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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 June 30, 2019

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)

 


Title of each class

    

Trading Symbol(s)

    

Name of each exchange on which registered

Common Stock, $0.0001 per value

 

PFSI

 

New York Stock Exchange

 

 

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

Securities registered pursuant to Section 12(b) of the Act:

 

 

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 August 5, 2019

Common Stock, $0.0001 par value

 

78,607,436

 

 

 

 

 

Table of Contents

 

PENNYMAC FINANCIAL SERVICES, INC.

 

FORM 10-Q

June 30, 2019

 

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

61

Item 3. 

Quantitative and Qualitative Disclosures About Market Risk

78

Item 4. 

Controls and Procedures

79

 

 

 

PART II. OTHER INFORMATION 

80

 

 

 

Item 1. 

Legal Proceedings

80

Item 1A. 

Risk Factors

80

Item 2. 

Unregistered Sales of Equity Securities and Use of Proceeds

80

Item 3. 

Defaults Upon Senior Securities

80

Item 4. 

Mine Safety Disclosures

81

Item 5. 

Other Information

81

Item 6. 

Exhibits

81

 

 

 

2

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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, 2018, filed with the Securities and Exchange Commission (“SEC”) on March 5, 2019.

 

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 Consumer Financial Protection Bureau (“CFPB”) 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;

 

·

our ability to manage third-party service providers and vendors and their compliance with laws, regulations and investor requirements;

 

·

changes in macroeconomic and U.S. real estate market conditions;

 

·

difficulties inherent in growing loan production volume;

3

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·

difficulties inherent in adjusting the size of our operations to reflect changes in business levels;

 

·

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 exposure to counterparties that are unwilling or unable to honor contractual obligations, including their obligation to indemnify us or repurchase defective mortgage loans;

 

·

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

 

·

our obligation to indemnify PMT 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 PMT;

 

·

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 effectively deploy new information technology applications and infrastructure;

 

·

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

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

PENNYMAC FINANCIAL SERVICES, INC.

CONSOLIDATED BALANCE SHEETS (UNAUDITED)

 

 

 

 

 

 

 

 

    

June 30, 

    

December 31, 

 

    

2019

    

2018

 

 

(in thousands, except share amounts)

ASSETS

 

 

 

 

 

 

Cash (includes $184,278 and $108,174 pledged to creditors)

 

 $

231,388

 

 $

155,289

Short-term investments at fair value

 

 

75,542

 

 

117,824

Loans held for sale at fair value (includes $3,475,090 and $2,478,858 pledged to creditors)

 

 

3,506,406

 

 

2,521,647

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

 

 

118,716

 

 

131,025

Derivative assets

 

 

168,116

 

 

96,347

Servicing advances, net (includes valuation allowance of $66,650 and $70,582; $151,384 and $162,895 pledged to creditors)

 

 

271,534

 

 

313,197

Mortgage servicing rights at fair value (includes $2,710,342 and $2,807,333 pledged to creditors)

 

 

2,720,335

 

 

2,820,612

Real estate acquired in settlement of loans

 

 

8,160

 

 

2,250

Operating lease right-of-use assets

 

 

53,977

 

 

 —

Furniture, fixtures, equipment and building improvements, net (includes $23,971 and $16,281 pledged to creditors)

 

 

33,373

 

 

33,374

Capitalized software, net (includes $15,097 and $1,017 pledged to creditors)

 

 

55,642

 

 

39,748

Investment in PennyMac Mortgage Investment Trust at fair value

 

 

1,637

 

 

1,397

Receivable from PennyMac Mortgage Investment Trust

 

 

34,695

 

 

33,464

Loans eligible for repurchase

 

 

1,007,435

 

 

1,102,840

Other 

 

 

111,420

 

 

109,559

Total assets

 

 $

8,398,376

 

 $

7,478,573

LIABILITIES

 

 

 

 

 

 

Assets sold under agreements to repurchase 

 

 $

2,747,084

 

 $

1,933,859

Mortgage loan participation purchase and sale agreements

 

 

523,177

 

 

532,251

Notes payable

 

 

1,293,180

 

 

1,292,291

Obligations under capital lease

 

 

28,295

 

 

6,605

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

 

 

194,156

 

 

216,110

Derivative liabilities

 

 

15,952

 

 

3,064

Operating lease liabilities

 

 

73,461

 

 

 —

Accounts payable and accrued expenses

 

 

151,504

 

 

156,212

Mortgage servicing liabilities at fair value

 

 

12,948

 

 

8,681

Payable to PennyMac Mortgage Investment Trust 

 

 

65,605

 

 

104,631

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

 

 

46,537

 

 

46,537

Income taxes payable

 

 

441,336

 

 

400,546

Liability for loans eligible for repurchase

 

 

1,007,435

 

 

1,102,840

Liability for losses under representations and warranties  

 

 

18,709

 

 

21,155

Total liabilities

 

 

6,619,379

 

 

5,824,782

 

 

 

 

 

 

 

Commitments and contingencies  –  Note 14

 

 

 

 

 

 

 

 

 

 

 

 

 

STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

Common stock—authorized 200,000,000 shares of $0.0001 par value; issued and outstanding,  78,304,899 and 77,494,332 shares, respectively

 

 

 8

 

 

 8

Additional paid-in capital

 

 

1,317,023

 

 

1,310,648

Retained earnings

 

 

461,966

 

 

343,135

Total stockholders' equity

 

 

1,778,997

 

 

1,653,791

Total liabilities and stockholders’ equity

 

 $

8,398,376

 

 $

7,478,573

 

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

5

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PENNYMAC FINANCIAL SERVICES, INC.

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Quarter ended June 30, 

  

Six months ended June 30, 

 

 

2019

 

2018

  

2019

 

2018

 

 

(in thousands, except earnings per share)

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

Net loan servicing fees:

 

 

 

 

 

 

 

 

 

 

 

 

Loan servicing fees:

 

 

 

 

 

 

 

 

 

 

 

 

From non-affiliates

 

$

180,753

 

$

138,871

 

$

347,543

 

$

274,354

From PennyMac Mortgage Investment Trust

 

 

11,568

 

 

9,431

 

 

22,138

 

 

20,450

From Investment Funds

 

 

 —

 

 

 3

 

 

 —

 

 

 3

Other fees

 

 

26,008

 

 

13,637

 

 

48,025

 

 

27,808

 

 

 

218,329

 

 

161,942

 

 

417,706

 

 

322,615

Change in fair value of mortgage servicing rights and mortgage servicing liabilities

 

 

(162,799)

 

 

(47,257)

 

 

(285,656)

 

 

(84,220)

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

 

 

3,604

 

 

(996)

 

 

7,655

 

 

(7,917)

 

 

 

(159,195)

 

 

(48,253)

 

 

(278,001)

 

 

(92,137)

Net loan servicing fees

 

 

59,134

 

 

113,689

 

 

139,705

 

 

230,478

Net gains on loans held for sale at fair value:

 

 

 

 

 

 

 

 

 

 

 

 

From non-affiliates

 

 

111,222

 

 

46,019

 

 

169,975

 

 

105,047

From PennyMac Mortgage Investment Trust

 

 

36,311

 

 

14,927

 

 

62,334

 

 

27,313

 

 

 

147,533

 

 

60,946

 

 

232,309

 

 

132,360

Loan origination fees:

 

 

 

 

 

 

 

 

 

 

 

 

From non-affiliates

 

 

33,822

 

 

22,886

 

 

55,509

 

 

46,241

From PennyMac Mortgage Investment Trust

 

 

3,102

 

 

1,542

 

 

5,345

 

 

2,750

 

 

 

36,924

 

 

24,428

 

 

60,854

 

 

48,991

Fulfillment fees from PennyMac Mortgage Investment Trust

 

 

29,590

 

 

14,559

 

 

57,164

 

 

26,503

Net interest income:

 

 

 

 

 

 

 

 

 

 

 

 

Interest income:

 

 

 

 

 

 

 

 

 

 

 

 

From non-affiliates

 

 

69,208

 

 

53,206

 

 

125,745

 

 

93,845

From PennyMac Mortgage Investment Trust

 

 

1,692

 

 

1,898

 

 

3,488

 

 

3,874

 

 

 

70,900

 

 

55,104

 

 

129,233

 

 

97,719

Interest expense:

 

 

 

 

 

 

 

 

 

 

 

 

To non-affiliates

 

 

50,157

 

 

28,706

 

 

84,634

 

 

61,517

To PennyMac Mortgage Investment Trust

 

 

2,767

 

 

3,910

 

 

5,833

 

 

7,844

 

 

 

52,924

 

 

32,616

 

 

90,467

 

 

69,361

Net interest income

 

 

17,976

 

 

22,488

 

 

38,766

 

 

28,358

Management fees, net:

 

 

 

 

 

 

 

 

 

 

 

 

From PennyMac Mortgage Investment Trust

 

 

8,832

 

 

5,728

 

 

16,080

 

 

11,424

From Investment Funds

 

 

 —

 

 

(64)

 

 

 —

 

 

15

 

 

 

8,832

 

 

5,664

 

 

16,080

 

 

11,439

Carried Interest from Investment Funds

 

 

 —

 

 

(168)

 

 

 —

 

 

(348)

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

 

 

119

 

 

108

 

 

311

 

 

290

Results of real estate acquired in settlement of loans

 

 

743

 

 

13

 

 

1,017

 

 

(15)

Other

 

 

2,126

 

 

2,571

 

 

4,476

 

 

4,443

Total net revenues

 

 

302,977

 

 

244,298

 

 

550,682

 

 

482,499

Expenses

 

 

 

 

 

 

 

 

 

 

 

 

Compensation

 

 

114,717

 

 

98,540

 

 

221,317

 

 

200,553

Servicing

 

 

29,008

 

 

28,490

 

 

59,301

 

 

54,789

Loan origination

 

 

23,071

 

 

5,144

 

 

37,568

 

 

7,259

Technology

 

 

16,080

 

 

15,154

 

 

32,046

 

 

29,774

Occupancy and equipment

 

 

7,042

 

 

6,507

 

 

13,818

 

 

12,884

Professional services

 

 

6,313

 

 

5,587

 

 

12,194

 

 

11,325

Other

 

 

7,156

 

 

10,178

 

 

14,557

 

 

18,221

Total expenses

 

 

203,387

 

 

169,600

 

 

390,801

 

 

334,805

Income before provision for income taxes

 

 

99,590

 

 

74,698

 

 

159,881

 

 

147,694

Provision for income taxes

 

 

26,894

 

 

6,293

 

 

41,050

 

 

12,363

Net income

 

 

72,696

 

 

68,405

 

 

118,831

 

 

135,331

Less: Net income attributable to noncontrolling interest

 

 

 —

 

 

50,568

 

 

 —

 

 

100,875

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

 

$

72,696

 

$

17,837

 

$

118,831

 

$

34,456

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.93

 

$

0.71

 

$

1.52

 

$

1.41

Diluted

 

$

0.92

 

$

0.70

 

$

1.50

 

$

1.38

Weighted average shares outstanding

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

78,335

 

 

24,959

 

 

77,996

 

 

24,399

Diluted

 

 

79,318

 

 

78,825

 

 

79,301

 

 

78,947

 

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

 

 

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PENNYMAC FINANCIAL SERVICES, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Quarter ended June 30, 2019

 

 

 

 

 

 

Additional

 

 

 

Total

 

 

Number of

 

Par

 

paid-in

 

Retained

 

stockholders'

 

    

shares

    

value

    

capital

    

earnings

    

equity

 

 

(in thousands)

Balance, March 31, 2019

 

78,318

 

$

 8

 

$

1,311,914

 

$

389,270

 

$

1,701,192

Net income

 

 —

 

 

 —

 

 

 —

 

 

72,696

 

 

72,696

Stock-based compensation

 

36

 

 

 —

 

 

6,115

 

 

 —

 

 

6,115

Issuance of common stock in settlement of directors' fees

 

 2

 

 

 —

 

 

50

 

 

 —

 

 

50

Repurchase of common stock

 

(51)

 

 

 —

 

 

(1,056)

 

 

 —

 

 

(1,056)

Balance, June 30, 2019

 

78,305

 

$

 8

 

$

1,317,023

 

$

461,966

 

$

1,778,997

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Quarter ended June 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, March 31, 2018

 

24,278

 

$

 2

 

$

221,495

 

$

282,114

 

$

1,290,588

 

$

1,794,199

Net income

 

 —

 

 

 —

 

 

 —

 

 

17,837

 

 

50,568

 

 

68,405

Stock and unit-based compensation

 

33

 

 

 —

 

 

2,537

 

 

 —

 

 

4,105

 

 

6,642

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

 

 —

 

 

 —

 

 

27

 

 

 —

 

 

54

 

 

81

Repurchase of Class A common stock

 

(236)

 

 

 —

 

 

(4,826)

 

 

 —

 

 

 —

 

 

(4,826)

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

 

934

 

 

 1

 

 

13,265

 

 

 —

 

 

(13,266)

 

 

 —

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.

 

 —

 

 

 —

 

 

(2,557)

 

 

 —

 

 

 —

 

 

(2,557)

Balance, June 30, 2018

 

25,009

 

$

 3

 

$

229,941

 

$

299,951

 

$

1,332,049

 

$

1,861,944

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six months ended June 30, 2019

 

 

 

 

 

 

Additional

 

 

 

Total

 

 

Number of

 

Par

 

paid-in

 

Retained

 

stockholders'

 

    

shares

    

value

    

capital

    

earnings

    

equity

 

 

(in thousands)

Balance, December 31, 2018

 

77,494

 

$

 8

 

$

1,310,648

 

$

343,135

 

$

1,653,791

Net income

 

 —

 

 

 —

 

 

 —

 

 

118,831

 

 

118,831

Stock-based compensation

 

856

 

 

 —

 

 

7,295

 

 

 —

 

 

7,295

Issuance of common stock in settlement of directors' fees

 

 6

 

 

 —

 

 

136

 

 

 —

 

 

136

Repurchase of common stock

 

(51)

 

 

 —

 

 

(1,056)

 

 

 —

 

 

(1,056)

Balance, June 30, 2019

 

78,305

 

$

 8

 

$

1,317,023

 

$

461,966

 

$

1,778,997

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six months ended June 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, December 31, 2017

 

23,530

 

$

 2

 

$

204,103

 

$

265,306

 

$

1,250,263

 

$

1,719,674

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

 

 —

 

 

 —

 

 

 —

 

 

189

 

 

587

 

 

776

Balance, January 1, 2018

 

23,530

 

 

 2

 

 

204,103

 

 

265,495

 

 

1,250,850

 

 

1,720,450

Net income

 

 —

 

 

 —

 

 

 —

 

 

34,456

 

 

100,875

 

 

135,331

Stock and unit-based compensation

 

230

 

 

 —

 

 

7,728

 

 

 —

 

 

8,340

 

 

16,068

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

 

 —

 

 

 —

 

 

51

 

 

 —

 

 

109

 

 

160

Repurchase of Class A common stock

 

(236)

 

 

 —

 

 

(4,826)

 

 

 —

 

 

 —

 

 

(4,826)

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

 

1,485

 

 

 1

 

 

28,124

 

 

 —

 

 

(28,125)

 

 

 —

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.

 

 —

 

 

 —

 

 

(5,239)

 

 

 —

 

 

 —

 

 

(5,239)

Balance, June 30, 2018

 

25,009

 

$

 3

 

$

229,941

 

$

299,951

 

$

1,332,049

 

$

1,861,944

 

 

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)

 

 

 

 

 

 

 

 

 

Six months ended June 30, 

 

    

2019

    

2018

 

 

(in thousands)

Cash flow from operating activities

 

 

 

 

 

 

Net income

 

$

118,831

 

$

135,331

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

 

 

 

 

 

 

Change in fair value of mortgage servicing rights, mortgage servicing liabilities and excess servicing spread

 

 

278,001

 

 

92,137

Net gains on loans held for sale at fair value

 

 

(232,309)

 

 

(132,360)

Capitalization of interest on loans held for sale at fair value

 

 

(36,550)

 

 

(39,390)

Accrual of interest on excess servicing spread financing

 

 

5,833

 

 

7,844

Amortization of net debt issuance (premiums) and costs

 

 

(7,701)

 

 

(13,385)

Carried Interest from Investment Funds

 

 

 —

 

 

348

Change in fair value of investment in common shares of PennyMac Mortgage Investment Trust

 

 

(240)

 

 

(219)

Results of real estate acquired in settlement in loans

 

 

(1,017)

 

 

15

Stock-based compensation expense

 

 

10,183

 

 

12,235

Provision for servicing advance losses

 

 

8,375

 

 

12,097

Depreciation and amortization

 

 

6,750

 

 

5,647

Amortization of right-of-use assets

 

 

4,736

 

 

 —

Purchase of loans held for sale from PennyMac Mortgage Investment Trust

 

 

(17,956,971)

 

 

(19,267,316)

Origination of loans held for sale

 

 

(4,526,432)

 

 

(2,518,992)

Purchase of loans from Ginnie Mae securities and early buyout investors for modification and subsequent sale

 

 

(1,995,933)

 

 

(2,002,582)

Sale to non-affiliates and principal payments of loans held for sale

 

 

21,186,748

 

 

22,832,809

Sale of loans held for sale to PennyMac Mortgage Investment Trust

 

 

2,218,721

 

 

1,427,637

Repurchase of loans subject to representations and warranties

 

 

(11,312)

 

 

(12,974)

Settlement of repurchase agreement derivatives

 

 

22,572

 

 

7,478

Decrease in servicing advances

 

 

26,373

 

 

47,980

Sale of real estate acquired in settlement of loans

 

 

4,066

 

 

2,130

(Increase) decrease in receivable from PennyMac Mortgage Investment Trust

 

 

(3,092)

 

 

5,873

(Increase) decrease in other assets

 

 

(1,471)

 

 

16,031

Decrease in operating lease liabilities

 

 

(6,004)

 

 

 —

Increase in accounts payable and accrued expenses

 

 

5,715

 

 

3,326

Decrease in payable to PennyMac Mortgage Investment Trust

 

 

(40,607)

 

 

(38,580)

Increase in income taxes payable

 

 

40,790

 

 

12,778

Net cash (used in) provided by operating activities

 

 

(881,945)

 

 

595,898

Cash flow from investing activities

 

 

 

 

 

 

Decrease in short-term investments

 

 

42,282

 

 

71,509

Net change in assets purchased from PMT under agreement to resell

 

 

12,309

 

 

5,546

Net settlement of derivative financial instruments used for hedging

 

 

327,544

 

 

(126,918)

Purchase of mortgage servicing rights

 

 

(217,942)

 

 

(30,129)

Purchase of furniture, fixtures, equipment and leasehold improvements

 

 

(4,405)

 

 

(4,321)

Acquisition of capitalized software

 

 

(18,238)

 

 

(7,664)

Decrease (increase) in margin deposits

 

 

18,889

 

 

(3,774)

Net cash provided by (used in) investing activities

 

 

160,439

 

 

(95,751)

Cash flow from financing activities

 

 

 

 

 

 

Sale of assets under agreements to repurchase

 

 

20,955,022

 

 

20,763,584

Repurchase of assets sold under agreements to repurchase

 

 

(20,141,847)

 

 

(21,319,387)

Issuance of mortgage loan participation purchase and sale certificates

 

 

11,375,849

 

 

12,486,542

Repayment of mortgage loan participation purchase and sale certificates

 

 

(11,385,036)

 

 

(12,485,880)

Advance on notes payable

 

 

 —

 

 

650,000

Repayment of notes payable

 

 

 —

 

 

(400,000)

Advance of obligations under capital lease

 

 

25,123

 

 

 —

Repayment of obligations under capital lease

 

 

(3,433)

 

 

(7,939)

Repayment of excess servicing spread financing

 

 

(21,082)

 

 

(24,309)

Payment of debt issuance costs

 

 

(3,064)

 

 

(9,788)