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PennyMac Financial Services(PFSI) - 2025 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION This section provides the unaudited consolidated financial statements and management's discussion and analysis for the period ended June 30, 2025 Item 1. Financial Statements (Unaudited) This section presents the unaudited consolidated financial statements for the quarterly period ended June 30, 2025, including balance sheets, income statements, equity changes, cash flows, and detailed notes Consolidated Balance Sheets As of June 30, 2025, total assets decreased to $24.22 billion from $26.09 billion, while total liabilities decreased to $20.19 billion from $22.26 billion, and total stockholders' equity increased to $4.03 billion from $3.83 billion Consolidated Balance Sheet Summary (in thousands) | Account | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Total Assets | $24,221,904 | $26,086,887 | | Loans held for sale at fair value | $6,961,224 | $8,217,468 | | Mortgage servicing rights at fair value | $9,531,249 | $8,744,528 | | Loans eligible for repurchase | $4,962,535 | $6,157,172 | | Total Liabilities | $20,189,404 | $22,257,236 | | Assets sold under agreements to repurchase | $7,344,254 | $8,685,207 | | Unsecured senior notes | $4,185,012 | $3,164,032 | | Liability for loans eligible for repurchase | $4,962,535 | $6,157,172 | | Total Stockholders' Equity | $4,032,500 | $3,829,651 | Consolidated Statements of Income For Q2 2025, net income was $136.5 million, an increase from $98.3 million in Q2 2024, driven by higher net revenues despite a significant rise in total expenses Consolidated Statement of Income Summary (in thousands, except per share data) | Metric | Q2 2025 | Q2 2024 | | :--- | :--- | :--- | | Total net revenues | $444,730 | $406,127 | | Total expenses | $368,288 | $272,273 | | Income before income taxes | $76,442 | $133,854 | | (Benefit from) provision for income taxes | ($60,021) | $35,596 | | Net income | $136,463 | $98,258 | | Diluted EPS | $2.54 | $1.85 | Consolidated Statements of Changes in Stockholders' Equity Stockholders' equity increased to $4.03 billion as of June 30, 2025, primarily due to $212.7 million in net income for the six-month period, partially offset by common stock dividends Changes in Stockholders' Equity for Six Months Ended June 30, 2025 (in thousands) | Description | Amount | | :--- | :--- | | Balance, December 31, 2024 | $3,829,651 | | Net income | $212,743 | | Stock-based compensation | $20,804 | | Common stock dividends ($0.60 per share) | ($30,813) | | Balance, June 30, 2025 | $4,032,500 | Consolidated Statements of Cash Flows Net cash provided by operating activities significantly improved to $934.6 million for the six months ended June 30, 2025, compared to a $1.99 billion use in the prior year, resulting in a $76.3 million net decrease in cash Cash Flow Summary for Six Months Ended June 30 (in thousands) | Activity | 2025 | 2024 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $934,642 | ($1,990,826) | | Net cash used in investing activities | ($127,033) | ($1,520,406) | | Net cash (used in) provided by financing activities | ($883,905) | $3,168,197 | | Net decrease in cash | ($76,296) | ($343,035) | Notes to Consolidated Financial Statements This section provides detailed disclosures on the company's organization, significant risks, related party transactions, loan servicing, fair value measurements, debt, and segment reporting - The company's business is organized into two primary segments: mortgage banking (production and servicing) and investment management, with a significant portion of activities conducted on behalf of PennyMac Mortgage Investment Trust (PMT)2728 - Revenues generated from PMT accounted for 10% of total net revenues for the six months ended June 30, 2025, indicating a significant concentration of risk34 - The company consolidates certain Variable Interest Entities (VIEs) used for securitization transactions involving Ginnie Mae and Fannie Mae MSRs36 - The total loan servicing portfolio, including owned and subserviced loans, grew to $699.7 billion as of June 30, 2025, from $665.8 billion at the end of 20247881 Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's financial performance, highlighting key business trends such as the impact of elevated interest rates on the mortgage market, and analyzing results across segments, balance sheet changes, cash flows, liquidity, and capital resources - Elevated interest rates have constrained growth in the mortgage origination market, which is projected to increase from $1.7 trillion in 2024 to $2.0 trillion in 2025216 - For Q2 2025, income before income taxes decreased by $57.4 million compared to Q2 2024, driven by a $96.0 million increase in expenses and a $17.2 million decrease in Net loan servicing fees, partially offset by a $77.0 million increase in loan production revenue226228 - Total assets decreased by $1.9 billion from year-end 2024 to June 30, 2025, primarily due to a $1.3 billion decrease in loans held for sale and a $1.2 billion decrease in loans eligible for repurchase273 - The company's leverage ratio (Total debt / Stockholders' equity) decreased from 3.8 at year-end 2024 to 3.4 at June 30, 2025, reflecting reduced inventory financing needs272274 Quantitative and Qualitative Disclosures About Market Risk The company's primary market risks are fair value, interest rate, and prepayment risk, which are managed through a disciplined risk management framework utilizing derivative financial instruments - The company is primarily exposed to fair value, interest rate, and prepayment risk306 - Rising interest rates generally have a negative effect on the fair value of IRLCs and loans held for sale, but a positive effect on the fair value of MSRs310 - The company uses a variety of derivative instruments to manage risk, including MBS forward sale contracts, MBS put options, Treasury futures, and options/swaptions to hedge its MSR portfolio and loan pipeline313314 MSR Fair Value Sensitivity Analysis as of June 30, 2025 (in thousands) | Change in fair value attributable to shift in: | +5% | +10% | +20% | | :--- | :--- | :--- | :--- | | Prepayment speed (adverse change) | $(155,827) | $(306,286) | $(592,174) | | Pricing spread (adverse change) | $(121,678) | $(240,330) | $(468,962) | | Annual per-loan cost of servicing (adverse change) | $(51,524) | $(103,048) | $(206,097) | Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of June 30, 2025, with no material changes to internal control over financial reporting during the quarter - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by the report318 - No material changes were made to the company's internal control over financial reporting during the quarter ended June 30, 2025319 PART II. OTHER INFORMATION This section covers legal proceedings, risk factors, equity sales, and other disclosures, including executive trading plans and filed exhibits Legal Proceedings The company is involved in various legal and regulatory proceedings in the ordinary course of business, which management believes will not have a material adverse effect on its financial condition - The company is party to legal and regulatory proceedings arising in the ordinary course of business, but management does not expect them to have a material adverse effect on its financials321 Risk Factors There have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2024 - No material changes have occurred regarding the risk factors since the filing of the Annual Report on Form 10-K for the year ended December 31, 2024322 Unregistered Sales of Equity Securities and Use of Proceeds The company reported no sales of unregistered equity securities or share repurchases during Q2 2025, with $212.3 million remaining available for future repurchases - No unregistered equity securities were sold during the quarter ended June 30, 2025323 Stock Repurchase Activity (Q2 2025) | Period | Total Shares Purchased | Average Price Paid | Approximate Dollar Value Remaining for Repurchase | | :--- | :--- | :--- | :--- | | April 2025 | 0 | $0.00 | $212,338,815 | | May 2025 | 0 | $0.00 | $212,338,815 | | June 2025 | 0 | $0.00 | $212,338,815 | | Total | 0 | $0.00 | $212,338,815 | Other Information On June 2, 2025, CFO Daniel Perotti adopted a Rule 10b5-1 trading plan to sell up to 35,100 common shares and 39,121 shares underlying stock options, expiring August 14, 2026 - On June 2, 2025, CFO Daniel Perotti adopted a Rule 10b5-1 trading plan to sell up to 35,100 common shares and shares underlying 39,121 stock options, with the plan expiring August 14, 2026328 Exhibits This section lists the exhibits filed with the Form 10-Q, including amendments to key agreements, CEO/CFO certifications, and interactive data files (XBRL) - Filed exhibits include amendments to key agreements with PennyMac Mortgage Investment Trust, CEO/CFO certifications (Sections 302 and 906 of Sarbanes-Oxley), and XBRL data files331334