PennyMac Financial Services(PFSI) - 2021 Q3 - Quarterly Report

Financial Performance - Total net revenue for the quarter ended September 30, 2021, was $786.6 million, a decrease of 29.8% from $1.12 billion in the same quarter of 2020[240] - Net income for the quarter was $249.3 million, down 53.4% from $535.2 million year-over-year[240] - Adjusted EBITDA for the quarter was $524.5 million, a decrease of 31.9% from $769.8 million in the prior year quarter[245] - Total expenses for the quarter were $447.1 million, an increase of 14.2% from $391.7 million in the prior year quarter[240] - For the quarter ended September 30, 2021, income before provision for income taxes decreased by $388.7 million compared to the same period in 2020, primarily due to a $228.5 million decrease in net gains on loans held for sale[253] - Net gains on loans held for sale at fair value totaled $626.8 million for the quarter ended September 30, 2021, a decrease of $228.5 million compared to the same period in 2020[256] - Total cash gains from loans held for sale were $126.1 million for the quarter ended September 30, 2021, compared to $533.3 million for the same period in 2020[257] Loan Origination and Servicing - Loan origination fees increased to $94.6 million, up 25.1% from $75.6 million in the prior year quarter[240] - The unpaid principal balance of the loan servicing portfolio owned was $277.4 billion, an increase from $245.4 billion year-over-year[240] - The company serviced $8.9 billion in UPB of delinquent government loans for third-party investors at the end of the quarter[250] - Total loans serviced increased to $495.4 billion as of September 30, 2021, compared to $426.8 billion in the same period of 2020, reflecting a growth of approximately 16%[282] - Net loan servicing fees for the quarter ended September 30, 2021, were $33.6 million, compared to $132.8 million for the same period in 2020[275] - The average loan servicing portfolio for the company was $255.8 billion for the quarter ended September 30, 2021, compared to $234.3 billion for the same period in 2020[275] Expenses and Compensation - The increase in total expenses for the quarter was mainly due to increases in compensation and origination expenses, reflecting growth in mortgage banking activities[253] - Compensation expenses rose by $46.7 million in Q3 2021, totaling $249.2 million, driven by an increase in headcount to support loan production and servicing activities[285] - Loan origination expenses increased by $27.2 million in Q3 2021, totaling $93.3 million for the nine months ended September 30, 2021, due to heightened lending activities[288] - Technology expenses grew by $3.4 million in Q3 2021, totaling $30.3 million for the nine months, reflecting investments in loan servicing operations[289] Financial Position and Liquidity - Total assets decreased by $11.9 billion from $31.6 billion at December 31, 2020, to $19.7 billion at September 30, 2021, primarily due to a reduction in loans eligible for repurchase[294] - Total liabilities decreased by $12.0 billion from $28.2 billion at December 31, 2020, to $16.2 billion at September 30, 2021, mainly due to a drop in liabilities for loans eligible for repurchase[295] - Net cash provided by operating activities was $2.8 billion for the nine months ended September 30, 2021, compared to a net cash used of $3.9 billion in the same period of 2020[299] - The company expects sufficient liquidity to meet current obligations and fund new originations, with primary sources being cash flows from business activities and bank borrowings[302] Shareholder Returns - The company declared a dividend of $0.20 per share, up from $0.15 per share in the same quarter last year[240] - The company increased its common stock repurchase program from $1 billion to $2 billion, having repurchased $1.0 billion of common shares through September 30, 2021[323] Risk Management - Interest rate risk significantly affects the fair value of the company's investments, particularly with fixed-rate mortgage assets[340] - The company utilizes derivative financial instruments to mitigate risks associated with interest rate fluctuations and prepayment exposure[345] Regulatory Compliance - The company is subject to a minimum liquidity requirement of $100 million and a minimum tangible net worth of $1.25 billion as established by the Federal Housing Finance Agency (FHFA)[318] - The company believes it is currently in compliance with applicable Agency requirements[322] Changes in Fair Value - Changes in fair value of mortgage servicing rights and liabilities resulted in a total change of $(234.1) million for the quarter ended September 30, 2021[279] - The fair value of mortgage servicing rights (MSRs) is sensitive to changes in pricing spreads, with a potential decrease of $225,331 for a 20% shift in pricing spread[348]