PennyMac Financial Services(PFSI) - 2024 Q2 - Quarterly Results

Financial Highlights & Overview This section provides an overview of PennyMac Financial's strong Q2 2024 financial performance and strategic management insights Second Quarter 2024 Financial Results PennyMac Financial reported strong Q2 2024 results with a net income of $98.3 million and a 50% dividend increase, driven by a 25% rise in loan acquisitions Q2 2024 Key Financial Metrics | Metric | Q2 2024 | Q1 2024 | | :--- | :--- | :--- | | Net Income | $98.3 million | $39.3 million | | Diluted EPS | $1.85 | $0.74 | | Book Value Per Share | $71.76 | $70.13 | | Pretax Income | $133.9 million | $43.9 million | - The Board of Directors declared a second quarter cash dividend of $0.30 per share, a 50% increase from the prior quarter's $0.20 per share[41] - Total loan acquisitions and originations reached $27.2 billion in unpaid principal balance (UPB), up 25% from the prior quarter and 9% from Q2 2023[42] Management Commentary Management highlighted strong Q2 earnings with a 16% operating return on equity, driven by servicing growth and a strengthened balance sheet - Management reported strong earnings with an annualized operating return on equity of 16%[44] - The large and growing servicing business is a primary driver of revenue and cash flow, with per-loan servicing expenses at record lows due to technology and scale[44] - The company successfully raised $650 million in unsecured senior notes, enhancing its balance sheet and liquidity[50] - The consumer direct lending channel is positioned for a significant opportunity when interest rates decline, due to the nearly $115 billion in UPB of loans in the servicing portfolio with note rates above 6%[50] Segment Performance This section details the financial performance of PennyMac Financial's Production, Servicing, and Investment Management segments Production Segment The Production segment reported $41.3 million in pretax income, a 10% revenue increase to $202.6 million, driven by higher loan production volumes totaling $27.2 billion UPB Production Segment Performance (in millions) | Metric | Q2 2024 | Q1 2024 | Q2 2023 | | :--- | :--- | :--- | :--- | | Pretax Income | $41.3 | $35.9 | $24.4 | | Revenue | $202.6 | $184.1 (implied) | $170.3 (implied) | - Total loan production activity for the quarter was $27.2 billion in UPB, up 24% from the prior quarter[34] Net Gains on Loans Held for Sale (Production) | Period | Amount (in thousands) | | :--- | :--- | | Q2 2024 | $154,317 | | Q1 2024 | $141,431 | | Q2 2023 | $126,249 | - Production segment expenses were $161.3 million, an 8% increase from the prior quarter, primarily due to higher overall volumes[5] Servicing Segment The Servicing segment achieved $88.5 million in pretax income, with net revenues surging to $194.2 million due to lower MSR valuation declines Servicing Segment Performance (in millions) | Metric | Q2 2024 | Q1 2024 | Q2 2023 | | :--- | :--- | :--- | :--- | | Pretax Income | $88.5 | $4.9 | $46.5 | | Net Revenues | $194.2 | $111.6 | $156.4 | Total Servicing Portfolio (UPB, in billions) | Date | Total UPB | | :--- | :--- | | June 30, 2024 | $632.7 | | March 31, 2024 | $617.4 | | June 30, 2023 | $576.5 | Net Loan Servicing Fees Breakdown (in thousands) | Component | Q2 2024 | Q1 2024 | | :--- | :--- | :--- | | Loan servicing fees | $440,696 | $424,184 | | Change in fair value inputs | $99,425 | $169,979 | | Hedging losses | $(171,777) | $(294,645) | | Net loan servicing fees | $167,604 | $100,954 | - Servicing segment expenses totaled $105.7 million, down slightly from $106.7 million in the prior quarter[13] Investment Management Segment The Investment Management segment generated $4.0 million in pretax income, driven by stable base management fees and reduced expenses, with AUM steady at $1.9 billion Investment Management Segment Performance (in thousands) | Metric | Q2 2024 | Q1 2024 | Q2 2023 | | :--- | :--- | :--- | :--- | | Pretax Income | $4,035 | $3,100 (implied) | $2,000 | | Total Management Fees | $7,133 | $7,188 | $7,078 | | Expenses | $5,302 | $6,300 | $7,500 | - Net assets under management (AUM) were $1.9 billion as of June 30, 2024, essentially unchanged from the prior quarter and the same period last year[15] - No performance incentive fees were earned in the quarter[16][17] Consolidated Financial Statements This section presents PennyMac Financial's consolidated balance sheets, income statements, and a reconciliation of GAAP to operating net income Consolidated Balance Sheets Total assets grew to $21.6 billion and total liabilities to $17.9 billion as of June 30, 2024, with stockholders' equity rising to $3.66 billion Consolidated Balance Sheet Highlights (in billions) | Account | June 30, 2024 | March 31, 2024 | June 30, 2023 | | :--- | :--- | :--- | :--- | | Total Assets | $21.58 | $19.80 | $17.98 | | Total Liabilities | $17.92 | $16.23 | $14.51 | | Total Stockholders' Equity | $3.66 | $3.57 | $3.48 | Consolidated Statements of Income Total net revenues increased to $406.1 million, leading to a net income of $98.3 million or $1.85 diluted EPS, more than doubling Q1 2024 results Consolidated Income Statement Highlights (in thousands, except per share data) | Metric | Q2 2024 | Q1 2024 | Q2 2023 | | :--- | :--- | :--- | :--- | | Total Net Revenues | $406,127 | $305,660 | $336,547 | | Total Expenses | $272,273 | $261,777 | $263,630 | | Net Income | $98,258 | $39,308 | $58,250 | | Diluted EPS | $1.85 | $0.74 | $1.11 | | Dividend Declared Per Share | $0.20 | $0.20 | $0.20 | Reconciliation of GAAP Net Income to Operating Net Income GAAP net income of $98.3 million was adjusted to an operating net income of $142.1 million, resulting in a 16% annualized operating return on equity Q2 2024 GAAP to Operating Net Income Reconciliation (in thousands) | Item | Amount | | :--- | :--- | | Net income (GAAP) | $98,258 | | Adjustments (MSR value, hedging, non-recurring) | $59,868 | | Tax impacts of adjustments | $16,075 | | Operating net income (Non-GAAP) | $142,051 | - The calculated annualized operating return on equity for the quarter was 16%[32] Other Information This section provides background on PennyMac Financial Services, Inc. and important disclaimers regarding forward-looking statements and non-GAAP measures About PennyMac Financial Services, Inc. PennyMac Financial is a leading U.S. mortgage production and servicing firm, a top national lender with $101 billion in originations and a top five servicer with $633 billion UPB - The company is a specialty financial services firm focused on the production and servicing of U.S. mortgage loans[22] - As of June 30, 2024, PennyMac Financial was a top five mortgage servicer in the nation with a servicing portfolio of $633 billion in UPB[22] - For the twelve months ended June 30, 2024, the company's production of newly originated loans totaled $101 billion in UPB, making it a top lender in the nation[22] Forward Looking Statements This section cautions that the report contains forward-looking statements subject to risks and uncertainties, and includes non-GAAP financial measures for internal evaluation - The report contains forward-looking statements concerning financial results, future operations, and business plans, which are subject to significant risks and uncertainties such as interest rate changes, macroeconomic conditions, and regulatory changes[24] - The press release contains non-GAAP financial information, such as pretax income excluding valuation-related items. These are presented to provide a meaningful perspective but have limitations and should not be seen as a substitute for GAAP[24]