Exhibit 99.1

 

 

 

Investors and Media

Christopher Oltmann

(818) 264-4907

 

PennyMac Financial Services, Inc. Reports

Third Quarter 2014 Results

 

Moorpark, CA, November 5, 2014 – PennyMac Financial Services, Inc. (NYSE: PFSI) today reported net income of $55.5 million for the third quarter of 2014, on revenue of $140.6 million. Net income attributable to PFSI common stockholders was $10.5 million, or $0.49 per diluted share.

 

Third Quarter 2014 Highlights

 

	·	Pretax income of $62.7 million, up 8 percent from the prior quarter

	·	Total net revenue of $140.6 million, up 8 percent from the prior quarter

	o	Production revenue of $71.6 million, up 12 percent from the prior quarter

	o	Servicing revenue of $55.7 million, up 4 percent from the prior quarter

	o	Investment Management revenue of $13.3 million, up 4 percent from the prior quarter

	·	Total loan production activity of $8.6 billion in unpaid principal balance (UPB), up 16 percent from the prior quarter

	·	Servicing portfolio reached $100.1 billion in UPB, up 7 percent from June 30, 2014

·

Net assets under management declined modestly to $2.02 billion, down from $2.14 billion at June 30, 2014

 

“PennyMac Financial enjoyed record earnings in the third quarter, driven by continued revenue growth in each of our businesses – loan production, loan servicing and investment management,” said Chairman and Chief Executive Officer Stanford L. Kurland.  “We see strong growth momentum in our mortgage banking businesses, including consumer direct lending which is making notable and increasing contributions to our production revenue.  Since our formation nearly seven years ago, we have worked to build a solid operational foundation and culture of strong compliance and governance, which are the essential building blocks for a specialist mortgage firm in today’s market.”

 

 

 

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

 

		Quarter ended September 30, 2014
		Mortgate banking												Investment
		Production				Servicing				Total				management				Total
		(in thousands)
Revenue:
Net gains on mortgage loans held for sale at fair value		$	41,308			$	6,825			$	48,133			$	–			$	48,133
Loan origination fees			11,823				–				11,823				–				11,823
Fulfillment fees from PMT			15,497				–				15,497				–				15,497
Net servicing fees			–				53,908				53,908				–				53,908
Management fees			–				–				–				11,379				11,379
Carried Interest from Investment Funds			–				–				–				1,902				1,902
Net interest income (expense):
Interest income			5,759				3,216				8,975				–				8,975
Interest expense			3,251				8,462				11,713				–				11,713
			2,508				(5,246	)			(2,738	)			–				(2,738	)
Other			478				230				708				13				721
			71,614				55,717				127,331				13,294				140,625
Expenses			32,535				38,286				70,821				7,112				77,933
Pretax income		$	39,079			$	17,431			$	56,510			$	6,182			$	62,692

 

Production Segment

 

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

 

PennyMac Financial’s loan production activity totaled $8.6 billion in UPB, of which $4.9 billion in UPB was for its own account, and $3.7 billion was fee-based fulfillment activity for PMT. Interest rate lock commitments (IRLCs) on correspondent government-insured and consumer direct loans totaled $5.6 billion in UPB.

 

 

 

Production segment pretax income totaled $39.1 million, an increase of 19 percent from the second quarter, driven by an increase in fulfillment fees received from PMT and net gains on mortgage loans held for sale, which benefitted from a 35 percent increase in consumer direct lock volumes.

 

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

 

		Quarter ended
		September 30, 2014				June 30, 2014				September 30, 2013
		(in thousands)
MSR value		$	61,200			$	49,660			$	60,137
Mortgage servicing rights recapture payable to PennyMac Mortgage Investment Trust			(2,143	)			(2,526	)			(86	)
Provision for representations and warranties			(1,583	)			(1,204	)			(1,069	)
Cash investment (1)			(8,473	)			(15,308	)			(4,936	)
Fair value changes of pipeline, inventory and hedges			(868	)			9,082				(28,097	)
Net gains on mortgage loans held for sale		$	48,133			$	39,704			$	25,949

 

⁽¹⁾ Net of cash hedge expense.      

 

PennyMac Financial performs fulfillment services for conventional conforming and jumbo loans acquired by PMT in its correspondent production business. These services include, but are not limited to: marketing, relationship management, the approval of correspondent sellers and the ongoing monitoring of their performance; reviews of loan data, documentation and appraisals to assess loan quality and risk; and 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 $15.5 million in the third quarter, compared to $12.4 million in the second quarter. The increase was driven by a higher volume of conventional conforming and jumbo correspondent acquisitions by PMT during the third quarter. The average fulfillment fee earned for the third quarter was 42 basis points.

 

 

 

Servicing Segment

 

Servicing includes income from owned mortgage servicing rights, in addition to subservicing and special servicing activities. Loan servicing pretax income totaled $17.4 million in the third quarter, a decrease of 13 percent from the prior quarter. Net loan servicing fees totaled $53.9 million for the quarter, a 5 percent quarter-over-quarter decrease, which included a $1.8 million decline in servicing fees due to lower activity fees in special servicing, a $3.0 million increase in amortization from a growing servicing portfolio, and a $2.2 million improvement in valuation changes for MSRs and hedges.

 

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

 

		Quarter ended
		September 30, 2014				June 30, 2014				September 30, 2013
		(in thousands)
Servicing fees (1)		$	64,708			$	66,493			$	29,562
Effect of MSRs:
Amortization and realization of cash flows			(19,703	)			(16,729	)			(5,367	)
Change in fair value and reversal of (provision for) impairment of MSRs carried at lower of amortized cost or fair value			261				(12,474	)			(2,767	)
Change in fair value of excess servicing spread financing			9,538				10,062				(29	)
Hedging (losses) gains			(896	)			9,617				–
Total amortization, impairment and change in fair value of MSRs			(10,800	)			(9,524	)			(8,163	)
Net loan servicing fees		$	53,908			$	56,969			$	21,399

 

⁽¹⁾ Includes contractually-specified servicing fees.      

 

Servicing segment expenses increased to $38.3 million, a 13 percent increase from the second quarter, primarily driven by the growth in the servicing portfolio and an increase in loss reserves associated with servicing advances on Ginnie Mae loans.

 

 

 

The total servicing portfolio reached $100.1 billion in UPB, an increase of 7 percent from June 30, 2014. Of the total servicing portfolio at September 30, 2014, prime servicing was $95.9 billion in UPB and special servicing was $4.2 billion in UPB. The Company subservices and services under contract $38.0 billion in UPB, an increase of 7 percent from June 30, 2014, resulting from new correspondent acquisitions by PMT. PennyMac Financial’s MSR portfolio grew to $60.9 billion in UPB, an increase of 7 percent over the prior quarter, resulting from the acquisition of government-insured loans in correspondent production, consumer direct lending activities, and the acquisition of MSR portfolios totaling $1.6 billion in UPB.

 

The table below details PennyMac Financial’s servicing portfolio as of September 30, 2014:

 

		September 30, 2014				June 30, 2014				September 30, 2013
		(in thousands)
Loans serviced at period end:
Prime servicing:
Subserviced for Advised Entities		$	33,848,483			$	31,169,742			$	24,540,141
Owned MSRs - Originations			33,297,161				29,546,095				20,024,781
Owned MSRs - Acquisition			27,568,250				27,505,329				1,700,612
Mortgage loans held for sale			1,217,599				959,014				490,088
Total prime servicing			95,931,493				89,180,180				46,755,622
Special servicing:
Subserviced for Advised Entities			4,152,284				4,385,088				5,015,113
Owned MSRs - Acquisitions			–				–				1,051,220
Subserviced for non-affiliates			–				–				50,379
Total special servicing			4,152,284				4,385,088				6,116,712
Total loans serviced		$	100,083,777			$	93,565,268			$	52,872,334
Mortgage loans serviced:
Servicing rights owned		$	60,865,411			$	57,051,424			$	22,776,613
Subserviced			38,000,767				35,554,830				29,605,633
Mortgage loans held for sale			1,217,599				959,014				490,088
Total mortgage loans serviced		$	100,083,777			$	93,565,268			$	52,872,334

 

Investment Management Segment

 

PennyMac Financial manages PMT and certain investment funds, for which it earns base management fees and incentive compensation. Net assets under management were approximately $2.02 billion as of September 30, 2014, a decrease of 6 percent from June 30, 2014. The decrease was primarily due to a reduction in the private investment funds resulting from the planned return of capital to their investors.

 

 

 

Pretax income for the Investment Management segment was $6.2 million, an increase of 16 percent from the second quarter. Management fees, which include base management fees and incentive fees from PMT and management fees from the Investment Funds, increased 3 percent from the prior quarter, primarily due to a $0.5 million increase in incentive fee revenue from PMT resulting from improved performance in recent periods. Carried interest income from the Investment Funds increased by $0.1 million.

 

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

 

		Quarter ended
		September 30, 2014				June 30, 2014				September 30, 2013
		(in thousands)
Management fees:
PennyMac Mortgage Investment Trust
Base		$	6,033			$	5,838			$	5,104
Performance incentive			3,590				3,074				3,435
			9,623				8,912				8,539
Investment Funds			1,756				2,086				2,001
			11,379				10,998				10,540
Carried Interest			1,902				1,834				2,812
Total management fees and Carried Interest		$	13,281			$	12,832			$	13,352
Net assets of Advised Entities:
PennyMac Mortgage Investment Trust		$	1,588,041			$	1,577,160			$	1,494,765
Investment Funds			428,040				565,926				556,013
		$	2,016,081			$	2,143,086			$	2,050,778

 

Expenses

 

Expenses for the third quarter totaled $77.9 million, an 8 percent increase from the second quarter, primarily driven by the growing servicing portfolio, increase in loss reserves associated with servicing advances on Ginnie Mae loans, and headcount growth.

 

“The organic growth of PennyMac Financial is being achieved through the execution of our strategic initiatives through a constantly changing interest rate environment and is not dependent on large acquisitions for success,” concluded Mr. Kurland.  “We have in place the core infrastructure, management, and systems to significantly grow all of our businesses, including loan servicing where our portfolio surpassed $100 billion this quarter.  We believe that our platform is uniquely positioned for further growth in advancing our objective of being the premier mortgage specialist firm in the U.S.”

 

 

 

Management’s slide presentation will be available in the Investor Relations section of the Company’s website at www.ir.pennymacfinancial.com beginning at 1:30 p.m. (Pacific Standard Time) on Wednesday, November 5, 2014. We encourage investors to submit questions via email to InvestorRelations@pnmac.com; if any questions are submitted, we will post responses via a document on our website.

 

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. residential mortgage loans and the management of investments related to the U.S. residential 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: changes in 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 creation of the Consumer Financial Protection Bureau, or CFPB, and enforcement of its rules; changes in existing U.S. government-sponsored entities, 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 our 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; changes in macroeconomic and U.S. residential real estate market conditions; difficulties in growing loan production volume; changes in prevailing interest rates; increases in loan delinquencies and defaults; our reliance on PennyMac Mortgage Investment Trust as a significant source of financing for, and revenue related to, our correspondent production business; availability of required additional capital and liquidity to support business growth; our obligation to indemnify third-party purchasers or repurchase loans that we originate, acquire or assist in with fulfillment; our obligation to indemnify advised entities or investment funds to meet certain criteria or characteristics or under other circumstances; decreases in the historical returns on the assets that we select and manage for our clients, and our resulting management and incentive fees; regulation applicable to our investment management segment; conflicts of interest in allocating our services and investment opportunities among ourselves and our advised entities; the potential damage to our reputation and adverse impact to our business resulting from ongoing negative publicity; and our rapid growth. 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.

 

 

PENNYMAC FINANCIAL SERVICES, INC.

CONSOLIDATED BALANCE SHEETS

 

		September 30, 2014				June 30, 2014				September 30, 2013
		(in thousands, except share data)
ASSETS
Cash		$	77,251			$	70,810			$	56,398
Short-term investments at fair value			36,335				46,391				127,487
Mortgage loans held for sale at fair value			1,259,991				1,000,415				530,248
Servicing advances			195,246				179,169				105,344
Derivative assets			28,400				34,302				24,066
Carried Interest due from Investment Funds			67,035				65,133				58,134
Investment in PennyMac Mortgage Investment Trust at fair value			1,607				1,646				1,701
Mortgage servicing rights			677,413				621,681				252,858
Receivable from Investment Funds			2,702				4,654				2,541
Receivable from PennyMac Mortgage Investment Trust			21,420				19,636				20,030
Furniture, fixtures, equipment and building improvements, net			11,574				11,452				8,498
Capitalized software, net			580				654				743
Deferred tax asset			52,820				55,754				54,530
Loans eligible for repurchase			58,145				31,496				–
Other			48,108				39,001				11,806
Total assets		$	2,538,627			$	2,182,194			$	1,254,384
LIABILITIES
Mortgage loans sold under agreements to repurchase		$	1,072,130			$	825,267			$	387,883
Note payable			154,948				115,314				56,775
Excess servicing spread financing at fair value			187,368				190,244				2,857
Derivative liabilities			4,440				6,711				5,776
Mortgage servicing liability			4,091				5,821				–
Accounts payable and accrued expenses			62,712				70,353				53,355
Payable to Investment Funds			35,874				34,929				36,424
Payable to PennyMac Mortgage Investment Trust			104,783				95,483				55,523
Payable to exchanged Private National Mortgage Acceptance Company, LLC unitholders under tax receivable agreement			75,925				74,705				58,615
Liability for loans eligible for repurchase			58,145				31,496				–
Liability for losses under representations and warranties			11,762				10,178				7,215
Total liabilities			1,772,178				1,460,501				664,423
STOCKHOLDERS' EQUITY
Class A common stock, par value $0.0001 per share, 200,000,000 shares authorized, 21,525,644, 20,879,486 and 18,887,777 shares issued and outstanding, respectively			2				2				2
Class B common stock, par value $0.0001 per share, 1,000 shares authorized, 58 shares issued and outstanding			–				–				–
Additional paid-in capital			161,309				158,977				136,484
Retained earnings			42,479				31,990				7,990
Total stockholders' equity attributable to PennyMac Financial Services, Inc. common stockholders			203,790				190,969				144,476
Noncontrolling interests in Private National Mortgage Acceptance Company, LLC			562,659				530,724				445,485
Total stockholders' equity			766,449				721,693				589,961
Total liabilities and stockholders’ equity		$	2,538,627			$	2,182,194			$	1,254,384

 

  

PENNYMAC FINANCIAL SERVICES, INC.

CONSOLIDATED STATEMENTS OF INCOME

 

		Quarter ended
		September 30, 2014				June 30, 2014				September 30, 2013
		(in thousands, except per share data)
Revenue
Net gains on mortgage loans held for sale at fair value		$	48,133			$	39,704			$	25,949
Loan origination fees			11,823				10,345				6,280
Fulfillment fees from PennyMac Mortgage Investment Trust			15,497				12,433				18,327
Net servicing fees:
Loan servicing fees
From non-affiliates			44,647				43,314				14,596
From PennyMac Mortgage Investment Trust			12,325				14,180				10,738
From Investment Funds			1,116				4,161				1,451
Ancillary and other fees			6,620				4,838				2,777
			64,708				66,493				29,562
Amortization, impairment and change in estimated fair value of mortgage servicing rights			(10,800	)			(9,524	)			(8,163	)
Net servicing fees			53,908				56,969				21,399
Management fees:
From PennyMac Mortgage Investment Trust			9,623				8,912				8,539
From Investment Funds			1,756				2,086				2,001
			11,379				10,998				10,540
Carried Interest from Investment Funds			1,902				1,834				2,812
Net interest expense:
Interest income			8,975				6,252				5,093
Interest expense			11,713				8,732				4,156
			(2,738	)			(2,480	)			937
Change in fair value of investment in and dividends received from PennyMac Mortgage Investment Trust			8				(103	)			165
Other			713				735				785
Total net revenue			140,625				130,435				87,194
Expenses
Compensation			48,375				46,971				35,830
Servicing			13,914				11,694				1,931
Technology			4,350				3,741				2,587
Professional services			3,290				2,661				2,831
Loan origination			2,537				1,998				2,802
Other			5,467				5,323				6,296
Total expenses			77,933				72,388				52,277
Income before provision for income taxes			62,692				58,047				34,917
Provision for income taxes			7,232				6,630				3,493
Net income			55,460				51,417				31,424
Less: Net income attributable to noncontrolling interest			44,971				41,799				26,227
Net income attributable to PennyMac Financial Services, Inc. common stockholders		$	10,489			$	9,618			$	5,197
Earnings per common share
Basic		$	0.49			$	0.45			$	0.29
Diluted		$	0.49			$	0.45			$	0.28
Weighted-average common shares outstanding
Basic			21,432				21,142				17,958
Diluted			75,949				75,915				75,876