PennyMac Financial Services, Inc. [PFSI] Filings

10-Q 1 pfsi-20240630x10q.htm 10-Q

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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 June 30, 2024

☐

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 July 29, 2024
Common Stock, $0.0001 par value		51,190,677

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PENNYMAC FINANCIAL SERVICES, INC.

FORM 10-Q

June 30, 2024

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	11
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	55
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	74
Item 4.	Controls and Procedures	75

PART II. OTHER INFORMATION		76

Item 1.	Legal Proceedings	76
Item 1A.	Risk Factors	76
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	76
Item 3.	Defaults Upon Senior Securities	76
Item 4.	Mine Safety Disclosures	76
Item 5.	Other Information	76
Item 6.	Exhibits	77

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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, plans and strategies, contain financial and operating projections or state other forward-looking information. Examples of forward-looking statements include, but are not limited to, 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 prepayment rates;

●

discussions of our expectations regarding various macroeconomic factors, including variability in the economy or the impact of current and future regulations and legislation on our business; 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 several 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 Quarterly Report on Form 10-Q (this “Report”), the section entitled “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2023, filed with the Securities and Exchange Commission (“SEC”) on February 21, 2024 and in our other SEC filings.

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

●

interest rate changes;

●

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

●

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 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 in real estate values, housing prices and housing sales;

●

changes to government mortgage modification programs;

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●

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;

●

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

●

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

●

maintaining sufficient capital and liquidity and compliance with financial covenants;

●

our substantial amount of indebtedness;

●

increases in the number of loan delinquencies and defaults;

●

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

●

our reliance on PennyMac Mortgage Investment Trust (“PMT”) as a significant contributor 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 ability to mitigate cybersecurity risks and cyber incidents;

●

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;

●

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 PMT, 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 ability to effectively identify, manage and hedge our credit, interest rate, prepayment, liquidity and climate risks;

●

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

●

our ability to detect misconduct and fraud;

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●

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

●

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.

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

PENNYMAC FINANCIAL SERVICES, INC.

CONSOLIDATED BALANCE SHEETS (UNAUDITED)


	June 30,		December 31,
	2024		2023

	(in thousands, except share amounts)
ASSETS
Cash	$	595,336	$	938,371
Short-term investment at fair value		188,772		10,268
Principal-only stripped mortgage-backed securities at fair value pledged to creditors		914,223		—
Loans held for sale at fair value (includes $6,182,725 and $4,329,501 pledged to creditors)		6,238,959		4,420,691
Derivative assets		145,887		179,079
Servicing advances, net (includes valuation allowance of $68,671 and $73,991; $232,944 and $354,831 pledged to creditors)		414,235		694,038
Mortgage servicing rights at fair value (includes $7,831,978 and $7,033,892 pledged to creditors)		7,923,078		7,099,348
Investment in PennyMac Mortgage Investment Trust at fair value		1,031		1,121
Receivable from PennyMac Mortgage Investment Trust		29,413		29,262
Loans eligible for repurchase		4,560,058		4,889,925
Other (includes $19,834 and $15,653 pledged to creditors)		566,573		582,460
Total assets	$	21,577,565	$	18,844,563
LIABILITIES
Assets sold under agreements to repurchase	$	6,408,428	$	3,763,956
Mortgage loan participation purchase and sale agreements		511,837		446,054
Notes payable secured by mortgage servicing assets		1,723,144		1,873,415
Unsecured senior notes		3,160,226		2,519,651
Derivative liabilities		18,830		53,275
Mortgage servicing liabilities at fair value		1,708		1,805
Accounts payable and accrued expenses		294,812		449,896
Payable to PennyMac Mortgage Investment Trust		100,220		208,210
Payable to exchanged Private National Mortgage Acceptance Company, LLC unitholders under tax receivable agreement		26,099		26,099
Income taxes payable		1,082,397		1,042,886
Liability for loans eligible for repurchase		4,560,058		4,889,925
Liability for losses under representations and warranties		28,688		30,788
Total liabilities		17,916,447		15,305,960

Commitments and contingencies – Note 18

STOCKHOLDERS’ EQUITY
Common stock—authorized 200,000,000 shares of $0.0001 par value; issued and outstanding, 51,017,418 and 50,178,963 shares, respectively		5		5
Additional paid-in capital		30,053		24,287
Retained earnings		3,631,060		3,514,311
Total stockholders' equity		3,661,118		3,538,603
Total liabilities and stockholders' equity	$	21,577,565	$	18,844,563

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 June 30,				Six months ended June 30,
	2024		2023		2024		2023

	(in thousands, except earnings per share)
Revenues
Net gains on loans held for sale at fair value:
From non-affiliates	$	176,537	$	141,928	$	339,331	$	246,798
From PennyMac Mortgage Investment Trust		(473)		(509)		(826)		(994)
		176,064		141,419		338,505		245,804
Loan origination fees:
From non-affiliates		41,644		38,267		77,656		68,247
From PennyMac Mortgage Investment Trust		431		701		790		2,111
		42,075		38,968		78,446		70,358
Fulfillment fees from PennyMac Mortgage Investment Trust		4,427		5,441		8,443		17,364
Net loan servicing fees:
Loan servicing fees:
From non-affiliates		375,040		307,119		733,066		597,816
From PennyMac Mortgage Investment Trust		20,264		20,317		40,526		40,766
Other		45,392		29,035		91,288		55,946
		440,696		356,471		864,880		694,528
Change in fair value of mortgage servicing rights and mortgage servicing liabilities		(101,315)		(55,257)		(129,900)		(291,704)
Mortgage servicing rights hedging results		(171,777)		(155,136)		(466,422)		(107,909)
		(273,092)		(210,393)		(596,322)		(399,613)
Net loan servicing fees		167,604		146,078		268,558		294,915
Net interest expense:
Interest income		200,811		172,952		357,237		301,430
Interest expense		207,871		178,642		373,640		310,413
Net interest expense		(7,060)		(5,690)		(16,403)		(8,983)
Management fees from PennyMac Mortgage Investment Trust		7,133		7,078		14,321		14,335
Change in fair value of investment in and dividends received from PennyMac Mortgage Investment Trust		(40)		116		(30)		142
Results of real estate acquired in settlement of loans		193		199		599		341
Other		15,731		2,938		19,348		5,133
Total net revenues		406,127		336,547		711,787		639,409
Expenses
Compensation		141,956		136,982		288,332		284,917
Technology		35,690		35,244		71,657		71,282
Loan origination		40,270		31,646		70,838		58,732
Servicing		22,920		14,652		39,024		27,284
Professional services		9,404		17,888		18,666		38,895
Occupancy and equipment		7,893		10,066		16,569		18,886
Marketing and advertising		5,445		5,578		9,116		8,819
Other		8,695		11,574		19,848		19,530
Total expenses		272,273		263,630		534,050		528,345
Income before provision for income taxes		133,854		72,917		177,737		111,064
Provision for income taxes		35,596		14,667		40,171		22,436
Net income	$	98,258	$	58,250	$	137,566	$	88,628
Earnings per share
Basic	$	1.93	$	1.17	$	2.71	$	1.77
Diluted	$	1.85	$	1.11	$	2.59	$	1.68
Weighted average shares outstanding
Basic		50,955		49,874		50,751		50,013
Diluted		53,204		52,264		53,140		52,803

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

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PENNYMAC FINANCIAL SERVICES, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED)


	Quarter ended June 30, 2024
				Additional				Total
	Number of	Par		paid-in		Retained		stockholders'
	shares	value		capital		earnings		equity

	(in thousands)
Balance, March 31, 2024	50,908	$	5	$	27,179	$	3,543,199	$	3,570,383
Net income	—		—		—		98,258		98,258
Stock-based compensation	108		—		2,816		—		2,816
Issuance of common stock in settlement of directors' fees	1		—		58		—		58
Common stock dividend ($0.20 per share)	—		—		—		(10,397)		(10,397)
Balance, June 30, 2024	51,017	$	5	$	30,053	$	3,631,060	$	3,661,118

Quarter ended June 30, 2023

Additional

Total

Number of

Par

paid-in

Retained