8-K	2020-09-15
8-K	2020-08-05
8-K	2020-06-30
8-K	2020-06-10
8-K	2020-05-28
8-K	2020-05-19
8-K	2020-05-07
8-K	2020-04-24
8-K	2020-04-01
8-K	2020-03-17
8-K	2020-03-16
8-K	2020-03-06
8-K	2020-02-12
8-K	2020-02-06
8-K	2019-11-06
8-K	2019-10-31
8-K	2019-09-09
8-K	2019-08-01
8-K	2019-07-23
8-K	2019-07-02
8-K	2019-05-30
8-K	2019-05-02
8-K	2019-04-10
8-K	2019-03-29
8-K	2019-03-04
8-K	2019-02-20
8-K	2019-02-07
8-K	2018-12-31
8-K	2018-12-06
8-K	2018-06-11
8-K	2018-05-30
8-K	2018-01-05

EX-10.5	pfsi-20210331xex10d5.htm
EX-10.6	pfsi-20210331xex10d6.htm
EX-10.7	pfsi-20210331xex10d7.htm
EX-10.8	pfsi-20210331xex10d8.htm
EX-31.1	pfsi-20210331xex31d1.htm
EX-31.2	pfsi-20210331xex31d2.htm
EX-32.1	pfsi-20210331xex32d1.htm
EX-32.2	pfsi-20210331xex32d2.htm

PFSI 10Q Quarterly Report

PennyMac Financial Services Earnings 2021-03-31