PennyMac Financial Services, Inc. Reports First Quarter 2021 Results

Rhea-AI Summary

PennyMac Financial Services (NYSE: PFSI) reported net income of $376.9 million for Q1 2021, translating to $5.15 per share. Revenue reached $944.7 million, with a book value per share increase to $51.78. The firm declared a cash dividend of $0.20 per share, payable on May 27, 2021. Pretax income fell 18% from the prior quarter to $506 million, though it rose 22% year-over-year. The production segment saw income decline by 37%, while record locking of $19.1 billion in interest rate lock commitments was reported.

Positive

• Net income for Q1 2021 was $376.9 million, or $5.15 per share.
• Book value per share increased to $51.78 from $47.80 at year-end 2020.
• Declared a first quarter cash dividend of $0.20 per share.
• Direct lending interest rate lock commitments reached a record $19.1 billion in UPB.
• Servicing portfolio grew to $448.8 billion in UPB, up 5% from Q4 2020.

Negative

• Pretax income down 18% from prior quarter.
• Production segment pretax income decreased by 37% from previous quarter.

PennyMac Financial Services, Inc. (NYSE: PFSI) today reported net income of $376.9 million for the first quarter of 2021, or $5.15 per share on a diluted basis, on revenue of $944.7 million. Book value per share increased to $51.78 from $47.80 at December 31, 2020.

PFSI’s Board of Directors declared a first quarter cash dividend of $0.20 per share, payable on May 27, 2021, to common stockholders of record as of May 17, 2021.

First Quarter 2021 Highlights

• Pretax income was $506.0 million, down 18 percent from the prior quarter and up 22 percent from the first quarter of 2020
  • Earnings reflect continued strong production and core servicing results partially offset by the performance of our hedged mortgage servicing rights
  • Repurchased approximately 4.7 million shares of PFSI’s common stock for an approximate cost of $288.4 million; repurchased an additional 270,000 shares in April for an approximate cost of $15.8 million
  • Issued $650 million of 8-year senior unsecured notes
• Production segment pretax income of $362.9 million, down 37 percent from the prior quarter and up 51 percent from the first quarter of 2020
  • Direct lending interest rate lock commitments (IRLCs) were a record $19.1 billion in unpaid principal balance (UPB), up 3 percent from the prior quarter and 92 percent from the first quarter of 2020
    – $13.4 billion in UPB of IRLCs in the consumer direct channel; $5.7 billion in UPB of IRLCs in the broker direct channel
  • Government correspondent IRLCs totaled $17.1 billion in UPB, down 14 percent from the prior quarter and up 15 percent from the first quarter of 2020
  • Total loan acquisitions and originations were $67.0 billion in UPB, down 4 percent from the prior quarter and up 89 percent from the first quarter of 2020
  • Correspondent acquisitions of conventional loans fulfilled for PennyMac Mortgage Investment Trust (NYSE: PMT) were $33.8 billion in UPB, down 11 percent from the prior quarter and up 109 percent from the first quarter of 2020
• Servicing segment pretax income was $141.7 million, up from $42.0 million in the prior quarter and down from $170.8 million in the first quarter of 2020
  • Pretax income excluding valuation-related items was $258.4 million, up 10 percent from the prior quarter and up 511 percent from the first quarter of 2020, driven by continued loss mitigation activities related to COVID-19
  • Valuation items included:
    – $306.1 million in MSR fair value gains driven by higher mortgage rates partially offset by valuation impacts primarily attributable to significant prepayment activity and early buyouts
    – $443.2 million in hedging and other fair value declines which included elevated hedge costs driven by increased market volatility
    – Net impact on pretax income related to these items was $(137.1) million and on earnings per share was $(1.38)
    – $20.4 million of reversals related to provisions for credit losses on active loans
  • Servicing portfolio grew to $448.8 billion in UPB, up 5 percent from December 31, 2020 and 17 percent from March 31, 2020, driven by strong production volumes which offset elevated prepayment activity
• Investment Management segment pretax income was $1.4 million, down from $2.6 million in the prior quarter and $3.8 million in the first quarter of 2020
  • Net assets under management (AUM) were $2.4 billion, up 3 percent from December 31, 2020 and 29 percent from March 31, 2020

"PennyMac Financial again produced exceptional financial results in the first quarter with a return on equity of 43 percent," said Chairman and CEO David Spector, "in an environment characterized by rising rates and declining margins. We successfully grew our consumer direct lending channel, originating $10.7 billion and locking $13.4 billion in the quarter, both record levels. Despite elevated levels of competition in the wholesale channel, we maintained our pricing discipline and continued to gain market share, aided by 18 percent growth in our approved brokers. With $67 billion in total production across all channels, our servicing portfolio grew to nearly $450 billion in unpaid principal balance and 2 million customers. Our growing servicing portfolio continues to generate strong pretax income excluding fair value changes, which we seek to moderate through time with our hedging activity.”

Mr. Spector concluded, "PennyMac Financial has built an extremely valuable mortgage banking enterprise well positioned for long-term success. We believe deeply in that value, which is why we continue to repurchase shares. Since the beginning of 2020, we have now repurchased approximately 18 percent of PFSI’s common shares. We also continue to make substantial investments in our technology and operations. I remain confident in our ability to profitably and responsibly grow our direct lending channels while maintaining our leadership position in correspondent production. Combined with our large and growing residential loan servicing portfolio, we expect to continue producing strong returns for our stockholders. For the remainder of 2021, we project PennyMac Financial to achieve a return on equity closer to our pre-COVID historical returns. Finally, we look forward to further discussing our outlook for the business at our upcoming investor day for PennyMac Financial and PennyMac Mortgage Investment Trust.”

The following table presents the contributions of PennyMac Financial’s segments to pretax income:

	Quarter ended March 31, 2021
	Mortgage Banking												Investment Management
	Production				Servicing				Total								Total
	(in thousands)
Revenue
Net gains on loans held for sale at fair value	$	515,963			$	238,378			$	754,341			$	-			$	754,341
Loan origination fees		104,037				-				104,037				-				104,037
Fulfillment fees from PMT		60,835				-				60,835				-				60,835
Net loan servicing fees		-				39,720				39,720				-				39,720
Management fees		-				-				-				8,449				8,449
Net interest expense:
Interest income		29,531				52,550				82,081				-				82,081
Interest expense		38,072				69,638				107,710				3				107,713
		(8,541	)			(17,088	)			(25,629	)			(3	)			(25,632	)
Other		597				1,197				1,794				1,142				2,936
Total net revenue		672,891				262,207				935,098				9,588				944,686
Expenses		309,996				120,463				430,459

FAQ

What were PennyMac Financial's Q1 2021 earnings results?

PennyMac Financial reported a net income of $376.9 million for Q1 2021.

What is the book value per share for PFSI?

The book value per share increased to $51.78 as of March 31, 2021.

When is the next dividend payment for PFSI?

The next cash dividend of $0.20 per share is payable on May 27, 2021.

How much did PFSI’s servicing portfolio grow in Q1 2021?

The servicing portfolio grew to $448.8 billion in UPB, a 5% increase from December 2020.

What is the total interest rate lock commitments reported by PFSI?

PennyMac reported record interest rate lock commitments of $19.1 billion in UPB.