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Section 1: 8-K (8-K)

PFSI Current Report on Form 8-K (4Q16)

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 8-K

 

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

Date of Report (Date of earliest event reported): February 2, 2017

 

PennyMac Financial Services, Inc.

(Exact name of registrant as specified in its charter)

 

 

 

 

Delaware

001-35916

80-0882793

(State or other jurisdiction

(Commission

(IRS Employer

of incorporation)

File Number)

Identification No.)

 

 

 

3043 Townsgate Road, Westlake Village, California

91361

(Address of principal executive offices)

(Zip Code)

 

(818) 224‑7442

(Registrant’s telephone number, including area code)

 

Not Applicable

(Former name or former address, if changed since last report)

 

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

☐  Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

☐    Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

☐  Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

☐  Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 

 



 

 

Item 2.02 Results of Operations and Financial Condition.

 

On February 2, 2017, PennyMac Financial Services, Inc. (the “Company”) issued a press release announcing its financial results for the fiscal quarter and year ended December 31, 2016.  A copy of the press release and the slide presentation used in connection with the Company’s recorded presentation of financial results were made available on February 2, 2017 and are furnished as Exhibit 99.1 and Exhibit 99.2, respectively.

 

The information in Item 2.02 of this report, including the exhibits hereto, shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liabilities of Section 18, nor shall it be deemed incorporated by reference into any disclosure document relating to the Company, except to the extent, if any, expressly set forth by specific reference in such filing.

 

Item 9.01 Financial Statements and Exhibits.

 

(d) Exhibits.

 

 

 

Exhibit No. 

Description 

 

 

99.1

Press Release, dated February 2, 2017, issued by PennyMac Financial Services, Inc. pertaining to its financial results for the fiscal quarter and year ended December 31, 2016.

99.2

Slide Presentation for use beginning on February 2, 2017 in connection with a recorded presentation of financial results for the fiscal quarter and year ended December 31, 2016.

 

 

 


 

SIGNATURE

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

 

 

 

 

 

PENNYMAC FINANCIAL SERVICES, INC.

 

 

 

 

 

 

Dated:  February 3, 2017

/s/ Andrew S. Chang

 

Andrew S. Chang

Senior Managing Director and Chief Financial Officer

 

 


 

EXHIBIT INDEX

 

 

 

Exhibit No. 

Description 

 

 

99.1

Press Release, dated February 2, 2017, issued by PennyMac Financial Services, Inc. pertaining to its financial results for the fiscal quarter and year ended December 31, 2016.

99.2

Slide Presentation for use beginning on February 2, 2017 in connection with a recorded presentation of financial results for the fiscal quarter and year ended December 31, 2016.

 

 

 

 

 

 

 


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Section 2: EX-99.1 (EX-99.1)

Exhibit 991 - PFSI 4Q16 PR

Exhibit 99.1

C:\Users\jpilkington\Downloads\Pennymac_Roof_FS_RGB.jpg

 

 

Media

Investors

 

Stephen Hagey

Christopher Oltmann

 

(805) 530-5817

(818) 264-4907

 

 

PennyMac Financial Services, Inc. Reports

Fourth Quarter and Full-Year 2016 Results

 

Westlake Village, CA, February 2, 2017 – PennyMac Financial Services, Inc. (NYSE: PFSI) today reported net income of $113.8 million for the fourth quarter of 2016, on revenue of $289.3 million.  Net income attributable to PFSI common stockholders was $22.7 million, or $1.00 per diluted share.  Book value per share increased to $15.49, up from $14.41 at September 30, 2016.

 

Fourth Quarter 2016 Highlights

 

·

Pretax income of $129.4 million was down 7 percent from record results in the prior quarter, driven by continued strength in the Production segment and improved earnings contribution from the Servicing segment

 

·

Production segment pretax income of $93.4 million, down 38 percent from the prior quarter’s record results, driven by lower interest rate lock commitments (IRLCs) and margins

 

o

Total loan production activity of $22.1 billion in unpaid principal balance (UPB), up 7 percent from the prior quarter

 

o

Record production volumes for both correspondent and consumer direct channels; $20.0 billion in UPB of correspondent production and $2.0 billion in UPB of consumer direct originations, up 6 percent and 22 percent, respectively, from the prior quarter

 

o

IRLCs on correspondent government and consumer direct loans totaled $14.7 billion, down 10 percent from the prior quarter’s record levels

 

·

Servicing segment pretax income of $35.1 million, compared with a pretax loss of $10.7 million in the prior quarter

 

o

Results included a non-cash valuation gain in mortgage servicing rights (MSRs) of $151.6 million; losses from hedges and excess servicing spread (ESS) liability totaled $133.4 million

 

o

Servicing segment pretax income excluding valuation-related changes was $24.6 million, up 150 percent from the prior quarter1

 

o

Servicing portfolio reached $194.2 billion in UPB, up 7 percent from September 30, 2016

 


1 Excludes changes in the fair value of MSRs, the ESS liability, and gains/(losses) on hedging derivatives which were $151.6 million, $(17.1) million, and $(116.3) million, respectively, and provision for credit losses on active loans of $(7.8) million, in the fourth quarter.

 

1


 

·

Investment Management segment pretax income of $0.4 million compared with pretax income of $0.2 million in the prior quarter

 

o

Net assets under management were approximately $1.5 billion, essentially flat compared with September 30, 2016

 

Full-Year 2016 Highlights

 

·

Pretax income of $383.1 million, up 37 percent from the prior year and the highest level on record for PennyMac Financial

 

·

Total net revenue of $931.9 million, up 31 percent from the prior year

 

·

Loan production totaled $69.7 billion in UPB, an increase of 44 percent from the prior year, which included $6.4 billion in UPB of consumer direct production, an increase of 57 percent from the prior year

 

·

Servicing portfolio reached $194.2 billion in UPB, up 21 percent from December 31, 2015, driven by organic additions from loan production

 

“PennyMac Financial closed out a record year with outstanding earnings in the fourth quarter, driven by continued strength in our Production segment and improved contribution from our Servicing segment,” said Executive Chairman Stanford L. Kurland.  “We were able to capitalize on the opportunities available during the year provided by a vibrant origination market with considerable refinance activity.  We also made great strides in further building out the company’s leading mortgage origination and servicing platforms.”

 

2


 

The following table presents the contribution of PennyMac Financial’s Production, Servicing and Investment Management segments to pretax income:

 

 

 

Quarter ended December 31, 2016

 

 

 

Mortgage Banking

 

Investment

 

 

 

 

    

Production

    

Servicing

    

Total

    

Management

    

Total

 

 

 

(in thousands)

 

Revenue

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net gains on mortgage loans held for sale at fair value

 

$

103,413 

 

$

24,519 

 

$

127,932 

 

$

– 

 

$

127,932 

 

Loan origination fees

 

 

39,572 

 

 

– 

 

 

39,572 

 

 

– 

 

 

39,572 

 

Fulfillment fees from PMT

 

 

27,164 

 

 

– 

 

 

– 

 

 

– 

 

 

27,164 

 

Net servicing fees

 

 

– 

 

 

95,528 

 

 

– 

 

 

– 

 

 

95,528 

 

Management fees

 

 

– 

 

 

– 

 

 

– 

 

 

5,583 

 

 

5,583 

 

Carried Interest from Investment Funds

 

 

– 

 

 

– 

 

 

– 

 

 

36 

 

 

36 

 

Net interest income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

16,026 

 

 

8,309 

 

 

24,335 

 

 

– 

 

 

24,335 

 

Interest expense

 

 

11,638 

 

 

20,586 

 

 

32,224 

 

 

13 

 

 

32,237 

 

 

 

 

4,388 

 

 

(12,277)

 

 

(7,889)

 

 

(13)

 

 

(7,902)

 

Other

 

 

508 

 

 

198 

 

 

706 

 

 

115 

 

 

821 

 

Total net revenue

 

 

175,045 

 

 

107,968 

 

 

283,013 

 

 

5,721 

 

 

288,734 

 

Expenses

 

 

81,675 

 

 

72,897 

 

 

154,572 

 

 

5,305 

 

 

159,877 

 

Income before provision for income taxes and non-segment activities

 

 

93,370 

 

 

35,071 

 

 

128,441 

 

 

416 

 

 

128,857 

 

Non-segment activities(1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

551 

 

Pre-tax income

 

$

93,370 

 

$

35,071 

 

$

128,441 

 

$

416 

 

$

129,408 

 


(1)

Represents repricing Payable to exchanged Private National Mortgage Acceptance Company, LLC unitholders under tax receivable agreement

 

Production Segment

 

Production includes the correspondent acquisition of newly originated government-insured mortgage loans for PennyMac Financial’s own account, fulfillment services on behalf of PennyMac Mortgage Investment Trust (NYSE: PMT) and consumer direct lending.

 

PennyMac Financial’s loan production activity totaled $22.1 billion in UPB, of which $14.6 billion in UPB was for its own account, and $7.5 billion was fee-based fulfillment activity for PMT.  IRLCs on correspondent government and consumer direct loans totaled $14.7 billion in UPB.

 

Production segment pretax income was $93.4 million, a decrease of 38 percent from the third quarter.  Production revenue totaled $175.0 million, a decrease of 25 percent from the third quarter, primarily resulting from a 38 percent quarter-over-quarter decrease in net gains on mortgage loans held for sale, reflecting lower lock volumes and margins in both production channels compared to recent high levels in the third quarter.  Third quarter results also included a $6.6 million benefit in provision for representations and warranties due to a change in estimate.

 

3


 

The components of net gains on mortgage loans held for sale are detailed in the following table:

 

 

 

Quarter ended

 

 

 

December 31,

 

September 30,

 

December 31,

 

 

    

2016

    

2016

    

2015

 

 

 

(in thousands) 

 

Receipt of MSRs in loan sale transactions

 

$

190,735 

 

$

143,960 

 

$

112,196 

 

Mortgage servicing rights recapture payable to PennyMac Mortgage Investment Trust

 

 

(2,535)

 

 

(1,690)

 

 

(1,993)

 

Provision for representations and warranties, net

 

 

(845)

 

 

5,796 

 

 

(1,978)

 

Cash investment (1)

 

 

29,038 

 

 

26,855 

 

 

(7,885)

 

Fair value changes of pipeline, inventory and hedges

 

 

(88,461)

 

 

7,200 

 

 

(21,604)

 

Net gains on mortgage loans held for sale

 

$

127,932 

 

$

182,121 

 

$

78,736 

 

 

 

 

 

 

 

 

 

 

 

 

Net gains on mortgage loans held for sale by segment:

 

 

 

 

 

 

 

 

 

 

Production

 

$

103,413 

 

$

166,506 

 

$

65,893 

 

Servicing

 

$

24,519 

 

$

15,615 

 

$

12,843 

 


(1)

Net of cash hedge expense

 

PennyMac Financial performs fulfillment services for conventional conforming and jumbo loans acquired by PMT in its correspondent production business.  These services include, but are not limited to: marketing; relationship management; the approval of correspondent sellers and the ongoing monitoring of their performance; reviewing loan data, documentation and appraisals to assess loan quality and risk; pricing; hedging and activities related to the subsequent sale and securitization of loans in the secondary mortgage markets for PMT.  Fees earned from fulfillment of correspondent loans on behalf of PMT totaled $27.2 million in the fourth quarter, down slightly from $27.3 million in the third quarter.  Fulfillment fee revenue was driven by continued strong acquisition volumes by PMT.  The average fulfillment fee rate during the fourth quarter was 36 basis points, down from 38 basis points in the third quarter.

 

Production segment expenses were $81.7 million, a 1 percent decrease from the third quarter.

 

Servicing Segment

 

Servicing includes income from owned MSRs, in addition to subservicing and special servicing activities.  Servicing segment pretax income was $35.1 million in the fourth quarter compared to a pretax loss of $10.7 million in the third quarter.  Servicing segment revenues in the fourth quarter totaled $108.0 million, a 103 percent increase from the third quarter, primarily due to an increase in net loan servicing fees.

 

Net loan servicing fees totaled $95.5 million for the fourth quarter and included $127.5 million in servicing fees reduced by $50.2 million of amortization and realization of MSR cash flows.  Amortization and realization of MSR cash flows decreased from elevated levels in the prior quarter, driven by lower expected prepayment activity partially offset by a larger MSR asset.  Net loan servicing fees also included $151.6 million in MSR fair value gains and recovery of impairment for MSRs carried at lower of amortized cost or fair value, primarily reflecting the sharp rise in mortgage rates during the fourth quarter and expectations for lower prepayment activity in the future.  In addition, net loan servicing fees included $116.3 million in hedging losses and $17.1 million in losses due to the change in fair value of the ESS liability.  Net loan servicing fees also included $1.3 million in servicing activity fees related to a bulk sale of loans by PMT.

 

4


 

The following table presents a breakdown of net loan servicing fees: 

 

 

 

Quarter ended

 

 

 

December 31,

 

September 30,

 

December 31,

 

 

    

2016

    

2016

    

2015

 

 

 

(in thousands)

 

Servicing fees(1)

 

$

127,483 

 

$

122,587 

 

$

112,689 

 

Effect of MSRs:

 

 

 

 

 

 

 

 

 

 

Amortization and realization of cash flows(2)

 

 

(50,204)

 

 

(56,637)

 

 

(44,505)

 

Change in fair value and provision for/recovery of impairment of MSRs carried at lower of amortized cost or fair value

 

 

151,599 

 

 

(43,219)

 

 

42,615 

 

Change in fair value of excess servicing spread financing

 

 

(17,061)

 

 

4,107 

 

 

(6,864)

 

Hedging (losses) gains

 

 

(116,289)

 

 

19,026 

 

 

(26,976)

 

Total amortization, impairment and change in fair value of MSRs

 

 

(31,955)

 

 

(76,723)

 

 

(35,730)

 

Net loan servicing fees

 

$

95,528 

 

$

45,864 

 

$

76,959 

 


(1)

Includes contractually-specified servicing fees

(2)

Includes realization of cash flows from the Mortgage Servicing Liability which was previously included in fair value changes. Prior periods have been adjusted accordingly.

 

Servicing segment revenue also included $24.5 million in net gains on mortgage loans held for sale in the fourth quarter resulting from the securitization of reperforming government-insured and guaranteed loans, versus $15.6 million in the third quarter.  These loans were previously purchased out of Ginnie Mae securitizations and brought back to performing status through PennyMac Financial’s successful servicing efforts, primarily with the use of loan modifications.

 

Servicing segment expenses totaled $72.9 million, a 14 percent increase from the third quarter, primarily resulting from increased provisions for losses on delinquent and defaulted government loans and EBO transaction-related expense.  Such loss provisions are contemplated in valuation of the MSR asset prior to being recorded as a loss provision.

 

The total servicing portfolio reached $194.2 billion in UPB at December 31, 2016, an increase of 7 percent from the prior quarter end.  Of the total servicing portfolio, prime servicing was $191.7 billion in UPB and special servicing was $2.6 billion in UPB.  PennyMac Financial subservices and conducts special servicing for $60.9 billion in UPB, an increase of 9 percent from September 30, 2016, due to new correspondent conventional loan acquisitions by PMT.  PennyMac Financial’s owned MSR portfolio grew to $129.2 billion in UPB, an increase of 6 percent over the prior quarter end, primarily resulting from the acquisition of government-insured mortgage loans in its correspondent channel and production activities in its consumer direct channel.

5


 

The table below details PennyMac Financial’s servicing portfolio UPB:

 

 

 

December 31, 

 

September 30, 

 

December 31, 

 

 

    

2016

    

2016

    

2015

 

 

 

(in thousands)

 

Loans serviced at period end:

 

 

 

 

 

 

 

 

 

 

Prime servicing:

 

 

 

 

 

 

 

 

 

 

Owned

 

 

 

 

 

 

 

 

 

 

Mortgage servicing rights

 

 

 

 

 

 

 

 

 

 

Originated

 

$

89,516,155 

 

$

78,732,061 

 

$

59,880,349 

 

Acquisitions

 

 

39,660,951 

 

 

42,580,927 

 

 

50,722,355 

 

 

 

 

129,177,106 

 

 

121,312,988 

 

 

110,602,704 

 

Mortgage servicing liabilities

 

 

2,097,234 

 

 

1,717,859 

 

 

806,897 

 

Mortgage loans held for sale

 

 

2,101,283 

 

 

2,945,465 

 

 

1,052,485 

 

 

 

 

133,375,623 

 

 

125,976,312 

 

 

112,462,086 

 

Subserviced for Advised Entities

 

 

58,305,410 

 

 

53,247,024 

 

 

43,963,378 

 

Total prime servicing

 

 

191,681,033 

 

 

179,223,336 

 

 

156,425,464 

 

Special servicing:

 

 

 

 

 

 

 

 

 

 

Subserviced for Advised Entities

 

 

2,558,969 

 

 

2,853,307 

 

 

3,847,254 

 

Total loans serviced

 

$

194,240,002 

 

$

182,076,643 

 

$

160,272,718 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage loans serviced:

 

 

 

 

 

 

 

 

 

 

Owned

 

 

 

 

 

 

 

 

 

 

Mortgage servicing rights

 

$

129,177,106 

 

$

121,312,988 

 

$

110,602,704 

 

Mortgage servicing liabilities

 

 

2,074,896 

 

 

1,717,859 

 

 

806,897 

 

Mortgage loans held for sale

 

 

2,101,283 

 

 

2,945,465 

 

 

1,052,485 

 

 

 

 

133,353,285 

 

 

125,976,312 

 

 

112,462,086 

 

Subserviced

 

 

60,886,717 

 

 

56,100,331 

 

 

47,810,632 

 

Total mortgage loans serviced

 

$

194,240,002 

 

$

182,076,643 

 

$

160,272,718 

 

 

6


 

Investment Management Segment

 

PennyMac Financial manages PMT and two private Investment Funds for which it earns base management fees and may earn incentive compensation.  Net assets under management were approximately $1.5 billion as of December 31, 2016, essentially flat compared with September 30, 2016.

 

Pretax income for the Investment Management segment was $0.4 million compared with pretax income of $0.2 million in the third quarter.  Management fees, which include base management fees from PMT and the private Investment Funds, as well as any earned incentive fees from PMT, increased 1 percent from the prior quarter.  Other revenue increased $113,000 quarter-over-quarter, driven by an increase in the value of PMT shares held by PennyMac Financial.

 

The following table presents a breakdown of management fees and carried interest:

 

 

 

Quarter ended

 

 

 

December 31,

 

September 30, 

 

December 31, 

 

 

    

2016

    

2016

    

2015

 

 

 

(in thousands)

 

Management fees:

 

 

 

 

 

 

 

 

 

 

PennyMac Mortgage Investment Trust

 

 

 

 

 

 

 

 

 

 

Base

 

$

5,081 

 

$

5,025 

 

$

5,670 

 

Performance incentive

 

 

– 

 

 

– 

 

 

– 

 

 

 

 

5,081 

 

 

5,025 

 

 

5,670 

 

Investment Funds

 

 

502 

 

 

496 

 

 

659 

 

Total management fees

 

 

5,583 

 

 

5,521 

 

 

6,329 

 

Carried Interest

 

 

36 

 

 

107 

 

 

(270)

 

Total management fees and Carried Interest

 

$

5,619 

 

$

5,628 

 

$

6,059 

 

 

 

 

 

 

 

 

 

 

 

 

Net assets of Advised Entities:

 

 

 

 

 

 

 

 

 

 

PennyMac Mortgage Investment Trust

 

$

1,351,114 

 

$

1,354,918 

 

$

1,496,112 

 

Investment Funds

 

 

197,550 

 

 

201,802 

 

 

231,744 

 

 

 

$

1,548,664 

 

$

1,556,720 

 

$

1,727,856 

 

 

Investment Management segment expenses totaled $5.3 million, a 2 percent decrease from the third quarter.

7


 

Consolidated Expenses

 

Total expenses for the fourth quarter were $159.9 million, a 5 percent increase from the third quarter.  The increase in total expenses was primarily due to an increase in servicing expenses related to increased provisions for losses on delinquent and defaulted government loans and an increase in technology expense due to higher software fees.  Higher expenses were partially offset by a decrease in compensation expense driven by lower employee incentive compensation.

 

Mr. Kurland concluded, “We are entering a more normalized mortgage market environment with the interest rate increases that began in the fourth quarter.  While we expect a strong purchase origination market with increased volume over the 2016 levels, a reduction in refinance activity should result in a decrease in the overall mortgage origination market.  PennyMac Financial has demonstrated the ability to react to market volatility in the past and operate successfully across different market environments.  With the changes in the market, we are making adjustments required to maximize profitability in the current environment.”

 

Management’s slide presentation will be available in the Investor Relations section of the Company’s website at www.ir.pennymacfinancial.com beginning at 1:30 p.m. (Pacific Standard Time) on Thursday, February 2, 2017.

 

About PennyMac Financial Services, Inc.

 

PennyMac Financial Services, Inc. is a specialty financial services firm with a comprehensive mortgage platform and integrated business focused on the production and servicing of U.S. mortgage loans and the management of investments related to the U.S. mortgage market.  PennyMac Financial Services, Inc. trades on the New York Stock Exchange under the symbol “PFSI.”  Additional information about PennyMac Financial Services, Inc. is available at www.ir.pennymacfinancial.com.

 

This press release contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, regarding management’s beliefs, estimates, projections and assumptions with respect to, among other things, the Company’s financial results, future operations, business plans and investment strategies, as well as industry and market conditions, all of which are subject to change.  Words like “believe,” “expect,” “anticipate,” “promise,” “plan,” and other expressions or words of similar meanings, as well as future or conditional verbs such as “will,” “would,” “should,” “could,” or “may” are generally intended to identify forward-looking statements.  Actual results and operations for any future period may vary materially from those projected herein and from past results discussed herein.  Factors which could cause actual results to differ materially from historical results or those anticipated include, but are not limited to: the continually changing federal, state and local laws and regulations applicable to the highly regulated industry in which we operate; lawsuits or governmental actions that may result from any noncompliance with the laws and regulations applicable to our businesses; the mortgage lending and servicing-related regulations promulgated by the Consumer Financial Protection Bureau and its enforcement of these regulations; our dependence on U.S. governmentsponsored entities and changes in their current roles or their guarantees or guidelines; changes to government mortgage modification programs; the licensing and operational requirements of states and other jurisdictions applicable to the Company’s businesses, to which our bank competitors are not subject; foreclosure delays and changes in foreclosure practices; certain banking regulations that may limit our business activities; our dependence on the multifamily and commercial real estate sectors for future originations of commercial mortgage loans and other commercial real estate related loans; changes in macroeconomic and U.S. real estate market conditions; difficulties inherent in growing loan production volume; difficulties inherent in adjusting the size of our operations to reflect changes in business levels; purchase opportunities for mortgage servicing rights and our success in winning bids; changes in prevailing interest rates; increases in loan delinquencies and defaults; our reliance on PennyMac Mortgage Investment Trust (NYSE: PMT) as a significant source of financing for, and revenue related to, our mortgage banking business; any required additional capital and liquidity to support business growth that may not be available on acceptable terms, if at all; our obligation to indemnify thirdparty purchasers or repurchase loans if loans that we originate, acquire, service or assist in the fulfillment of, fail to meet certain criteria or characteristics or under other circumstances; our obligation to indemnify PMT and the Investment Funds if its services fail to meet certain criteria or characteristics or under other circumstances; decreases in the returns on the assets that we select and manage for our clients, and our resulting management and incentive fees; the extensive amount of regulation applicable to our investment management segment; conflicts of interest in allocating our services and investment opportunities among us and our advised entities; the effect of public opinion on our reputation; our recent growth; our ability to effectively identify, manage, monitor and mitigate financial risks; our initiation of new business activities or expansion of existing business activities; our ability to

8


 

detect misconduct and fraud; and our ability to mitigate cybersecurity risks and cyber incidents.  You should not place undue reliance on any forward-looking statement and should consider all of the uncertainties and risks described above, as well as those more fully discussed in reports and other documents filed by the Company with the Securities and Exchange Commission from time to time.  The Company undertakes no obligation to publicly update or revise any forward-looking statements or any other information contained herein, and the statements made in this press release are current as of the date of this release only.

 

9


 

PENNYMAC FINANCIAL SERVICES, INC.

CONSOLIDATED BALANCE SHEETS (UNAUDITED) 

 

 

 

December 31,

 

September 30,

 

December 31,

 

 

    

2016

    

2016

    

2015

 

 

 

(in thousands, except share amounts)

 

ASSETS

 

 

 

 

 

 

 

 

 

 

Cash

 

$

99,367 

 

$

94,727 

 

$

105,472 

 

Short-term investments at fair value

 

 

85,964 

 

 

58,749 

 

 

46,319 

 

Mortgage loans held for sale at fair value

 

 

2,172,815 

 

 

3,127,377 

 

 

1,101,204 

 

Derivative assets

 

 

82,905 

 

 

135,777 

 

 

50,280 

 

Servicing advances, net

 

 

348,306 

 

 

306,150 

 

 

299,354 

 

Carried Interest due from Investment Funds

 

 

70,906 

 

 

70,870 

 

 

69,926 

 

Investment in PennyMac Mortgage Investment Trust at fair value

 

 

1,228 

 

 

1,169 

 

 

1,145 

 

Mortgage servicing rights

 

 

1,627,672 

 

 

1,337,674 

 

 

1,411,935 

 

Real estate acquired in settlement of loans

 

 

1,418 

 

 

1,996 

 

 

– 

 

Furniture, fixtures, equipment and building improvements, net

 

 

31,321 

 

 

29,121 

 

 

16,311 

 

Capitalized software, net

 

 

11,205 

 

 

8,361 

 

 

3,025 

 

Note receivable from PennyMac Mortgage Investment Trust

 

 

150,000 

 

 

150,000 

 

 

150,000 

 

Receivable from Investment Funds

 

 

1,219 

 

 

1,596 

 

 

1,316 

 

Receivable from PennyMac Mortgage Investment Trust

 

 

16,416 

 

 

14,747 

 

 

18,965 

 

Deferred tax asset

 

 

– 

 

 

– 

 

 

18,378 

 

Loans eligible for repurchase

 

 

382,268 

 

 

197,819 

 

 

166,070 

 

Other

 

 

50,892 

 

 

60,061 

 

 

45,594 

 

Total assets

 

$

5,133,902 

 

$

5,596,194 

 

$

3,505,294 

 

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES

 

 

 

 

 

 

 

 

 

 

Assets sold under agreements to repurchase

 

$

1,735,114 

 

$

2,491,366 

 

$

1,166,731 

 

Mortgage loan participation and sale agreements

 

 

671,426 

 

 

782,913 

 

 

234,872 

 

Notes payable

 

 

150,942 

 

 

110,619 

 

 

61,136 

 

Obligations under capital lease

 

 

23,424 

 

 

20,700 

 

 

13,579 

 

Excess servicing spread financing payableto PennyMac Mortgage Investment Trust at fair value

 

 

288,669 

 

 

280,367 

 

 

412,425 

 

Derivative liabilities

 

 

22,362 

 

 

4,426 

 

 

9,083 

 

Mortgage servicing liabilities at fair value

 

 

15,192 

 

 

13,045 

 

 

1,399 

 

Accounts payable and accrued expenses

 

 

134,611 

 

 

106,684 

 

 

89,915 

 

Payable to Investment Funds

 

 

20,393 

 

 

27,265 

 

 

30,429 

 

Payable to PennyMac Mortgage Investment Trust

 

 

170,036 

 

 

165,264 

 

 

162,379 

 

Payable to exchanged Private National Mortgage Acceptance Company, LLC unitholders under tax receivable agreement

 

 

75,954 

 

 

75,434 

 

 

74,315 

 

Income taxes payable

 

 

25,088 

 

 

11,415 

 

 

– 

 

Liability for loans eligible for repurchase

 

 

382,268 

 

 

197,819 

 

 

166,070 

 

Liability for losses under representations and warranties

 

 

19,067 

 

 

18,473 

 

 

20,611 

 

Total liabilities

 

 

3,734,546 

 

 

4,305,790 

 

 

2,442,944 

 

 

 

 

 

 

 

 

 

 

 

 

STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

 

 

 

Class A common stock—authorized 200,000,000 shares of $0.0001 par value; issued and outstanding, 22,426,779, 22,274,145 and 21,990,831 shares, respectively

 

 

 

 

 

 

 

Class B common stock—authorized 1,000 shares of $0.0001 par value; issued and outstanding, 49, 49 and 51 shares, respectively

 

 

– 

 

 

– 

 

 

– 

 

Additional paid-in capital

 

 

182,772 

 

 

179,134 

 

 

172,354 

 

Retained earnings

 

 

164,549 

 

 

141,805 

 

 

98,470 

 

Total stockholders' equity attributable to PennyMac Financial Services, Inc. common stockholders

 

 

347,323 

 

 

320,941 

 

 

270,826 

 

Noncontrolling interests in Private National Mortgage Acceptance Company, LLC

 

 

1,052,033 

 

 

969,463 

 

 

791,524 

 

Total stockholders' equity

 

 

1,399,356 

 

 

1,290,404 

 

 

1,062,350 

 

Total liabilities and stockholders’ equity

 

$

5,133,902 

 

$

5,596,194 

 

$

3,505,294 

 

 

10


 

PENNYMAC FINANCIAL SERVICES, INC.

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

 

 

 

Quarter ended

 

 

 

December 31, 

 

September 30, 

 

December 31, 

 

 

    

2016

    

2016

    

2015

 

 

 

(in thousands, except earnings per share)

 

Revenue

 

 

 

 

 

 

 

 

 

 

Net gains on mortgage loans held for sale at fair value

 

$

127,932 

 

$

182,121 

 

$

78,736 

 

Mortgage loan origination fees

 

 

39,572 

 

 

34,621 

 

 

20,969 

 

Fulfillment fees from PennyMac Mortgage Investment Trust

 

 

27,164 

 

 

27,255 

 

 

12,855 

 

Net mortgage loan servicing fees:

 

 

 

 

 

 

 

 

 

 

Mortgage loan servicing fees

 

 

 

 

 

 

 

 

 

 

From non-affiliates

 

 

102,671 

 

 

98,865 

 

 

90,081 

 

From PennyMac Mortgage Investment Trust

 

 

11,696 

 

 

11,039 

 

 

11,880 

 

From Investment Funds

 

 

389 

 

 

770 

 

 

720 

 

Ancillary and other fees

 

 

12,727 

 

 

11,913 

 

 

10,008 

 

 

 

 

127,483 

 

 

122,587 

 

 

112,689 

 

Amortization, impairment and change in estimated fair value of mortgage servicing rights and excess servicing spread

 

 

(31,955)

 

 

(76,723)

 

 

(35,730)

 

Net mortgage loan servicing fees

 

 

95,528 

 

 

45,864 

 

 

76,959 

 

Management fees:

 

 

 

 

 

 

 

 

 

 

From PennyMac Mortgage Investment Trust

 

 

5,081 

 

 

5,025 

 

 

5,670 

 

From Investment Funds

 

 

502 

 

 

496 

 

 

659 

 

 

 

 

5,583 

 

 

5,521 

 

 

6,329 

 

Carried Interest from Investment Funds

 

 

36 

 

 

107 

 

 

(270)

 

Net interest expense:

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

24,335 

 

 

22,709 

 

 

11,985 

 

Interest expense

 

 

32,237 

 

 

27,516 

 

 

19,415 

 

 

 

 

(7,902)

 

 

(4,807)

 

 

(7,430)

 

Change in fair value of investment in and dividends received from PennyMac Mortgage Investment Trust

 

 

94 

 

 

(13)

 

 

65 

 

Results of real estate acquired in settlement of loans

 

 

(82)

 

 

42 

 

 

– 

 

Other

 

 

1,360 

 

 

684 

 

 

(973)

 

Total net revenue

 

 

289,285 

 

 

291,395 

 

 

187,240 

 

Expenses

 

 

 

 

 

 

 

 

 

 

Compensation

 

 

94,576 

 

 

96,132 

 

 

71,566 

 

Servicing

 

 

29,363 

 

 

22,177 

 

 

12,979 

 

Technology

 

 

11,009 

 

 

9,733 

 

 

7,059 

 

Loan origination

 

 

6,961 

 

 

6,471 

 

 

4,763 

 

Professional services

 

 

5,155 

 

 

4,631 

 

 

4,583 

 

Other

 

 

12,813 

 

 

12,973 

 

 

9,057 

 

Total expenses

 

 

159,877 

 

 

152,117 

 

 

110,007 

 

Income before provision for income taxes

 

 

129,408 

 

 

139,278 

 

 

77,233 

 

Provision for income taxes

 

 

15,568 

 

 

16,976 

 

 

8,327 

 

Net income

 

 

113,840 

 

 

122,302 

 

 

68,906 

 

Less: Net income attributable to noncontrolling interest

 

 

91,096 

 

 

98,617 

 

 

56,135 

 

Net income attributable to PennyMac Financial Services, Inc. common stockholders

 

$

22,744 

 

$

23,685 

 

$

12,771 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share

 

 

 

 

 

 

 

 

 

 

Basic

 

$

1.02 

 

$

1.07 

 

$

0.58 

 

Diluted

 

$

1.00 

 

$

1.06 

 

$

0.58 

 

Weighted-average common shares outstanding

 

 

 

 

 

 

 

 

 

 

Basic

 

 

22,339 

 

 

22,217 

 

 

21,912 

 

Diluted

 

 

76,970 

 

 

76,355 

 

 

76,132 

 

 

11


 

PENNYMAC FINANCIAL SERVICES, INC.

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Year ended December 31,

 

 

 

2016

 

2015

 

2014

 

 

 

(in thousands, except earnings per share)

 

 

 

 

 

 

 

 

 

Revenue

    

 

    

    

 

    

    

 

    

 

Net gains on mortgage loans held for sale at fair value:

 

 

 

 

 

 

 

 

 

 

From non-affiliates

 

$

539,872 

 

$

328,551 

 

$

174,861 

 

Recapture payable to PennyMac Mortgage Investment Trust

 

 

(8,092)

 

 

(7,836)

 

 

(7,837)

 

 

 

 

531,780 

 

 

320,715 

 

 

167,024 

 

Mortgage loan origination fees

 

 

125,534 

 

 

91,520 

 

 

41,576 

 

Fulfillment fees from PennyMac Mortgage Investment Trust

 

 

86,465 

 

 

58,607 

 

 

48,719 

 

Net mortgage loan servicing fees:

 

 

 

 

 

 

 

 

 

 

Mortgage loan servicing fees:

 

 

 

 

 

 

 

 

 

 

From non-affiliates

 

 

385,633 

 

 

290,474 

 

 

173,005 

 

From PennyMac Mortgage Investment Trust

 

 

50,615 

 

 

46,423 

 

 

52,522 

 

From Investment Funds

 

 

2,583 

 

 

2,636 

 

 

6,425 

 

Ancillary and other fees

 

 

46,910 

 

 

43,139 

 

 

26,469 

 

 

 

 

485,741 

 

 

382,672 

 

 

258,421 

 

Amortization, impairment and change in fair value of mortgage servicing rights

 

 

(324,198)

 

 

(156,939)

 

 

(70,165)

 

Change in fair value of excess servicing spread payable to PennyMac Mortgage Investment Trust

 

 

23,923 

 

 

3,810 

 

 

28,663 

 

 

 

 

(300,275)

 

 

(153,129)

 

 

(41,502)

 

Net mortgage loan servicing fees

 

 

185,466 

 

 

229,543 

 

 

216,919 

 

Management fees:

 

 

 

 

 

 

 

 

 

 

From PennyMac Mortgage Investment Trust

 

 

20,657 

 

 

24,194 

 

 

35,035 

 

From Investment Funds

 

 

2,089 

 

 

4,043 

 

 

7,473 

 

 

 

 

22,746 

 

 

28,237 

 

 

42,508 

 

Carried Interest from Investment Funds

 

 

980 

 

 

2,628 

 

 

6,156 

 

Net interest expense:

 

 

 

 

 

 

 

 

 

 

Interest income:

 

 

 

 

 

 

 

 

 

 

From non-affiliates

 

 

73,297 

 

 

45,812 

 

 

27,771 

 

From PennyMac Mortgage Investment Trust

 

 

7,830 

 

 

3,343 

 

 

 

 

 

 

81,127 

 

 

49,155 

 

 

27,771 

 

Interest expense:

 

 

 

 

 

 

 

 

 

 

To non-affiliates

 

 

83,605 

 

 

43,172 

 

 

23,965 

 

To PennyMac Mortgage Investment Trust

 

 

22,601 

 

 

25,365 

 

 

13,292 

 

 

 

 

106,206 

 

 

68,537 

 

 

37,257 

 

Net interest expense

 

 

(25,079)

 

 

(19,382)

 

 

(9,486)

 

Change in fair value of investment in and dividends received from PennyMac Mortgage Investment Trust

 

 

224 

 

 

(230)

 

 

(6)

 

Result of real estate acquired in settlement of loans

 

 

(82)

 

 

 

 

 

Other

 

 

3,853 

 

 

1,472 

 

 

4,867 

 

Total net revenue

 

 

931,887 

 

 

713,110 

 

 

518,277 

 

Expenses

 

 

 

 

 

 

 

 

 

 

Compensation

 

 

342,153 

 

 

274,262 

 

 

190,707 

 

Servicing

 

 

85,857 

 

 

68,085 

 

 

48,430