PennyMac earnings in robust market, however by lower than in current quarters

PennyMac Financial reported a profit for the fourth quarter due to strong servicing results but its net income was weaker than in comparable fiscal periods.

The company earned $38 million in the fourth quarter of 2022. That compared to $135.1 million the previous quarter.A year earlier, PennyMac Financial earned $173.1 million during the fourth quarter.

When adjusted for non-recurring items such as a one-time tax rate change, PennyMac’s earnings were slightly better than the consensus estimate from Zacks Investment Research but missed the estimate from Seeking Alpha.

Gain on sale margins were thinner than Keefe Bruyette & Woods expected, likely due to shifts in the loan channel mix. Wedbush, too, had predicted higher earnings, by underestimating expenses and origination revenues. 

These factors outweighed what analysts said were higher-than-expected gains in servicing.

However, the servicing segment pretax income was down from $145.3 million in the prior quarter at $75.6 million in the fourth quarter, and also marked a decline from $126.1 million in the fourth quarter of 2021, the company reported.

Executives noted that the servicing portfolio, which grew by 8% since the same time last year to $551.7 billion in unpaid principal balance, gives the company an edge in the market.

“The growth of our servicing portfolio continues to differentiate PFSI from its competition,” said David Spector, chairman and CEO, in the company’s earnings call.

Despite the fact that earnings missed some estimates for the quarter, analysts generally remained optimistic about PennyMac’s competitive position in a challenging market for both servicing and originations.

“We believe that PFSI is in a solid position to take market share in the coming quarters,” analysts at Wedbush said, noting PennyMac’s position in third-party origination origination channels, which companies like Wells Fargo and Guaranteed Rate have been exiting.

The company also engaged in a stock repurchase of 1.1 million common shares at an average price of $46.99 each, representing a reduction from the third quarter when it bought back 1.9 million at $51.13 per share

“Repurchase levels were down meaningfully from the third quarter as we prefer to maintain flexibility around potential risks and opportunities in the evolving market environment,” Spector said.

The company’s real estate investment trust affiliate reported a net loss of $4.7 million or 7 cents per share on a diluted basis for the fourth quarter. That was below the average 39-cent earnings per share estimate of analysts surveyed by Zacks for PennyMac Investment Trust. It compared to EPS of 1 cent in the third quarter of 2022, and a loss of $0.28 a year earlier.

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