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Section 1: 8-K (8-K)

PFSI Form 8-K (02-08-18)

 

 

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 8, 2018

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))

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b‑2 of the Securities Exchange Act of 1934 (§240.12b‑2 of this chapter).

Emerging growth company  ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

 

 

 


 

 

Item 2.02 Results of Operations and Financial Condition.

On February 8, 2018, PennyMac Financial Services, Inc. (the “Company”) issued a press release announcing its financial results for the fiscal quarter and year ended December 31, 2017.  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 8, 2018 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 8, 2018, issued by PennyMac Financial Services, Inc. pertaining to its financial results for the fiscal quarter and year ended December 31, 2017.

 

 

 

99.2

 

Slide Presentation for use beginning on February 8, 2018 in connection with a recorded presentation of financial results for the fiscal quarter and year ended December 31, 2017.

 


 

EXHIBIT INDEX

Exhibit No.

    

Description

 

 

 

99.1

 

Press Release, dated February 8, 2018, issued by PennyMac Financial Services, Inc. pertaining to its financial results for the fiscal quarter and year ended December 31, 2017.

 

 

 

99.2

 

Slide Presentation for use beginning on February 8, 2018 in connection with a recorded presentation of financial results for the fiscal quarter and year ended December 31, 2017.

 


 

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 9, 2018

 

/s/ Andrew S. Chang

 

 

Andrew S. Chang

 

 

Senior Managing Director and Chief Financial Officer

 

 


(Back To Top)

Section 2: EX-99.1 (EX-99.1)

Ex 99.1 - PFSI 4Q17 PR

Exhibit 99.1

Picture 1

 

 

 

 

Media

Investors

 

Stephen Hagey

Christopher Oltmann

 

(805) 530‑5817

(818) 264‑4907

 

PennyMac Financial Services, Inc. Reports

Fourth Quarter and Full-Year 2017 Results

Westlake Village, CA, February 8, 2018 – PennyMac Financial Services, Inc. (NYSE: PFSI) today reported net income of $123.9 million for the fourth quarter of 2017, on revenue of $298.6 million.  Net income attributable to PFSI common stockholders was  $62.3 million, or $2.44 per diluted share.  Book value per share increased to $19.95, from $17.20 at September 30, 2017.

Fourth Quarter 2017 Highlights

·

Pretax income was $121.8 million; includes $32.0 million benefit related to remeasurement of tax-related items as a result of the newly enacted federal tax law

o

Diluted earnings per share of $2.44 includes a benefit of $1.79 from the remeasurement of tax-related items

o

Fourth quarter results reflect strong earnings contributions from both the production and servicing segments

·

Production segment pretax income was  $55.3 million, down 20 percent from the prior quarter and down 41 percent from the fourth quarter of 2016

o

Total loan production activity of $17.0 billion in unpaid principal balance (UPB), down 10 percent from the prior quarter and 23 percent from the fourth quarter of 2016

o

$15.4 billion in UPB of correspondent production, down 12 percent from the prior quarter and 23 percent from the fourth quarter of 2016

o

$1.6 billion in UPB of consumer direct originations, up 8 percent from the prior quarter and down 20 percent from the fourth quarter of 2016

o

Interest rate lock commitments (IRLCs) on correspondent government and consumer direct loans totaled $11.8 billion, down 11 percent from the prior quarter and 20 percent from the fourth quarter of 2016


 

·

Servicing segment pretax income was  $32.0 million,  up 31 percent from the prior quarter and down 9 percent from the fourth quarter of 2016

o

Servicing segment pretax income excluding valuation-related changes was $28.2 million, down 24 percent from the prior quarter and up 15 percent from the fourth quarter of 20161

o

Servicing portfolio grew to $245.8 billion in UPB, up 3 percent from September 30, 2017, and 27 percent from December 31, 2016

o

Entered into an agreement to acquire a bulk portfolio of Ginnie Mae and conventional conforming mortgage servicing rights (MSRs) with a UPB of approximately $3.6 billion2

·

Investment Management segment pretax income was  $1.5 million, up from $0.7 million in the prior quarter and $0.4 million in the fourth quarter of 2016

o

Net assets under management were $1.6 billion, down 4 percent from September 30, 2017 and up 2 percent from December 31, 2016

Full-Year 2017 Highlights

·

Pretax income was $335.9 million; includes $32.0 million benefit related to remeasurement of tax-related items

o

Diluted earnings per share of $4.03 includes a benefit of $1.83 resulting from the remeasurement of tax-related items

·

Total net revenue of $955.5 million, up 3 percent from the prior year

·

Loan production totaled $68.5 billion in UPB, a decrease of 2 percent from record levels in the prior year

·

Servicing portfolio reached $245.8 billion in UPB, up 27 percent from December 31, 2016

“PennyMac Financial closed out the year with a very strong fourth quarter, with growth in book value per share to nearly $20.  Earnings were excellent and further benefited from the remeasurement of tax-related items,” said President and CEO David Spector. “Our production and servicing segments delivered solid earnings.  Servicing is contributing an increasingly meaningful portion of earnings, and we expect this segment to continue performing well as our portfolio grows and interest rates rise.  In correspondent production, we continued to generate strong results through our market-leading franchise.”


1    Excludes changes in the fair value of MSRs, the ESS liability, and gains/(losses) on hedging derivatives which were $28.0 million, $4.6 million, and $(20.8) million, respectively, and a provision for credit losses on active loans of $(8.8) million in the fourth quarter of 2017.

2    This transaction is subject to continuing due diligence and customary closing conditions. There can be no assurance regarding the size of the transaction or that the transaction will be completed at all.

2


 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage Banking

 

Investment

 

 

 

    

Production

    

Servicing

    

Total

    

Management

    

Total

 

 

(in thousands)

Revenue

 

 

 

 

 

 

 

 

 

 

Net gains on mortgage loans held for sale at fair value

 

$

68,716 

 

$

29,905 

 

$

98,621 

 

$

— 

 

$

98,621 

Loan origination fees

 

 

30,267 

 

 

— 

 

 

30,267 

 

 

— 

 

 

30,267 

Fulfillment fees from PMT

 

 

19,175 

 

 

— 

 

 

19,175 

 

 

— 

 

 

19,175 

Net servicing fees

 

 

— 

 

 

106,902 

 

 

106,902 

 

 

— 

 

 

106,902 

Management fees

 

 

— 

 

 

— 

 

 

— 

 

 

5,988 

 

 

5,988 

Carried Interest from Investment Funds

 

 

— 

 

 

— 

 

 

— 

 

 

 

 

Net interest income (expense):

 

 

— 

 

 

— 

 

 

 

 

 

 

 

 

 

Interest income

 

 

15,329 

 

 

24,576 

 

 

39,905 

 

 

— 

 

 

39,905 

Interest expense

 

 

2,852 

 

 

32,813 

 

 

35,665 

 

 

12 

 

 

35,677 

 

 

 

12,477 

 

 

(8,237)

 

 

4,240 

 

 

(12)

 

 

4,228 

Other

 

 

291 

 

 

268 

 

 

559 

 

 

(51)

 

 

508 

Total net revenue

 

 

130,926 

 

 

128,838 

 

 

259,764 

 

 

5,930 

 

 

265,694 

Expenses

 

 

75,586 

 

 

96,840 

 

 

172,426 

 

 

4,435 

 

 

176,861 

Income before provision for income taxes and non-segment activities

 

 

55,340 

 

 

31,998 

 

 

87,338 

 

 

1,495 

 

 

88,833 

Non-segment activities(1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

32,940 

Pretax income

 

$

55,340 

 

$

31,998 

 

$

87,338 

 

$

1,495 

 

$

121,773 


(1)

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

The new federal tax law resulted in the remeasurement of tax-related items during the fourth quarter, primarily a deferred tax liability that results from deferred gains related to originated MSRs and a deferred tax asset that relates to the step up in basis on exchange of Private National Mortgage Acceptance Company, LLC unitholders for PFSI Class A common stock.  In addition, the tax rate change required a remeasurement of amounts payable to exchanged Private National Mortgage Acceptance Company, LLC unitholders under the tax receivable agreement. The remeasurement of these items resulted in an increase in total net revenue of $32.0 million from repricing the tax receivable agreement liability and an income tax benefit of $13.6 million from repricing the net deferred tax liability, and contributed $1.79 to diluted earnings per share for the quarter.

PFSI’s tax provision rate for 2018 was decreased to 27.4 percent from 40.5 percent.

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 for the quarter totaled $17.0 billion in UPB, of which $11.1 billion in UPB was for its own account, and $5.9 billion in UPB was fee-based fulfillment activity for PMT.  IRLCs on correspondent government and consumer direct loans totaled $11.8 billion in UPB.

3


 

Production segment pretax income was $55.3 million, a decrease of 20 percent from the prior quarter and a decrease of 41 percent from the fourth quarter of 2016.  Production revenue totaled $130.9 million, a  decrease of 8 percent from the prior quarter and a decrease of 25 percent from the fourth quarter of 2016.  The quarter-over-quarter decrease primarily resulted from an $11.3 million decrease in net gains on mortgage loans held for sale driven by a decline in production volume resulting from increased competition and seasonal factors,  partially offset by a $7.2 million increase in net interest income driven by the optimization of financing arrangements.

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

 

 

 

 

 

 

 

 

 

 

 

 

Quarter ended

 

    

December 31,
2017

    

September 30,
2017

    

December 31,
2016

 

 

(in thousands)

Receipt of MSRs in loan sale transactions

 

$

143,904 

 

$

154,763 

 

$

190,735 

Mortgage servicing rights recapture payable to PennyMac Mortgage Investment Trust

 

 

(1,553)

 

 

(1,495)

 

 

(2,535)

Provision for representations and warranties, net

 

 

(381)

 

 

(402)

 

 

(845)

Cash investment (1)

 

 

(69,001)

 

 

(43,943)

 

 

29,038 

Fair value changes of pipeline, inventory and hedges

 

 

25,652 

 

 

(787)

 

 

(88,461)

Net gains on mortgage loans held for sale

 

$

98,621 

 

$

108,136 

 

$

127,932 

 

 

 

 

 

 

 

 

 

 

Net gains on mortgage loans held for sale by segment:

 

 

 

 

 

 

 

 

 

Production

 

$

68,716 

 

$

79,983 

 

$

103,413 

Servicing

 

$

29,905 

 

$

28,153 

 

$

24,519 


(1)

Net of cash hedge expense

PennyMac Financial performs fulfillment services for conventional conforming 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 $19.2 million in the fourth quarter, down 18 percent  from the prior quarter and down 29 percent from the fourth quarter of 2016.  The decrease in fulfillment fee revenue was driven by lower acquisition volumes by PMT and a reduction in the weighted average fulfillment fee. The weighted average fulfillment fee rate reflects discretionary reductions to facilitate the successful completion of certain loan transactions by PMT.  For the fourth quarter, the weighted average fulfillment fee rate was 33 basis points, down from 36 basis points in the prior quarter.

Production segment expenses were $75.6 million, a 3 percent increase from the prior quarter and a 7 percent decrease from the fourth quarter of 2016.  The quarter-over-quarter increase was driven by an increase in allocated incentive-based compensation.

4


 

Servicing Segment

Servicing includes income from owned MSRs, subservicing and special servicing activities.  Servicing segment pretax income was $32.0 million compared with $24.5 million in the prior quarter and $35.1 million in the fourth quarter of 2016.  Servicing segment revenues totaled $128.8 million, a  25 percent increase from the prior quarter and a 19 percent increase from the fourth quarter of 2016.  The quarter-over-quarter increase was primarily due to  an increase in net loan servicing fees,  driven by portfolio growth and MSR fair value changes net of hedge results.

Net loan servicing fees totaled $106.9 million and included $162.0 million in servicing fees reduced by $66.9 million of amortization and realization of MSR cash flows.  Valuation-related gains totaled $11.8 million, which includes MSR fair value gains and reversal of impairment for MSRs carried at the lower of amortized cost or fair value of $28.0 million,  changes in fair value of the excess servicing spread (ESS) liability resulting in a $4.6 million gain and related hedging losses of $20.8 million.  The MSR fair value gains and the reversal of impairment resulted from higher mortgage rates and reduced discount rates on government MSRs, reflecting improved market liquidity for Ginnie Mae MSRs and a reduced risk profile of our MSR portfolio resulting from the early buyout (EBO) of severely delinquent loans.

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

 

 

 

 

 

 

 

 

 

 

 

 

Quarter ended

 

    

December 31,
2017

    

September 30,
2017

    

December 31,
2016

 

 

(in thousands)

Servicing fees (1)

 

$

162,008 

 

$

153,782 

 

$

127,483 

Effect of MSRs:

 

 

 

 

 

 

 

 

 

Amortization and realization of cash flows

 

 

(66,891)

 

 

(65,751)

 

 

(50,204)

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

 

 

28,029 

 

 

(21,952)

 

 

151,599 

Change in fair value of excess servicing spread financing

 

 

4,593 

 

 

4,828 

 

 

(17,061)

Hedging gains (losses)

 

 

(20,837)

 

 

7,174 

 

 

(116,289)

Total amortization, impairment and change in fair value of MSRs

 

 

(55,106)

 

 

(75,701)

 

 

(31,955)

Net loan servicing fees

 

$

106,902 

 

$

78,081 

 

$

95,528 


(1)

Includes contractually-specified servicing fees

Servicing segment revenue also included $29.9 million in net gains on mortgage loans held for sale from the securitization of reperforming government-insured and guaranteed loans, compared with  $28.2 million in the prior quarter and $24.5 million in the fourth quarter of 2016.  These loans were previously purchased out of Ginnie Mae securitizations as EBOs and brought back to performing status through PennyMac Financial’s successful servicing efforts, primarily with the use of loan modifications.  Net interest expense totaled $8.2 million, a 147 percent increase from the prior quarter and a 33 percent decrease from the fourth quarter of 2016.  Interest income decreased by $2.2 million from the prior quarter, driven by a reduction in modification activity on EBO loans.  Interest

5


 

expense increased by $2.7 million from the prior quarter, driven by the second Ginnie Mae MSR term note issued during the third quarter and higher short-term interest rates.

Servicing segment expenses totaled $96.8 million, a 23 percent increase from the prior quarter and a 33 percent increase from the fourth quarter of 2016.  The increase was driven by temporary increases in staffing costs to assist borrowers affected by natural disasters and higher EBO transaction-related expenses from a significant increase in buyout volumes during the quarter.  The buyout transactions are expected to benefit future period income through reduced costs and gains on redelivery of performing loans.

The total servicing portfolio reached $245.8 billion in UPB at December 31, 2017, an increase of 3 percent from the prior quarter end and 27 percent from a year earlier.  Servicing portfolio growth during the quarter was driven by the company’s loan production activities.  Of the total servicing portfolio, prime servicing was $244.5 billion in UPB and special servicing was $1.3 billion in UPB.  PennyMac Financial subservices and conducts special servicing for $75.0 billion in UPB, an increase of 5 percent from September 30, 2017.  PennyMac Financial’s  owned MSR portfolio grew to $166.2 billion in UPB, an increase of 2 percent from the prior quarter end.

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

 

 

 

 

 

 

 

 

 

 

 

    

December 31,
2017

    

September 30,
2017

    

December 31,
2016

 

 

(in thousands)

Loans serviced at period end:

 

 

 

 

 

 

 

 

 

Prime servicing:

 

 

 

 

 

 

 

 

 

Owned

 

 

 

 

 

 

 

 

 

Mortgage servicing rights

 

 

 

 

 

 

 

 

 

Originated

 

$

119,673,403 

 

$

113,590,527 

 

$

89,493,817 

Acquisitions

 

 

46,575,834 

 

 

49,209,050 

 

 

39,660,951 

 

 

 

166,249,237 

 

 

162,799,577 

 

 

129,154,768 

Mortgage servicing liabilities

 

 

1,620,609 

 

 

1,512,632 

 

 

2,097,234 

Mortgage loans held for sale

 

 

2,998,377 

 

 

2,858,642 

 

 

2,101,283 

 

 

 

170,868,223 

 

 

167,170,851 

 

 

133,353,285 

Subserviced for Advised Entities

 

 

73,651,608 

 

 

69,498,140 

 

 

58,327,748 

Total prime servicing

 

 

244,519,831 

 

 

236,668,991 

 

 

191,681,033 

Special servicing:

 

 

 

 

 

 

 

 

 

Subserviced for Advised Entities

 

 

1,328,660 

 

 

1,703,817 

 

 

2,558,969 

Total loans serviced

 

$

245,848,491 

 

$

238,372,808 

 

$

194,240,002 

 

 

 

 

 

 

 

 

 

 

Mortgage loans serviced:

 

 

 

 

 

 

 

 

 

Owned

 

 

 

 

 

 

 

 

 

Mortgage servicing rights

 

$

166,249,237 

 

$

162,799,577 

 

$

129,154,768 

Mortgage servicing liabilities

 

 

1,620,609 

 

 

1,512,632 

 

 

2,074,896 

Mortgage loans held for sale

 

 

2,998,377 

 

 

2,858,642 

 

 

2,101,283 

 

 

 

170,868,223 

 

 

167,170,851 

 

 

133,330,947 

Subserviced

 

 

74,980,268 

 

 

71,201,957 

 

 

60,886,717 

Total mortgage loans serviced

 

$

245,848,491 

 

$

238,372,808 

 

$

194,217,664 

 

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 $1.6 billion as of December 31,  2017,  down 4 percent from September 30, 2017 and up 2 percent from December 31, 2016.  During and after the quarter, PMT repurchased approximately 5.2 million common shares at a cost of $83 million3.  The repurchase program allows PMT to acquire its common shares at a discount to book value and enhance equity returns, which we believe aids PMT’s long-run success.

Pretax income for the Investment Management segment was $1.5 million, compared with $0.7 million in the prior quarter and $0.4 million in the fourth quarter of 2016.  Management fees, which include base management fees from PMT and the private Investment Funds, decreased 4 percent from the prior quarter and increased 7 percent from the fourth quarter of 2016.  No incentive fee was paid by PMT during the quarter, consistent with the prior quarter and the fourth quarter of 2016.

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

 

 

 

 

 

 

 

 

 

 

 

 

Quarter ended

 

    

December 31,
2017

    

September 30,
2017

    

December 31,
2016

 

 

(in thousands)

Management fees:

 

 

 

 

 

 

 

 

 

PennyMac Mortgage Investment Trust

 

 

 

 

 

 

 

 

 

Base

 

$

5,900 

 

$

6,038 

 

$

5,081 

Performance incentive

 

 

— 

 

 

— 

 

 

— 

 

 

 

5,900 

 

 

6,038 

 

 

5,081 

Investment Funds

 

 

88 

 

 

178 

 

 

502 

Total management fees

 

 

5,988 

 

 

6,216 

 

 

5,583 

Carried Interest

 

 

 

 

(1,158)

 

 

36 

Total management fees and Carried Interest

 

$

5,993 

 

$

5,058 

 

$

5,619 

 

 

 

 

 

 

 

 

 

 

Net assets of Advised Entities:

 

 

 

 

 

 

 

 

 

PennyMac Mortgage Investment Trust

 

$

1,544,585 

 

$

1,610,565 

 

$

1,351,114 

Investment Funds

 

 

29,329 

 

 

29,955 

 

 

197,550 

 

 

$

1,573,914 

 

$

1,640,520 

 

$

1,548,664 

 

Investment Management segment expenses totaled $4.4 million, a 3 percent increase from the prior quarter and a  16 percent decrease from the fourth quarter of 2016.

Consolidated Expenses

Total expenses for the fourth quarter were $176.9 million, a 13 percent increase from the prior quarter and an 11 percent increase from the fourth quarter of 2016.  The quarter-over-quarter increase was driven by higher servicing costs, in addition to higher compensation expense resulting from an increase in incentive-based compensation.


3   November 6, 2017 through January 5, 2018. PFSI net assets under management of $1.6 billion at December 31, 2017 does not reflect PMT’s common share buyback activity between January 2, 2018 and January 5, 2018.

7


 

Executive Chairman Stanford L. Kurland concluded, “We remain focused on long-term initiatives to help ensure PennyMac Financial’s growth and success.  We continue to make progress on process redesigns in our production businesses that will benefit our consumer direct and broker direct channels, while in our servicing business we have made technology investments and are rolling out new modules to drive workflows and increased efficiency.  We also launched our Broker Direct channel which gives us access to an additional 10 percent of the U.S. mortgage market.  While the effects of different aspects of the new tax law are uncertain, we believe a strong economy and the stimulus provided by the tax bill bode well for housing and PennyMac Financial’s businesses.”

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 Daylight Time) on Thursday,  February 8,  2018.

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

8


 

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 investment strategies or expansion of existing business activities or investment strategies; our ability to detect misconduct and fraud; our ability to mitigate cybersecurity risks and cyber incidents; our exposure to risks of loss with real estate investments resulting from adverse weather conditions and man-made or natural disasters; and our organizational structure and certain requirements in our charter documents.  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,
2017

    

September 30,
2017

    

December 31,
2016

 

 

(in thousands, except share amounts)

ASSETS

 

 

 

 

 

 

Cash

 

$

37,725 

 

$

67,708 

 

$

99,367 

Short—term investments at fair value

 

 

170,080 

 

 

136,217 

 

 

85,964 

Mortgage loans held for sale at fair value

 

 

3,099,103 

 

 

2,935,593 

 

 

2,172,815 

Derivative assets

 

 

78,179 

 

 

76,709 

 

 

82,905 

Servicing advances, net

 

 

318,066 

 

 

262,650 

 

 

348,306 

Carried Interest due from Investment Funds

 

 

8,552 

 

 

8,547 

 

 

70,906 

Investment in PennyMac Mortgage Investment Trust at fair value

 

 

1,205 

 

 

1,304 

 

 

1,228 

Mortgage servicing rights

 

 

2,119,588 

 

 

2,016,485 

 

 

1,627,672 

Real estate acquired in settlement of loans

 

 

2,447 

 

 

986 

 

 

1,418 

Furniture, fixtures, equipment and building improvements, net

 

 

29,453 

 

 

30,037 

 

 

31,321 

Capitalized software, net

 

 

25,729 

 

 

21,625 

 

 

11,205 

Financing receivable from PennyMac Mortgage Investment Trust

 

 

144,128 

 

 

148,072 

 

 

150,000 

Receivable from Investment Funds

 

 

417 

 

 

654 

 

 

1,219 

Receivable from PennyMac Mortgage Investment Trust

 

 

27,119 

 

 

16,008 

 

 

16,416 

Loans eligible for repurchase

 

 

1,208,195 

 

 

584,394 

 

 

382,268 

Other

 

 

98,107 

 

 

81,380 

 

 

50,892 

Total assets

 

$

7,368,093 

 

$

6,388,369 

 

$

5,133,902 

 

 

 

 

 

 

 

 

 

 

LIABILITIES

 

 

 

 

 

 

 

 

 

Assets sold under agreements to repurchase 

 

$

2,381,538 

 

$

2,096,492 

 

$

1,735,114 

Mortgage loan participation and sale agreements

 

 

527,395 

 

 

531,776 

 

 

671,426 

Notes payable

 

 

891,505 

 

 

890,884 

 

 

150,942 

Obligations under capital lease

 

 

20,971 

 

 

24,373 

 

 

23,424 

Excess servicing spread financing payable to PennyMac Mortgage Investment Trust at fair value

 

 

236,534 

 

 

248,763 

 

 

288,669 

Derivative liabilities

 

 

5,796 

 

 

11,474 

 

 

22,362 

Mortgage servicing liabilities at fair value

 

 

14,120 

 

 

16,076 

 

 

15,192 

Accounts payable and accrued expenses

 

 

106,716 

 

 

122,698 

 

 

134,611 

Payable to Investment Funds

 

 

2,427 

 

 

2,190 

 

 

20,393 

Payable to PennyMac Mortgage Investment Trust 

 

 

136,998 

 

 

124,589 

 

 

170,036 

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

 

 

44,011 

 

 

75,076 

 

 

75,954 

Income taxes payable

 

 

52,160 

 

 

49,620 

 

 

25,088 

Liability for loans eligible for repurchase

 

 

1,208,195 

 

 

584,394 

 

 

382,268 

Liability for losses under representations and warranties  

 

 

20,053 

 

 

19,673 

 

 

19,067 

Total liabilities

 

 

5,648,419 

 

 

4,798,078 

 

 

3,734,546 

 

 

 

 

 

 

 

 

 

 

STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

 

 

Class A common stockauthorized 200,000,000 shares of $0.0001 par value; issued and outstanding, 23,529,970, 23,219,088 and 22,426,779 shares, respectively

 

 

 

 

 

 

Class B common stockauthorized 1,000 shares of $0.0001 par value; issued and outstanding, 46, 49 and 49 shares, respectively

 

 

— 

 

 

— 

 

 

— 

Additional paid—in capital

 

 

204,103 

 

 

196,346 

 

 

182,772 

Retained earnings

 

 

265,306 

 

 

202,988 

 

 

164,549 

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

 

 

469,411 

 

 

399,336 

 

 

347,323 

Noncontrolling interests in Private National Mortgage Acceptance Company, LLC

 

 

1,250,263 

 

 

1,190,955 

 

 

1,052,033 

Total stockholders' equity

 

 

1,719,674 

 

 

1,590,291 

 

 

1,399,356 

Total liabilities and stockholders’ equity

 

$

7,368,093 

 

$

6,388,369 

 

$

5,133,902 

 

10


 

PENNYMAC FINANCIAL SERVICES, INC.

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

 

 

 

 

 

 

 

 

 

 

 

 

 

Quarter ended

 

    

December 31,
2017

    

September 30,
2017

    

December 31,
2016

 

 

(in thousands, except earnings per share)

Revenue

 

 

 

 

 

 

 

 

 

Net gains on mortgage loans held for sale at fair value

 

$

98,621 

 

$

108,136 

 

$

127,932 

Mortgage loan origination fees

 

 

30,267 

 

 

33,168 

 

 

39,572 

Fulfillment fees from PennyMac Mortgage Investment Trust

 

 

19,175 

 

 

23,507 

 

 

27,164 

Net mortgage loan servicing fees:

 

 

 

 

 

 

 

 

 

Mortgage loan servicing fees

 

 

 

 

 

 

 

 

 

From non-affiliates

 

 

130,617 

 

 

126,416 

 

 

102,671 

From PennyMac Mortgage Investment Trust

 

 

11,077 

 

 

11,402 

 

 

11,696 

From Investment Funds

 

 

 

 

416 

 

 

389 

Ancillary and other fees

 

 

20,308 

 

 

15,548 

 

 

12,727 

 

 

 

162,008 

 

 

153,782 

 

 

127,483 

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

 

 

(55,106)

 

 

(75,701)

 

 

(31,955)

Net mortgage loan servicing fees

 

 

106,902 

 

 

78,081 

 

 

95,528 

Management fees:

 

 

 

 

 

 

 

 

 

From PennyMac Mortgage Investment Trust

 

 

5,900 

 

 

6,038 

 

 

5,081 

From Investment Funds

 

 

88 

 

 

178 

 

 

502 

 

 

 

5,988 

 

 

6,216 

 

 

5,583 

Carried Interest from Investment Funds

 

 

 

 

(1,158)

 

 

36 

Net interest income (expense):

 

 

 

 

 

 

 

 

 

Interest income

 

 

39,905 

 

 

44,442 

 

 

24,335 

Interest expense

 

 

35,677 

 

 

42,492 

 

 

32,237 

 

 

 

4,228 

 

 

1,950 

 

 

(7,902)

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

 

 

(63)

 

 

(33)

 

 

94 

Results of real estate acquired in settlement of loans

 

 

(43)

 

 

281 

 

 

(82)

Revaluation of payable to exchanged Private National Mortgage Acceptance Company, LLC unitholders under tax receivable agreement

 

 

32,940 

 

 

— 

 

 

551 

Other

 

 

614 

 

 

487 

 

 

809 

Total net revenue

 

 

298,634 

 

 

250,635 

 

 

289,285 

Expenses

 

 

 

 

 

 

 

 

 

Compensation

 

 

97,097 

 

 

93,417 

 

 

94,576 

Servicing

 

 

41,183 

 

 

24,968 

 

 

29,363 

Technology

 

 

13,993 

 

 

13,926 

 

 

11,009 

Occupancy and equipment

 

 

5,675 

 

 

5,933 

 

 

5,138 

Loan origination

 

 

5,599 

 

 

5,581 

 

 

6,961 

Professional services

 

 

4,868 

 

 

4,636 

 

 

5,155 

Marketing

 

 

2,524 

 

 

2,375 

 

 

1,321 

Other

 

 

5,922 

 

 

5,655 

 

 

6,354 

Total expenses

 

 

176,861 

 

 

156,491 

 

 

159,877 

Income before provision for income taxes

 

 

121,773 

 

 

94,144 

 

 

129,408 

(Benefit from) provision for income taxes

 

 

(2,125)

 

 

11,652 

 

 

15,568 

Net income

 

 

123,898 

 

 

82,492 

 

 

113,840 

Less: Net income attributable to noncontrolling interest

 

 

61,580 

 

 

65,411 

 

 

91,096 

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

 

$

62,318 

 

$

17,081 

 

$

22,744 

 

 

 

 

 

 

 

 

 

 

Earnings per share

 

 

 

 

 

 

 

 

 

Basic

 

$

2.67 

 

$

0.73 

 

$

1.02 

Diluted

 

$

2.44 

 

$

0.71 

 

$

1.00 

Weighted-average common shares outstanding

 

 

 

 

 

 

 

 

 

Basic

 

 

23,354 

 

 

23,426 

 

 

22,339 

Diluted

 

 

25,565 

 

 

78,416 

 

 

76,970 

 

11


 

PENNYMAC FINANCIAL SERVICES, INC.

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

 

 

 

 

 

 

 

 

 

 

 

 

 

Year ended December 31,

 

    

2017

    

2016

    

2015

 

 

(in thousands, except earnings per share)

Revenue

 

 

 

 

 

 

 

 

 

Net gains on mortgage loans held for sale at fair value

 

$

391,804 

 

$

531,780 

 

$

320,715 

Mortgage loan origination fees

 

 

119,202 

 

 

125,534 

 

 

91,520 

Fulfillment fees from PennyMac Mortgage Investment Trust

 

 

80,359 

 

 

86,465 

 

 

58,607 

Net mortgage loan servicing fees:

 

 

 

 

 

 

 

 

 

Mortgage loan servicing fees

 

 

 

 

 

 

 

 

 

From non-affiliates

 

 

475,848 

 

 

385,633 

 

 

290,474 

From PennyMac Mortgage Investment Trust

 

 

43,064 

 

 

50,615 

 

 

46,423 

From Investment Funds

 

 

1,461 

 

 

2,583 

 

 

2,636 

Ancillary and other fees

 

 

58,924 

 

 

46,910 

 

 

43,139 

 

 

 

579,297 

 

 

485,741 

 

 

382,672 

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

 

 

(273,238)

 

 

(300,275)

 

 

(153,129)

Net mortgage loan servicing fees

 

 

306,059 

 

 

185,466 

 

 

229,543 

Management fees:

 

 

 

 

 

 

 

 

 

From PennyMac Mortgage Investment Trust

 

 

22,584 

 

 

20,657 

 

 

24,194 

From Investment Funds

 

 

1,001 

 

 

2,089 

 

 

4,043 

 

 

 

23,585 

 

 

22,746 

 

 

28,237 

Carried Interest from Investment Funds

 

 

(1,040)

 

 

980 

 

 

2,628 

Net interest income (expense):

 

 

 

 

 

 

 

 

 

Interest income

 

 

143,179 

 

 

81,127 

 

 

49,155 

Interest expense

 

 

144,520 

 

 

106,206 

 

 

68,537 

 

 

 

(1,341)

 

 

(25,079)

 

 

(19,382)

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

 

 

118 

 

 

224 

 

 

(230)

Results of real estate acquired in settlement of loans

 

 

94 

 

 

(82)

 

 

— 

Revaluation of payable to exchanged Private National Mortgage Acceptance Company, LLC unitholders under tax receivable agreement 

 

 

32,940 

 

 

551 

 

 

(1,695)

Other

 

 

3,683 

 

 

3,302 

 

 

3,167 

Total net revenue

 

 

955,463 

 

 

931,887 

 

 

713,110 

Expenses

 

 

 

 

 

 

 

 

 

Compensation

 

 

358,721 

 

 

342,153 

 

 

274,262 

Servicing

 

 

117,696 

 

 

85,857 

 

 

68,085 

Technology

 

 

52,013 

 

 

35,322