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Section 1: 10-Q (10-Q)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 


 

Form 10-Q

 


 

(Mark One)

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2018

 

Or

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from           to           

 

Commission file number: 001-38727

 


 

PennyMac Financial Services, Inc.

(formerly known as New PennyMac Financial Services, Inc.)

(Exact name of registrant as specified in its charter)

 


 

 

 

 

Delaware

 

83-1098934

(State or other jurisdiction of

 

(IRS Employer

incorporation or organization)

 

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)

 


 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

 

 

 

 

           Large accelerated filer ☐

 

Accelerated filer ☒

 

 

 

           Non-accelerated filer ☐                                   

 

                Smaller reporting company ☐

          

           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.

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

 

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.

 

 

 

 

Class

 

Outstanding at November 1, 2018

Common Stock, $0.0001 par value

 

77,490,572

 

 

 

 

 


 

Table of Contents

 

PENNYMAC FINANCIAL SERVICES, INC.

 

FORM 10-Q

September 30, 2018

 

TABLE OF CONTENTS

 

 

 

 

 

Page

 

Special Note Regarding Forward-Looking Statements 

3

 

 

 

PART I. FINANCIAL INFORMATION 

5

 

 

 

Item 1. 

Financial Statements (Unaudited):

5

 

Consolidated Balance Sheets

5

 

Consolidated Statements of Income

6

 

Consolidated Statements of Changes in Stockholders’ Equity

7

 

Consolidated Statements of Cash Flows

9

 

Notes to Consolidated Financial Statements

10

Item 2. 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

68

Item 3. 

Quantitative and Qualitative Disclosures About Market Risk

86

Item 4. 

Controls and Procedures

87

 

 

 

PART II. OTHER INFORMATION 

88

 

 

 

Item 1. 

Legal Proceedings

88

Item 1A. 

Risk Factors

88

Item 2. 

Unregistered Sales of Equity Securities and Use of Proceeds

88

Item 3. 

Defaults Upon Senior Securities

88

Item 4. 

Mine Safety Disclosures

88

Item 5. 

Other Information

89

Item 6. 

Exhibits

89

 

 

 

2


 

Table of Contents

 

SPECIAL NOTE REGARDING FORWARD‑LOOKING STATEMENTS

 

This Quarterly Report on Form 10-Q (“Report”) contains certain forward‑looking statements that are subject to various risks and uncertainties. Forward‑looking statements are generally identifiable by use of forward‑looking terminology such as “may,” “will,” “should,” “potential,” “intend,” “expect,” “seek,” “anticipate,” “estimate,” “approximately,” “believe,” “could,” “project,” “predict,” “continue,” “plan” or other similar words or expressions. 

 

Forward‑looking statements are based on certain assumptions, discuss future expectations, describe future plans and strategies, contain financial and operating projections or state other forward‑looking information. Examples of forward‑looking statements include the following:

·

projections of our revenues, income, earnings per share, capital structure or other financial items;

·

descriptions of our plans or objectives for future operations, products or services;

·

forecasts of our future economic performance, interest rates, profit margins and our share of future markets; and

·

descriptions of assumptions underlying or relating to any of the foregoing expectations regarding the timing of generating any revenues.

 

Our ability to predict results or the actual effect of future events, actions, plans or strategies is inherently uncertain. Although we believe that the expectations reflected in such forward‑looking statements are based on reasonable assumptions, our actual results and performance could differ materially from those set forth in the forward‑looking statements. There are a number of factors, many of which are beyond our control that could cause actual results to differ significantly from management’s expectations. Some of these factors are discussed below.

 

You should not place undue reliance on any forward‑looking statement and should consider the following uncertainties and risks, as well as the risks and uncertainties discussed elsewhere in this Report and the section entitled “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2017, filed with the Securities and Exchange Commission (“SEC”) on March 9, 2018.

 

Factors that 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 if we do not comply with the laws and regulations applicable to our businesses;

 

·

the mortgage lending and servicing-related regulations promulgated by the Bureau of Consumer Financial Protection (“BCFP”) and its enforcement of these regulations;

 

·

our dependence on U.S. government‑sponsored entities and changes in their current roles or their guarantees or guidelines;

 

·

changes to government mortgage modification programs;

 

·

certain banking regulations that may limit our business activities;

 

·

foreclosure delays and changes in foreclosure practices;

 

·

the licensing and operational requirements of states and other jurisdictions applicable to our businesses, to which our bank competitors are not subject;

 

·

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;

 

3


 

Table of Contents

·

any required additional capital and liquidity to support business growth that may not be available on acceptable terms, if at all;

 

·

changes in prevailing interest rates;

 

·

increases in loan delinquencies and defaults;

 

·

our reliance on PennyMac Mortgage Investment Trust (“PMT”) as a significant source of financing for, and revenue related to, our mortgage banking business;

 

·

our obligation to indemnify third‑party 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 ability to realize the anticipated benefit of potential future acquisitions of mortgage servicing rights (“MSRs”);

 

·

our obligation to indemnify PMT and the Investment Funds if our 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 ourselves 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 detect misconduct and fraud;

 

·

our ability to mitigate cybersecurity risks and cyber incidents;

 

·

our exposure to risks of loss resulting from adverse weather conditions and man-made or natural disasters; and

 

·

our organizational structure and certain requirements in our charter documents.

 

Other factors that could also cause results to differ from our expectations may not be described in this Report or any other document.  Each of these factors could by itself, or together with one or more other factors, adversely affect our business, results of operations and/or financial condition.

 

Forward-looking statements speak only as of the date they are made, and we undertake no obligation to update any forward-looking statement to reflect the impact of circumstances or events that arise after the date the forward-looking statement was made.

 

4


 

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

PENNYMAC FINANCIAL SERVICES, INC.

CONSOLIDATED BALANCE SHEETS (UNAUDITED)

 

 

 

 

 

 

 

 

 

    

September 30, 

    

December 31, 

 

 

    

2018

    

2017

 

 

 

(in thousands, except share amounts)

 

ASSETS

 

 

 

 

 

 

 

Cash (includes $81,640 and $20,765 pledged to creditors)

 

 $

102,627

 

 $

37,725

 

Short-term investments at fair value

 

 

145,476

 

 

170,080

 

Mortgage loans held for sale at fair value (includes $2,389,066 and $3,081,987 pledged to creditors)

 

 

2,416,955

 

 

3,099,103

 

Assets purchased from PennyMac Mortgage Investment Trust under agreements to resell pledged to creditors

 

 

133,128

 

 

144,128

 

Derivative assets

 

 

73,618

 

 

78,179

 

Servicing advances, net (includes valuation allowance of $65,393 and $59,958; $102,222 and $114,643 pledged to creditors)

 

 

259,609

 

 

318,066

 

Investment in PennyMac Mortgage Investment Trust at fair value

 

 

1,518

 

 

1,205

 

Mortgage servicing rights (includes $2,785,964 and $638,010 at fair value; $2,539,575 and $2,098,067 pledged to creditors)

 

 

2,785,964

 

 

2,119,588

 

Real estate acquired in settlement of loans

 

 

2,493

 

 

2,447

 

Furniture, fixtures, equipment and building improvements, net (includes $19,022 and $23,915 pledged to creditors)

 

 

31,662

 

 

29,453

 

Capitalized software, net (includes $1,231 and $1,568 pledged to creditors)

 

 

36,484

 

 

25,729

 

Receivable from PennyMac Mortgage Investment Trust

 

 

27,467

 

 

27,119

 

Mortgage loans eligible for repurchase

 

 

889,335

 

 

1,208,195

 

Other 

 

 

86,194

 

 

107,076

 

Total assets

 

 $

6,992,530

 

 $

7,368,093

 

LIABILITIES

 

 

 

 

 

 

 

Assets sold under agreements to repurchase 

 

 $

1,739,638

 

 $

2,381,538

 

Mortgage loan participation purchase and sale agreements

 

 

524,667

 

 

527,395

 

Notes payable

 

 

1,291,847

 

 

891,505

 

Obligations under capital lease

 

 

9,630

 

 

20,971

 

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

 

 

223,275

 

 

236,534

 

Derivative liabilities

 

 

12,693

 

 

5,796

 

Accounts payable and accrued expenses

 

 

140,363

 

 

109,143

 

Mortgage servicing liabilities at fair value

 

 

9,769

 

 

14,120

 

Payable to PennyMac Mortgage Investment Trust 

 

 

91,818

 

 

136,998

 

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

 

 

47,605

 

 

44,011

 

Income taxes payable

 

 

74,158

 

 

52,160

 

Liability for mortgage loans eligible for repurchase

 

 

889,335

 

 

1,208,195

 

Liability for losses under representations and warranties  

 

 

21,022

 

 

20,053

 

Total liabilities

 

 

5,075,820

 

 

5,648,419

 

 

 

 

 

 

 

 

 

Commitments and contingencies  –  Note 14

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

Class A common stock—authorized 200,000,000 shares of $0.0001 par value; issued and outstanding, 25,195,436 and 23,529,970 shares, respectively

 

 

 3

 

 

 2

 

Class B common stock—authorized 1,000 shares of $0.0001 par value; issued and outstanding, 45 and 46 shares, respectively

 

 

 —

 

 

 —

 

Additional paid-in capital

 

 

236,457

 

 

204,103

 

Retained earnings

 

 

304,386

 

 

265,306

 

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

 

 

540,846

 

 

469,411

 

Noncontrolling interest in Private National Mortgage Acceptance Company, LLC

 

 

1,375,864

 

 

1,250,263

 

Total stockholders' equity

 

 

1,916,710

 

 

1,719,674

 

Total liabilities and stockholders’ equity

 

 $

6,992,530

 

 $

7,368,093

 

 

The accompanying notes are an integral part of these consolidated financial statements.

5


 

Table of Contents

PENNYMAC FINANCIAL SERVICES, INC.

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Quarter ended September 30, 

  

Nine months ended September 30, 

 

 

 

2018

 

2017

  

2018

 

2017

 

 

 

(in thousands, except earnings and dividends per share)

 

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

Net mortgage loan servicing fees:

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage loan servicing fees:

 

 

 

 

 

 

 

 

 

 

 

 

 

From non-affiliates

 

$

147,182

 

$

126,416

 

$

421,536

 

$

345,231

 

From PennyMac Mortgage Investment Trust

 

 

10,071

 

 

11,402

 

 

30,521

 

 

31,987

 

From Investment Funds

 

 

 —

 

 

416

 

 

 3

 

 

1,455

 

Ancillary and other fees

 

 

17,009

 

 

15,548

 

 

44,817

 

 

38,616

 

 

 

 

174,262

 

 

153,782

 

 

496,877

 

 

417,289

 

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

 

 

(63,450)

 

 

(80,529)

 

 

(147,670)

 

 

(232,889)

 

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

 

 

(1,109)

 

 

4,828

 

 

(9,026)

 

 

14,757

 

 

 

 

(64,559)

 

 

(75,701)

 

 

(156,696)

 

 

(218,132)

 

Net mortgage loan servicing fees

 

 

109,703

 

 

78,081

 

 

340,181

 

 

199,157

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

From non-affiliates

 

 

38,349

 

 

98,235

 

 

143,396

 

 

285,599

 

From PennyMac Mortgage Investment Trust

 

 

18,565

 

 

9,901

 

 

45,878

 

 

7,584

 

 

 

 

56,914

 

 

108,136

 

 

189,274

 

 

293,183

 

Mortgage loan origination fees:

 

 

 

 

 

 

 

 

 

 

 

 

 

From non-affiliates

 

 

24,366

 

 

31,060

 

 

70,607

 

 

83,558

 

From PennyMac Mortgage Investment Trust

 

 

2,119

 

 

2,108

 

 

4,869

 

 

5,377

 

 

 

 

26,485

 

 

33,168

 

 

75,476

 

 

88,935

 

Fulfillment fees from PennyMac Mortgage Investment Trust

 

 

26,256

 

 

23,507

 

 

52,759

 

 

61,184

 

Net interest income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income:

 

 

 

 

 

 

 

 

 

 

 

 

 

From non-affiliates

 

 

59,152

 

 

42,326

 

 

152,997

 

 

97,328

 

From PennyMac Mortgage Investment Trust

 

 

1,812

 

 

2,116

 

 

5,686

 

 

5,946

 

 

 

 

60,964

 

 

44,442

 

 

158,683

 

 

103,274

 

Interest expense:

 

 

 

 

 

 

 

 

 

 

 

 

 

To non-affiliates

 

 

35,035

 

 

38,494

 

 

96,552

 

 

95,832

 

To PennyMac Mortgage Investment Trust

 

 

3,740

 

 

3,998

 

 

11,584

 

 

13,011

 

 

 

 

38,775

 

 

42,492

 

 

108,136

 

 

108,843

 

Net interest income (expense)

 

 

22,189

 

 

1,950

 

 

50,547

 

 

(5,569)

 

Management fees, net:

 

 

 

 

 

 

 

 

 

 

 

 

 

From PennyMac Mortgage Investment Trust

 

 

6,482

 

 

6,038

 

 

17,906

 

 

16,684

 

From Investment Funds

 

 

(11)

 

 

178

 

 

 4

 

 

913

 

 

 

 

6,471

 

 

6,216

 

 

17,910

 

 

17,597

 

Carried Interest from Investment Funds

 

 

(17)

 

 

(1,158)

 

 

(365)

 

 

(1,045)

 

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

 

 

129

 

 

(33)

 

 

419

 

 

182

 

Results of real estate acquired in settlement of loans

 

 

194

 

 

281

 

 

179

 

 

137

 

Other

 

 

2,605

 

 

487

 

 

7,048

 

 

3,068

 

Total net revenues

 

 

250,929

 

 

250,635

 

 

733,428

 

 

656,829

 

Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

Compensation

 

 

103,364

 

 

93,417

 

 

303,917

 

 

261,624

 

Servicing

 

 

40,797

 

 

24,968

 

 

95,586

 

 

76,513

 

Technology

 

 

15,273

 

 

13,926

 

 

45,047

 

 

36,863

 

Occupancy and equipment

 

 

7,117

 

 

5,933

 

 

20,001

 

 

16,940

 

Professional services

 

 

7,117

 

 

4,636

 

 

18,442

 

 

12,977

 

Loan origination

 

 

7,203

 

 

5,581

 

 

14,462

 

 

14,830

 

Marketing

 

 

2,275

 

 

2,375

 

 

6,654

 

 

6,594

 

Other

 

 

6,086

 

 

5,655

 

 

19,928

 

 

16,352

 

Total expenses

 

 

189,232

 

 

156,491

 

 

524,037

 

 

442,693

 

Income before provision for income taxes

 

 

61,697

 

 

94,144

 

 

209,391

 

 

214,136

 

Provision for income taxes

 

 

5,545

 

 

11,652

 

 

17,908

 

 

26,512

 

Net income

 

 

56,152

 

 

82,492

 

 

191,483

 

 

187,624

 

Less: Net income attributable to noncontrolling interest

 

 

41,663

 

 

65,411

 

 

142,538

 

 

149,185

 

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

 

$

14,489

 

$

17,081

 

$

48,945

 

$

38,439

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.58

 

$

0.73

 

$

1.99

 

$

1.66

 

Diluted

 

$

0.57

 

$

0.71

 

$

1.94

 

$

1.62

 

Weighted average shares outstanding

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

25,125

 

 

23,426

 

 

24,644

 

 

23,147

 

Diluted

 

 

78,913

 

 

78,416

 

 

78,954

 

 

78,231

 

Dividend declared per share of Class A common stock

 

$

0.40

 

$

 —

 

$

0.40

 

$

 —

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 

6


 

Table of Contents

PENNYMAC FINANCIAL SERVICES, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Quarter ended September 30, 2018

 

 

Class A common stock

 

Noncontrolling

 

 

 

 

 

 

 

 

 

 

 

 

interest in Private

 

 

 

 

 

 

 

 

Additional

 

 

 

National Mortgage

 

Total

 

 

Number of

 

Par

 

paid-in

 

Retained

 

Acceptance

 

stockholders'

 

    

shares

    

value

    

capital

    

earnings

    

Company, LLC

    

equity

 

 

(in thousands)

Balance at June 30, 2018

 

25,009

 

$

 3

 

$

229,941

 

$

299,951

 

$

1,332,049

 

$

1,861,944

Net income

 

 —

 

 

 —

 

 

 —

 

 

14,489

 

 

41,663

 

 

56,152

Stock and unit-based compensation

 

55

 

 

 —

 

 

2,944

 

 

 —

 

 

6,472

 

 

9,416

Class A common stock dividends ($0.40 per share)

 

 —

 

 

 —

 

 

 —

 

 

(10,054)

 

 

 —

 

 

(10,054)

Issuance of Class A common stock in settlement of directors' fees

 

 —

 

 

 —

 

 

28

 

 

 —

 

 

57

 

 

85

Exchange of Class A units of Private National Mortgage Acceptance Company, LLC to Class A common stock of PennyMac Financial Services, Inc. by noncontrolling interest unitholders and issued as equity compensation

 

131

 

 

 —

 

 

4,377

 

 

 —

 

 

(4,377)

 

 

 —

Tax effect of exchange and repurchases of Class A units of Private National Mortgage Acceptance Company, LLC to Class A common stock of PennyMac Financial Services, Inc., net

 

 —

 

 

 —

 

 

(833)

 

 

 —

 

 

 —

 

 

(833)

Balance at September 30, 2018

 

25,195

 

$

 3

 

$

236,457

 

$

304,386

 

$

1,375,864

 

$

1,916,710

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Quarter ended September 30, 2017

 

 

Class A common stock

 

Noncontrolling

 

 

 

 

 

 

 

 

 

 

 

 

interest in Private

 

 

 

 

 

 

 

 

Additional

 

 

 

National Mortgage

 

Total

 

 

Number of

 

Par

 

paid-in

 

Retained

 

Acceptance

 

stockholders'

 

    

shares

    

value

    

capital

    

earnings

    

Company, LLC

    

equity

 

 

(in thousands)

Balance at June 30, 2017

 

23,473

 

$

 2

 

$

199,146

 

$

185,907

 

$

1,126,197

 

$

1,511,252

Net income

 

 —

 

 

 —

 

 

 —

 

 

17,081

 

 

65,411

 

 

82,492

Stock and unit-based compensation

 

 —

 

 

 —

 

 

1,411

 

 

 —

 

 

2,944

 

 

4,355

Issuance of Class A common stock in settlement of directors' fees

 

 —

 

 

 —

 

 

25

 

 

 —

 

 

59

 

 

84

Repurchase of Class A common stock

 

(505)

 

 

 —

 

 

(8,599)

 

 

 —

 

 

 —

 

 

(8,599)

Exchange of Class A units of Private  National Mortgage Acceptance Company,  LLC to Class A common stock of PennyMac Financial Services, Inc.

 

251

 

 

 —

 

 

3,656

 

 

 —

 

 

(3,656)

 

 

 —

Tax effect of exchange of Class A units of Private National Mortgage Acceptance Company, LLC to Class A common stock of PennyMac Financial Services, Inc.

 

 —

 

 

 —

 

 

707

 

 

 —

 

 

 —

 

 

707

Balance at September 30, 2017

 

23,219

 

$

 2

 

$

196,346

 

$

202,988

 

$

1,190,955

 

$

1,590,291

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 

 

 

 

 

7


 

Table of Contents

PENNYMAC FINANCIAL SERVICES, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine months ended September 30, 2018

 

 

Class A common stock

 

Noncontrolling

 

 

 

 

 

 

 

 

 

 

 

 

interest in Private

 

 

 

 

 

 

 

 

Additional

 

 

 

National Mortgage

 

Total

 

 

Number of

 

Par

 

paid-in

 

Retained

 

Acceptance

 

stockholders'

 

    

shares

    

value

    

capital

    

earnings

    

Company, LLC

    

equity

 

 

(in thousands)

Balance at December 31, 2017

 

23,530

 

$

 2

 

$

204,103

 

$

265,306

 

$

1,250,263

 

$

1,719,674

Cumulative effect of change in accounting principle Adoption of fair value accounting for all existing classes of mortgage servicing rights at fair value

 

 —

 

 

 —

 

 

 —

 

 

189

 

 

587

 

 

776

Balance at January 1, 2018

 

23,530

 

 

 2

 

 

204,103

 

 

265,495

 

 

1,250,850

 

 

1,720,450

Net income

 

 —

 

 

 —

 

 

 —

 

 

48,945

 

 

142,538

 

 

191,483

Stock and unit-based compensation

 

285

 

 

 —

 

 

7,400

 

 

 —

 

 

18,084

 

 

25,484

Class A common stock dividends ($0.40 per share)

 

 —

 

 

 —

 

 

 —

 

 

(10,054)

 

 

 —

 

 

(10,054)

Issuance of Class A common stock in settlement of directors' fees

 

 —

 

 

 —

 

 

79

 

 

 —

 

 

166

 

 

245

Repurchase of Class A common stock

 

(236)

 

 

 —

 

 

(1,554)

 

 

 —

 

 

(3,272)

 

 

(4,826)

Exchange of Class A units of Private National Mortgage Acceptance Company, LLC to Class A common stock of PennyMac Financial Services, Inc. by noncontrolling interest unitholders and issued as equity compensation

 

1,616

 

 

 1

 

 

32,501

 

 

 —

 

 

(32,502)

 

 

 —

Tax effect of exchange and repurchases of Class A units of Private National Mortgage Acceptance Company, LLC to Class A common stock of PennyMac Financial Services, Inc., net

 

 —

 

 

 —

 

 

(6,072)

 

 

 —

 

 

 —

 

 

(6,072)

Balance at September 30, 2018

 

25,195

 

$

 3

 

$

236,457

 

$

304,386

 

$

1,375,864

 

$

1,916,710

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine months ended September 30, 2017

 

 

Class A common stock

 

Noncontrolling

 

 

 

 

 

 

 

 

 

 

 

 

interest in Private

 

 

 

 

 

 

 

 

Additional

 

 

 

National Mortgage

 

Total

 

 

Number of

 

Par

 

paid-in

 

Retained

 

Acceptance

 

stockholders'

 

    

shares

    

value

    

capital

    

earnings

    

Company, LLC

    

equity

 

 

(in thousands)

Balance at December 31, 2016

 

22,427

 

$

 2

 

$

182,772

 

$

164,549

 

$

1,052,033

 

$

1,399,356

Net income

 

 —

 

 

 —

 

 

 —

 

 

38,439

 

 

149,185

 

 

187,624

Stock and unit-based compensation

 

 —

 

 

 —

 

 

4,861

 

 

 —

 

 

10,200

 

 

15,061

Issuance of Class A common stock in settlement of directors' fees

 

 —

 

 

 —

 

 

133

 

 

 —

 

 

120

 

 

253

Repurchase of Class A common stock

 

(505)

 

 

 —

 

 

(8,599)

 

 

 —

 

 

 —

 

 

(8,599)

Exchange of Class A units of Private  National Mortgage Acceptance Company,  LLC to Class A common stock of PennyMac Financial Services, Inc.

 

1,297

 

 

 —

 

 

20,583

 

 

 —

 

 

(20,583)

 

 

 —

Tax effect of exchange of Class A units of Private National Mortgage Acceptance Company, LLC to Class A common stock of PennyMac Financial Services, Inc.

 

 —

 

 

 —

 

 

(3,404)

 

 

 —

 

 

 —

 

 

(3,404)

Balance at September 30, 2017

 

23,219

 

$

 2

 

$

196,346

 

$

202,988

 

$

1,190,955

 

$

1,590,291

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

8


 

Table of Contents

 

PENNYMAC FINANCIAL SERVICES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

 

 

 

 

 

 

 

 

 

 

Nine months ended September 30, 

 

 

    

2018

    

2017

 

 

 

(in thousands)

 

Cash flow from operating activities

 

 

 

 

 

 

 

Net income

 

$

191,483

 

$

187,624

 

Adjustments to reconcile net income to net cash used in operating activities:

 

 

 

 

 

 

 

Net gains on mortgage loans held for sale at fair value

 

 

(189,274)

 

 

(293,183)

 

Accrual of servicing rebate payable to Investment Funds

 

 

 —

 

 

129

 

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

 

 

156,696

 

 

218,132

 

Carried Interest from Investment Funds

 

 

365