PennyMac Financial Services Earnings 2020-09-30

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 September 30, 2020

☐

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.

(formerly known as New 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 November 4, 2020
Common Stock, $0.0001 par value		72,444,213

Table of Contents

PENNYMAC FINANCIAL SERVICES, INC.

FORM 10-Q

September 30, 2020

TABLE OF CONTENTS


		Page
	Special Note Regarding Forward-Looking Statements	3

PART I. FINANCIAL INFORMATION		5

Item 1.	Financial Statements (Unaudited):	5
	Consolidated Balance Sheets	5
	Consolidated Statements of Income	6
	Consolidated Statements of Changes in Stockholders’ Equity	7
	Consolidated Statements of Cash Flows	8
	Notes to Consolidated Financial Statements	9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	61
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	80
Item 4.	Controls and Procedures	82

PART II. OTHER INFORMATION		83

Item 1.	Legal Proceedings	83
Item 1A.	Risk Factors	83
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	85
Item 3.	Defaults Upon Senior Securities	85
Item 4.	Mine Safety Disclosures	86
Item 5.	Other Information	86
Item 6.	Exhibits	87

Table of Contents

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, 2019, filed with the Securities and Exchange Commission (“SEC”) on February 28, 2020.

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;

●

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;

●

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

Table of Contents

●

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;

●

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.

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.

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

PENNYMAC FINANCIAL SERVICES, INC.

CONSOLIDATED BALANCE SHEETS (UNAUDITED)


	September 30,		December 31,
	2020		2019

	(in thousands, except share amounts)
ASSETS
Cash (includes $52,599 pledged to creditors at December 31, 2019)	$	529,166	$	188,291
Short-term investments at fair value		102,136		74,611
Loans held for sale at fair value (includes $9,011,545 and $4,846,138 pledged to creditors)		9,126,172		4,912,953
Assets purchased from PennyMac Mortgage Investment Trust under agreements to resell pledged to creditors		86,958		107,512
Derivative assets		578,254		159,686
Servicing advances, net (includes valuation allowance of $141,964 and $82,157; $232,519 and $207,460 pledged to creditors)		393,654		331,169
Mortgage servicing rights at fair value (includes $2,330,600 and $2,920,603 pledged to creditors)		2,333,821		2,926,790
Operating lease right-of-use assets		72,133		73,090
Investment in PennyMac Mortgage Investment Trust at fair value		991		1,672
Receivable from PennyMac Mortgage Investment Trust		122,478		48,159
Loans eligible for repurchase		17,183,873		1,046,527
Other (includes $207,547 and $32,598 pledged to creditors)		651,229

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	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-4.3	pfsi-20200930xex4d3.htm
EX-10.1	pfsi-20200930xex10d1.htm
EX-10.2	pfsi-20200930xex10d2.htm
EX-10.3	pfsi-20200930xex10d3.htm
EX-10.4	pfsi-20200930xex10d4.htm
EX-10.5	pfsi-20200930xex10d5.htm
EX-10.6	pfsi-20200930xex10d6.htm
EX-10.7	pfsi-20200930xex10d7.htm
EX-10.8	pfsi-20200930xex10d8.htm
EX-10.9	pfsi-20200930xex10d9.htm
EX-10.10	pfsi-20200930xex10d10.htm
EX-31.1	pfsi-20200930xex31d1.htm
EX-31.2	pfsi-20200930xex31d2.htm
EX-32.1	pfsi-20200930xex32d1.htm
EX-32.2	pfsi-20200930xex32d2.htm

PFSI 10Q Quarterly Report

PennyMac Financial Services Earnings 2020-09-30