PNMAC Holdings, Inc. - FORM 8-K - EX-99.1

Attached files

file	filename
EX-99.2 - EX-99.2 - PNMAC Holdings, Inc.	ex-99d2.htm
EX-10.2 - EX-10.2 - PNMAC Holdings, Inc.	ex-10d2.htm
EX-10.1 - EX-10.1 - PNMAC Holdings, Inc.	ex-10d1.htm
8-K - 8-K - PNMAC Holdings, Inc.	f8-k.htm

Exhibit 99.1

Pennymac_Roof_FS_RGB

	Media	Investors
	Stephen Hagey	Christopher Oltmann
	(805) 530-5817	(818) 264-4907

PennyMac Financial Services, Inc. Reports

First Quarter 2017 Results

Westlake Village, CA, May 4, 2017 – PennyMac Financial Services, Inc. (NYSE: PFSI) today reported net income of $54.4 million for the first quarter of 2017, on revenue of $204.5 million. Net income attributable to PFSI common stockholders was $10.9 million, or $0.47 per diluted share. Book value per share increased to $16.01, up from $15.49 at December 31, 2016.

First Quarter 2017 Highlights

Pretax income was $62.0 million, down 52 percent from the prior quarter and up 106 percent from the first quarter of 2016; the quarter-over-quarter decrease reflects lower production earnings, driven by a reduction in refinance volumes due to higher mortgage rates and a seasonally slow purchase market

Production segment pretax income was $47.5 million, down 49 percent from the prior quarter and down 31 percent from the first quarter of 2016

Total loan production activity of $14.9 billion in unpaid principal balance (UPB), down 32 percent from the prior quarter and up 37 percent from the first quarter of 2016

$13.9 billion in UPB of correspondent production, down 31 percent from the prior quarter and up 44 percent from the first quarter of 2016

$1.0 billion in UPB of consumer direct originations, down 49 percent from the prior quarter and down 14 percent from the first quarter of 2016

Interest rate lock commitments (IRLCs) on correspondent government and consumer direct loans totaled $11.1 billion, down 24 percent from the prior quarter and up 27 percent from the first quarter of 2016

Servicing segment pretax income was $13.4 million, compared with $35.1 million in the prior quarter and a pretax loss of $39.5 million in the first quarter of 2016

Servicing segment pretax income excluding valuation-related changes was $22.3 million, down 9 percent from the prior quarter and up 36 percent from the first quarter of 20161

Servicing portfolio reached $202.9 billion in UPB, up 4 percent from December 31, 2016, and up 23 percent from March 31, 2016

Investment Management segment pretax income was $1.1 million, compared with $0.4 million in the prior quarter and $1.1 million in the first quarter of 2016

Net assets under management were $1.6 billion, up modestly from $1.5 billion at December 31, 2016 and down 4 percent from $1.6 billion at March 31, 2016

1 Excludes changes in the fair value of MSRs, the ESS liability, and gains/(losses) on hedging derivatives which were $12.7 million, $2.8 million, and $(22.2) million, respectively, and provision for credit losses on active loans of $2.2 million in the first quarter.

Issued $400 million in aggregate principal amount of 3-year term notes secured by Ginnie Mae mortgage servicing rights (MSRs) and excess servicing spread (ESS)

Notable activity after quarter end:

Acquired a bulk portfolio of Ginnie Mae MSRs with UPB of approximately $4.3 billion

“PennyMac Financial’s first quarter results reflect the combination of an abrupt rise in mortgage rates at the end of last year and the typical seasonal slowdown in origination volumes,” said President and Chief Executive Officer David Spector. “With respect to mortgage rates, we have recently seen a decline in rates that is expected to improve the second quarter’s mortgage origination outlook. As it pertains to seasonality, strong pending home sales bode well for home buying activity this spring and summer. Looking beyond the next quarter, we continue to invest in PennyMac’s unique operating platform, which we believe will enable us to thrive in a variety of different market conditions.”

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


	Quarter ended March 31, 2017
	Mortgage Banking						Investment
	Production		Servicing		Total		Management		Total
	(in thousands)
Revenue
Net gains on mortgage loans held for sale at fair value	$	62,837	$	24,119	$	86,956	$	—	$	86,956
Loan origination fees		25,574		—		25,574		—		25,574
Fulfillment fees from PMT		16,570		—		16,570		—		16,570
Net servicing fees		—		74,163		74,163		—		74,163
Management fees		—		—		—		5,374		5,374
Carried Interest from Investment Funds		—		—		—		(128)		(128)
Net interest income (expense):
Interest income		12,936		10,923		23,859		—		23,859
Interest expense		8,822		20,641		29,463		11		29,474
		4,114		(9,718)		(5,604)		(11)		(5,615)
Other		945		471		1,416		163		1,579
Total net revenue		110,040		89,035		199,075		5,398		204,473
Expenses		62,536		75,619		138,155		4,286		142,441
Pretax income	$	47,504	$	13,416	$	60,920	$	1,112	$	62,032

Production Segment

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

PennyMac Financial’s loan production activity totaled $14.9 billion in UPB, of which $10.3 billion in UPB was for its own account, and $4.6 billion was fee-based fulfillment activity for PMT. IRLCs on correspondent government and consumer direct loans totaled $11.1 billion in UPB.

Production segment pretax income was $47.5 million, a decrease of 49 percent from the prior quarter and a decrease of 31 percent from the first quarter of 2016. Production revenue totaled $110.0 million, a decrease of 37 percent from the prior quarter and a decrease of 6 percent from the first quarter of 2016. The quarter-over-quarter decrease primarily resulted from a 39 percent quarter-over-quarter decrease in net gains on mortgage loans held for sale, reflecting lower lock volumes and margins in both the correspondent and consumer direct channels.

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


	Quarter ended
	March 31,		December 31,		March 31,
	2017		2016		2016
	(in thousands)
Receipt of MSRs in loan sale transactions	$	132,143	$	190,735	$	95,373
Mortgage servicing rights recapture payable to PennyMac Mortgage Investment Trust		(1,695)		(2,535)		(1,952)
Provision for representations and warranties, net		(530)		(845)		(2,082)
Cash investment (1)		(57,574)		29,038		(51,140)
Fair value changes of pipeline, inventory and hedges		14,612		(88,461)		51,325
Net gains on mortgage loans held for sale	$	86,956	$	127,932	$	91,524

Net gains on mortgage loans held for sale by segment:
Production	$	62,837	$	103,413	$	78,214
Servicing	$	24,119	$	24,519	$	13,310

(1)

Net of cash hedge expense

PennyMac Financial performs fulfillment services for conventional conforming and jumbo loans acquired by PMT in its correspondent production business. These services include, but are not limited to: marketing; relationship management; the approval of correspondent sellers and the ongoing monitoring of their performance; reviewing loan data, documentation and appraisals to assess loan quality and risk; pricing; hedging and activities related to the subsequent sale and securitization of loans in the secondary mortgage markets for PMT. Fees earned from fulfillment of correspondent loans on behalf of PMT totaled $16.6 million in the first quarter, down 39 percent from $27.2 million in the prior quarter and up 28 percent from $12.9 million in the first quarter of 2016. The quarter-over-quarter decline in fulfillment fee revenue was driven by a decrease in acquisition volumes by PMT. The weighted average fulfillment fee rate was 36 basis points, unchanged from the prior quarter.

Production segment expenses were $62.5 million, a 23 percent decrease from the prior quarter and a 28 percent increase from the first quarter of 2016.

Servicing Segment

Servicing includes income from owned MSRs, in addition to subservicing and special servicing activities. Servicing segment pretax income was $13.4 million compared with $35.1 million in the prior quarter and a pretax loss of $39.5 million in the first quarter of 2016. Servicing segment revenues totaled $89.0 million, an 18 percent decrease from the prior quarter and a 6 percent decrease from the first quarter of 2016. The quarter-over-quarter decrease was primarily due to a decrease in net loan servicing fees.

Net loan servicing fees totaled $74.2 million and included $129.3 million in servicing fees reduced by $48.5 million of amortization and realization of MSR cash flows. Amortization and realization of MSR cash flows decreased 3 percent from the prior quarter, driven by reduced projected prepayment activity. Net loan servicing fees also included $12.7 million in MSR fair value gains and recovery of impairment for MSRs carried at lower of amortized cost or fair value, primarily reflecting expectations for lower prepayment activity in the future and improvements in the delinquency profile. In addition, net loan servicing fees included $22.2 million in hedging losses and a gain of $2.8 million due to the change in fair value of the ESS liability.

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


	Quarter ended
	March 31,		December 31,		March 31,
	2017		2016		2016
	(in thousands)
Servicing fees (1)	$	129,315	$	127,483	$	114,933
Effect of MSRs:
Amortization and realization of cash flows (2)		(48,460)		(50,204)		(46,675)
Change in fair value and provision for/recovery of impairment of MSRs carried at lower of amortized cost or fair value		12,701		151,599		(128,908)
Change in fair value of excess servicing spread financing		2,773		(17,061)		19,449
Hedging (losses) gains		(22,166)		(116,289)		58,720
Total amortization, impairment and change in fair value of MSRs		(55,152)		(31,955)		(97,414)
Net loan servicing fees	$	74,163	$	95,528	$	17,519

⁽¹⁾

Includes contractually-specified servicing fees

⁽²⁾

Includes realization of cash flows from the mortgage servicing liability which was previously included in change in fair value of MSRs. Prior periods have been adjusted accordingly.

Servicing segment revenue also included $24.1 million in net gains on mortgage loans held for sale from the securitization of reperforming government-insured and guaranteed loans, compared with $24.5 million in the prior quarter and $13.3 million in the first quarter of 2016. These loans were previously purchased out of Ginnie Mae securitizations (EBOs) and brought back to performing status through PennyMac Financial’s successful servicing efforts, primarily with the use of loan modifications.

Servicing segment expenses totaled $75.6 million, a 4 percent increase from the prior quarter and a 28 percent increase from the first quarter of 2016. The quarter-over-quarter increase was in line with growth of the servicing portfolio, primarily driven by increased allocation of compensation expense to the segment and higher technology costs. Interest expense also increased as a result of the term note issuance, which generated proceeds to support revenue growth opportunities, including MSR acquisitions and EBO transactions. The increased interest expense was partially offset by $4 million of interest income from EBO loans.

The total servicing portfolio reached $202.9 billion in UPB at March 31, 2017, an increase of 4 percent from the prior quarter end and 23 percent year-over-year. Of the total servicing portfolio, prime servicing was $200.6 billion in UPB and special servicing was $2.3 billion in UPB. PennyMac Financial subservices and conducts special servicing for $63.5 billion in UPB, an increase of 4 percent from December 31, 2016. PennyMac Financial’s owned MSR portfolio grew to $135.3 billion in UPB, an increase of 5 percent from the prior quarter end.

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


	Quarter Ended
	March 31,		December 31,		March 31,
	2017		2016		2016
	(in thousands)
Loans serviced at period end:
Prime servicing:
Owned
Mortgage servicing rights
Originated	$	97,505,384	$	89,516,155	$	64,485,308
Acquisitions		37,843,903		39,660,951		48,351,570
		135,349,287		129,177,106		112,836,878
Mortgage servicing liabilities		1,900,493		2,074,896		926,756
Mortgage loans held for sale		2,180,760		2,101,283		1,561,006
		139,430,540		133,353,285		115,324,640
Subserviced for Advised Entities		61,144,328		58,327,748		45,940,082
Total prime servicing		200,574,868		191,681,033		161,264,722
Special servicing:
Subserviced for Advised Entities		2,308,468		2,558,969		3,641,873
Total special servicing		2,308,468		2,558,969		3,641,873
Total loans serviced	$	202,883,336	$	194,240,002	$	164,906,595

Mortgage loans serviced:
Owned
Mortgage servicing rights	$	135,349,287	$	129,177,106	$	112,836,878
Mortgage servicing liabilities		1,900,493		2,074,896		926,756
Mortgage loans held for sale		2,180,760		2,101,283		1,561,006
		139,430,540		133,353,285		115,324,640
Subserviced		63,452,796		60,886,717		49,581,955
Total mortgage loans serviced	$	202,883,336	$	194,240,002	$	164,906,595

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 March 31, 2017, up modestly from $1.5 billion at December 31, 2016, and down 4 percent from $1.6 billion at March 31, 2016.

Pretax income for the Investment Management segment was $1.1 million compared with $0.4 million in the prior quarter and $1.1 million in the first quarter of 2016. Management fees, which include base management fees from PMT and the private Investment Funds, as well as any earned incentive fees from PMT, decreased 4 percent from the prior quarter and 9 percent from the first quarter of 2016.

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


	Quarter ended
	March 31,		December 31,		March 31,
	2017		2016		2016
	(in thousands)
Management fees:
Penny Mac Mortgage Investment Trust
Base	$	5,008	$	5,081	$	5,352
Performance incentive		—		—		—
		5,008		5,081		5,352
Investment Funds		366		502		560
Total management fees		5,374		5,583		5,912
Carried Interest		(128)		36		593
Total management fees and Carried Interest	$	5,246	$	5,619	$	6,505

Net assets of Advised Entities:
Penny Mac Mortgage Investment Trust	$	1,458,590	$	1,351,114	$	1,414,503
Investment Funds		97,551		197,550		207,706
	$	1,556,141	$	1,548,664	$	1,622,209

Investment Management segment expenses totaled $4.3 million, a 19 percent decrease from the prior quarter and the first quarter of 2016, driven by a refinement in the methodology for allocating expenses across segments.

Consolidated Expenses

Total expenses for the first quarter were $142.4 million, an 11 percent decrease from the prior quarter and a 26 percent increase from the first quarter of 2016. The quarter-over-quarter decrease in total expenses was largely due to a $9.3 million decrease in compensation expense attributable to lower incentive-based compensation accruals and reduced headcount to align with the current production market, in addition to lower loan origination expense resulting from the decline in loan production volumes.

“The current environment reflects our view coming into the first quarter that the mortgage market is transitioning from a period of historically elevated margins to a period of more normal margins,” concluded Executive Chairman Stanford L. Kurland. “We have consistently demonstrated an ability to operate through market volatility of various kinds and continue to invest in initiatives that we believe will drive long-term growth for our company. These include our consumer direct production channel, non-delegated correspondent, the future launch of our wholesale mortgage origination platform and the completion of our structure to expand financing for our largest asset, our Ginnie Mae mortgage servicing rights. We are confident that such investments and innovations will help ensure our company’s long-term financial and operational success.”

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, May 4, 2017.

About PennyMac Financial Services, Inc.

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

This press release contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, regarding management’s beliefs, estimates, projections and assumptions with respect to, among other things, the Company’s financial results, future operations, business plans and investment strategies, as well as industry and market conditions, all of which are subject to change. Words like “believe,” “expect,” “anticipate,” “promise,” “plan,” and other expressions or words of similar meanings, as well as future or conditional verbs such as “will,” “would,” “should,” “could,” or “may” are generally intended to identify forward-looking statements. Actual results and operations for any future period may vary materially from those projected herein and from past results discussed herein. Factors which could cause actual results to differ materially from historical results or those anticipated include, but are not limited to: the continually changing federal, state and local laws and regulations applicable to the highly regulated industry in which we operate; lawsuits or governmental actions that may result from any noncompliance with the laws and regulations applicable to our businesses; the mortgage lending and servicing-related regulations promulgated by the Consumer Financial Protection Bureau and its enforcement of these regulations; our dependence on U.S. government‑sponsored entities and changes in their current roles or their guarantees or guidelines; changes to government mortgage modification programs; the licensing and operational requirements of states and

other jurisdictions applicable to the Company’s businesses, to which our bank competitors are not subject; foreclosure delays and changes in foreclosure practices; certain banking regulations that may limit our business activities; our dependence on the multifamily and commercial real estate sectors for future originations of commercial mortgage loans and other commercial real estate related loans; changes in macroeconomic and U.S. real estate market conditions; difficulties inherent in growing loan production volume; difficulties inherent in adjusting the size of our operations to reflect changes in business levels; purchase opportunities for mortgage servicing rights and our success in winning bids; changes in prevailing interest rates; increases in loan delinquencies and defaults; our reliance on PennyMac Mortgage Investment Trust (NYSE: PMT) as a significant source of financing for, and revenue related to, our mortgage banking business; any required additional capital and liquidity to support business growth that may not be available on acceptable terms, if at all; our obligation to indemnify 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 obligation to indemnify PMT and the Investment Funds if its services fail to meet certain criteria or characteristics or under other circumstances; decreases in the returns on the assets that we select and manage for our clients, and our resulting management and incentive fees; the extensive amount of regulation applicable to our investment management segment; conflicts of interest in allocating our services and investment opportunities among us and our advised entities; the effect of public opinion on our reputation; our recent growth; our ability to effectively identify, manage, monitor and mitigate financial risks; our initiation of new business activities or expansion of existing business activities; our ability to detect misconduct and fraud; and our ability to mitigate cybersecurity risks and cyber incidents. You should not place undue reliance on any forward-looking statement and should consider all of the uncertainties and risks described above, as well as those more fully discussed in reports and other documents filed by the Company with the Securities and Exchange Commission from time to time. The Company undertakes no obligation to publicly update or revise any forward-looking statements or any other information contained herein, and the statements made in this press release are current as of the date of this release only.

PENNYMAC FINANCIAL SERVICES, INC.

CONSOLIDATED BALANCE SHEETS (UNAUDITED)


	March 31,		December 31,		March 31,
	2017		2016		2016
	(in thousands, except share amounts)
ASSETS
Cash	$	72,767	$	99,367	$	116,560
Short-term investments at fair value		116,334		85,964		28,264
Mortgage loans held for sale at fair value		2,277,751		2,172,815		1,653,963
Derivative assets		82,001		82,905		90,054
Servicing advances, net		317,513		348,306		284,140
Carried Interest due from Investment Funds		70,778		70,906		70,519
Investment in Penny Mac Mortgage Investment Trust at fair value		1,331		1,228		1,023
Mortgage servicing rights		1,725,061		1,627,672		1,337,082
Real estate acquired in settlement of loans		1,014		1,418		2,320
Furniture, fixtures, equipment and building improvements, net		31,568		31,321		23,855
Capitalized software, net		15,453		11,205		4,323
Note receivable from Penny Mac Mortgage Investment Trust		150,000		150,000		150,000
Receivable from Investment Funds		998		1,219		1,119
Receivable from Penny Mac Mortgage Investment Trust		20,756		16,416		17,647
Deferred tax asset		—		—		14,637
Loans eligible for repurchase		318,378		382,268		139,009
Other		49,674		50,892		46,748
Total assets	$	5,251,377	$	5,133,902	$	3,981,263

LIABILITIES
Assets sold under agreements to repurchase	$	2,034,808	$	1,735,114	$	1,658,578
Mortgage loan participation and sale agreements		241,638		671,426		246,636
Notes payable		436,725		150,942		127,693
Obligations under capital lease		31,178		23,424		12,070
Excess servicing spread financing payable to Penny Mac Mortgage Investment Trust at fair value		277,484		288,669		321,976
Derivative liabilities		15,873		22,362		9,915
Mortgage servicing liabilities at fair value		15,994		15,192		6,747
Accounts payable and accrued expenses		108,489		134,611		87,005
Payable to Investment Funds		18,356		20,393		28,843
Payable to Penny Mac Mortgage Investment Trust		164,743		170,036		153,094
Payable to exchanged Private National Mortgage Acceptance Company, LLC unitholders under tax receivable agreement		78,712		75,954		74,275
Income taxes payable		31,968		25,088		—
Liability for loans eligible for repurchase		318,378		382,268		139,009
Liability for losses under representations and warranties		19,436		19,067		22,209
Total liabilities		3,793,782		3,734,546		2,888,050

STOCKHOLDERS' EQUITY
Class A common stock—authorized 200,000,000 shares of $0.0001 par value; issued and outstanding, 22,917,545, 22,426,779 and 22,047,491 shares, respectively		2		2		2
Class B common stock—authorized 1,000 shares of $0.0001 par value; issued and outstanding, 49, 49 and 50 shares, respectively		—		—		—
Additional paid-in capital		191,514		182,772		174,005
Retained earnings		175,428		164,549		103,645
Total stockholders' equity attributable to Penny Mac Financial Services, Inc. common stockholders		366,944		347,323		277,652
Non controlling interests in Private National Mortgage Acceptance Company, LLC		1,090,651		1,052,033		815,561
Total stockholders' equity		1,457,595		1,399,356		1,093,213
Total liabilities and stockholders’ equity	$	5,251,377	$	5,133,902	$	3,981,263

PENNYMAC FINANCIAL SERVICES, INC.

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)


	Quarter ended
	March 31,		December 31,		March 31,
	2017		2016		2016
	(in thousands, except earnings per share)
Revenue
Net gains on mortgage loans held for sale at fair value	$	86,956	$	127,932	$	91,524
Mortgage loan origination fees		25,574		39,572		22,434
Fulfillment fees from Penny Mac Mortgage Investment Trust		16,570		27,164		12,935
Net mortgage loan servicing fees:
Mortgage loan servicing fees
From non-affiliates		106,467		102,671		91,327
From Penny Mac Mortgage Investment Trust		10,486		11,696		11,453
From Investment Funds		496		389		701
Ancillary and other fees		11,866		12,727		11,452
		129,315		127,483		114,933
Amortization, impairment and change in estimated fair value of mortgage servicing rights and excess servicing spread		(55,152)		(31,955)		(97,414)
Net mortgage loan servicing fees		74,163		95,528		17,519
Management fees:
From Penny Mac Mortgage Investment Trust		5,008		5,081		5,352
From Investment Funds		366		502		560
		5,374		5,583		5,912
Carried Interest from Investment Funds		(128)		36		593
Net interest expense:
Interest income		23,859		24,335		13,529
Interest expense		29,474		32,237		20,987
		(5,615)		(7,902)		(7,458)
Change in fair value of investment in and dividends received from Penny Mac Mortgage Investment Trust		139		94		(86)
Results of real estate acquired in settlement of loans		(25)		(82)		(435)
Other		1,465		1,360		463
Total net revenue		204,473		289,285		143,401
Expenses
Compensation		85,240		94,576		68,298
Servicing		26,843		29,363		20,887
Technology		11,356		11,009		6,847
Loan origination		4,133		6,961		4,186
Professional services		3,818		5,155		3,733
Other		11,051		12,813		9,311
Total expenses		142,441		159,877		113,262
Income before provision for income taxes		62,032		129,408		30,139
Provision for income taxes		7,646		15,568		3,596
Net income		54,386		113,840		26,543
Less: Net income attributable to noncontrolling interest		43,507		91,096		21,368
Net income attributable to Penny Mac Financial Services, Inc. common stockholders	$	10,879	$	22,744	$	5,175

Earnings per share
Basic	$	0.48	$	1.02	$	0.24
Diluted	$	0.47	$	1.00	$	0.23
Weighted-average common shares outstanding
Basic		22,619		22,339		22,006
Diluted		77,143		76,970		76,194

###

PNMAC Holdings, Inc. - FORM 8-K - EX-99.1 - May 5, 2017

Attached files