PennyMac Financial Services profits fall, but beat analysts’ estimates

PennyMac Financial Services profits fall, but beat analysts' estimates

Servicing revenue, some secondary market gains, layoffs and other cost cuts more than offset the impact of a market-wide drop in originations at PennyMac Financial Services than analysts expected, but its second-quarter earnings quarter still fell in relation to comparable previous periods.

The company earned $129.2 million between April and June, down from $173.6 million in the previous quarter and $204 million a year earlier. Its $2.28 in diluted earnings per share broadly beat analysts’ estimates, slightly above the top of $2. The results included pre-tax income broken down by segment as follows: $168 million from service, $10 million from production and $0.2 million from investment management.

“As evidenced by this quarter’s strong results, the growth of our services portfolio will continue to differentiate PFSI and serve as an important asset while the origination landscape remains competitive and challenging,” said President and CEO David Spector on the company’s earnings call.

PennyMac Financial Services also reduced expenses by more than $100 million compared to average quarterly levels in 2021, excluding a provision for losses on active loans.

Overall, PennyMac has weathered the pressure of a cooling housing market and inflation well; but its exposure to securitized loans for first-time homebuyers that are insured by the government but vulnerable to financial pressure is a concern for some analysts.

“The risk is that recessionary concerns intensify and weaker housing fundamentals weigh on valuations, especially given that Ginnie Mae’s servicing portfolio tends to be loans to higher LTV borrowers , lower FICO and lower income,” BTIG said in a report. Wednesday.

That said, the performance of PennyMac’s government-insured loans has been relatively strong so far, analysts Eric Hagen and Ethan Saghi noted in the report. Its loans insured by the Federal Housing Administration have had a 60-plus-day delinquency rate of 3.2%, compared with 6% for the broader market.

Also, the government market has some offsetting benefits, one of which could be a cut in the FHA premium that may reinvigorate originations if it actually materializes beyond widespread speculation that it will. Regardless, secondary market spreads suggest government lenders will get some rate relief, BTIG analysts said.

Other positive contributions from the government loan sector included secondary market sales of forward purchase loans from Ginnie groups that contributed significantly to the company’s second-quarter earnings, according to analysts at Keefe, Bruyette & Woods.

“Sale revenue beat us by $0.54, driven primarily by stronger-than-expected earnings from Ginnie Mae’s EBO loans,” Bose George, Michael Smyth and Thomas McJoynt-Griffith note in a KBW report released Wednesday.

Other notable developments during the quarter included a $114 million share repurchase that was part of a series of share repurchases at the company.

While PennyMac Financial’s results held up relatively well during the quarter, its real estate investment trust subsidiary faced challenges, posting a net loss of $81.2 million. PennyMac Mortgage Investment Trust reported earnings per share of $0.88 which missed analysts’ consensus estimates of $0.06 in positive EPS.

But market conditions that hurt investment strategies in the second quarter have since improved, Spector said.

“The recent increase in spreads has improved our projected return potential for PMT’s investment portfolio going forward,” he said during the REIT’s earnings call.


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About the Author: Chaz Cutler

My name is Chasity. I love to follow the stock market and financial news!