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, 2016
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: 001-35916
PennyMac Financial Services, Inc.
(Exact name of registrant as specified in its charter)
Delaware |
|
80-0882793 |
(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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (check one):
Large accelerated filer ☐ |
|
Accelerated filer ☒ |
|
|
|
Non-accelerated filer ☐ |
|
Smaller reporting company ☐ |
(Do not check if a smaller reporting company) |
|
|
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 August 8, 2016 |
Class A Common Stock, $0.0001 par value |
|
22,193,572 |
Class B Common Stock, $0.0001 par value |
|
49 |
PENNYMAC FINANCIAL SERVICES, INC.
FORM 10-Q
June 30, 2016
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
56 | |
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2
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, 2015, filed with the Securities and Exchange Commission (“SEC”) on March 10, 2016.
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; |
· |
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; |
· |
our dependence on the multi-family and commercial real estate sectors for future originations and investments in 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 (“MSRs”) and our success in winning bids; |
· |
changes in prevailing interest rates; |
3
· |
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; |
· |
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 certain investment funds if our services fail 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; |
· |
the extensive amount of regulation applicable to our investment management segment; |
· |
conflicts of interest in allocating our services and investment opportunities among ourselves and certain 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. |
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
PENNYMAC FINANCIAL SERVICES, INC.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
|
June 30, |
|
December 31, |
|
||
|
2016 |
|
2015 |
|
||
|
(in thousands, except share amounts) |
|
||||
|
|
|
|
|
|
|
ASSETS |
|
|
|
|
|
|
Cash (includes $124,026 and $93,757 pledged to creditors) |
$ |
143,715 |
|
$ |
105,472 |
|
Short-term investments at fair value |
|
41,063 |
|
|
46,319 |
|
Mortgage loans held for sale at fair value (includes $2,071,968 and $1,079,489 pledged to creditors) |
|
2,097,138 |
|
|
1,101,204 |
|
Derivative assets |
|
124,542 |
|
|
50,280 |
|
Servicing advances, net (includes $38,647 and $33,458 valuation allowance) |
|
296,581 |
|
|
299,354 |
|
Carried Interest due from Investment Funds pledged to creditors |
|
70,763 |
|
|
69,926 |
|
Investment in PennyMac Mortgage Investment Trust at fair value |
|
1,217 |
|
|
1,145 |
|
Mortgage servicing rights (includes $526,294 and $660,247 at fair value; $1,285,700 and $803,560 pledged to creditors) |
|
1,290,928 |
|
|
1,411,935 |
|
Real estate acquired in settlement of loans |
|
1,394 |
|
|
— |
|
Furniture, fixtures, equipment and building improvements, net (includes $27,240 and $14,034 pledged to creditors) |
|
27,851 |
|
|
16,311 |
|
Capitalized software, net (includes $986 and $783 pledged to creditors) |
|
6,209 |
|
|
3,025 |
|
Note receivable from PennyMac Mortgage Investment Trust |
|
150,000 |
|
|
150,000 |
|
Receivable from PennyMac Mortgage Investment Trust |
|
22,054 |
|
|
18,965 |
|
Receivable from Investment Funds |
|
1,288 |
|
|
1,316 |
|
Deferred tax asset |
|
4,878 |
|
|
18,378 |
|
Mortgage loans eligible for repurchase |
|
286,048 |
|
|
166,070 |
|
Other |
|
50,651 |
|
|
45,594 |
|
Total assets |
$ |
4,616,320 |
|
$ |
3,505,294 |
|
LIABILITIES |
|
|
|
|
|
|
Assets sold under agreements to repurchase |
$ |
1,591,798 |
|
$ |
1,166,731 |
|
Mortgage loan participation and sale agreement |
|
737,176 |
|
|
234,872 |
|
Notes payable |
|
114,235 |
|
|
61,136 |
|
Obligations under capital lease |
|
22,886 |
|
|
13,579 |
|
Excess servicing spread financing payable to PennyMac Mortgage Investment Trust at fair value |
|
294,551 |
|
|
412,425 |
|
Derivative liabilities |
|
3,734 |
|
|
9,083 |
|
Accounts payable and accrued expenses |
|
102,310 |
|
|
89,915 |
|
Mortgage servicing liabilities at fair value |
|
4,681 |
|
|
1,399 |
|
Payable to Investment Funds |
|
28,209 |
|
|
30,429 |
|
Payable to PennyMac Mortgage Investment Trust |
|
160,712 |
|
|
162,379 |
|
Payable to exchanged Private National Mortgage Acceptance Company, LLC unitholders under tax receivable agreement |
|
74,850 |
|
|
74,315 |
|
Liability for mortgage loans eligible for repurchase |
|
286,048 |
|
|
166,070 |
|
Liability for losses under representations and warranties |
|
24,277 |
|
|
20,611 |
|
Total liabilities |
|
3,445,467 |
|
|
2,442,944 |
|
|
|
|
|
|
|
|
Commitments and contingencies |
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS’ EQUITY |
|
|
|
|
|
|
Class A common stock—authorized 200,000,000 shares of $0.0001 par value; issued and outstanding, 22,189,337 and 21,990,831 shares, respectively |
|
2 |
|
|
2 |
|
Class B common stock—authorized 1,000 shares of $0.0001 par value; issued and outstanding, 50 and 51 shares, respectively |
|
— |
|
|
— |
|
Additional paid-in capital |
|
176,742 |
|
|
172,354 |
|
Retained earnings |
|
118,120 |
|
|
98,470 |
|
Total stockholders' equity attributable to PennyMac Financial Services, Inc. common stockholders |
|
294,864 |
|
|
270,826 |
|
Noncontrolling interest in Private National Mortgage Acceptance Company, LLC |
|
875,989 |
|
|
791,524 |
|
Total stockholders' equity |
|
1,170,853 |
|
|
1,062,350 |
|
Total liabilities and stockholders’ equity |
$ |
4,616,320 |
|
$ |
3,505,294 |
|
The accompanying notes are an integral part of these consolidated financial statements.
5
PENNYMAC FINANCIAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
|
|
Quarter ended June 30, |
|
Six months ended June 30, |
|
||||||||
|
|
2016 |
|
2015 |
|
2016 |
|
2015 |
|
||||
|
|
(in thousands, except earnings per share) |
|
||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net gains on mortgage loans held for sale at fair value: |
|
|
|
|
|
|
|
|
|
|
|
|
|
From non-affiliates |
|
$ |
132,118 |
|
$ |
85,411 |
|
$ |
225,594 |
|
$ |
162,078 |
|
Recapture payable to PennyMac Mortgage Investment Trust |
|
|
(1,915) |
|
|
(1,456) |
|
|
(3,867) |
|
|
(2,745) |
|
|
|
|
130,203 |
|
|
83,955 |
|
|
221,727 |
|
|
159,333 |
|
Mortgage loan origination fees |
|
|
28,907 |
|
|
24,421 |
|
|
51,341 |
|
|
41,103 |
|
Fulfillment fees from PennyMac Mortgage Investment Trust |
|
|
19,111 |
|
|
15,333 |
|
|
32,046 |
|
|
28,199 |
|
Net mortgage loan servicing fees: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loan servicing fees: |
|
|
|
|
|
|
|
|
|
|
|
|
|
From non-affiliates |
|
|
92,770 |
|
|
66,867 |
|
|
184,097 |
|
|
116,968 |
|
From PennyMac Mortgage Investment Trust |
|
|
16,427 |
|
|
12,136 |
|
|
27,880 |
|
|
22,806 |
|
From Investment Funds |
|
|
723 |
|
|
153 |
|
|
1,424 |
|
|
1,121 |
|
Ancillary and other fees |
|
|
10,818 |
|
|
11,850 |
|
|
22,270 |
|
|
23,035 |
|
|
|
|
120,738 |
|
|
91,006 |
|
|
235,671 |
|
|
163,930 |
|
Amortization, impairment and change in fair value of mortgage servicing rights |
|
|
(111,611) |
|
|
(15,324) |
|
|
(228,474) |
|
|
(69,008) |
|
Change in fair value of excess servicing spread payable to PennyMac Mortgage Investment Trust |
|
|
17,428 |
|
|
(7,133) |
|
|
36,877 |
|
|
403 |
|
|
|
|
(94,183) |
|
|
(22,457) |
|
|
(191,597) |
|
|
(68,605) |
|
Net mortgage loan servicing fees |
|
|
26,555 |
|
|
68,549 |
|
|
44,074 |
|
|
95,325 |
|
Management fees: |
|
|
|
|
|
|
|
|
|
|
|
|
|
From PennyMac Mortgage Investment Trust |
|
|
5,199 |
|
|
5,779 |
|
|
10,551 |
|
|
12,782 |
|
From Investment Funds |
|
|
531 |
|
|
1,184 |
|
|
1,091 |
|
|
2,670 |
|
|
|
|
5,730 |
|
|
6,963 |
|
|
11,642 |
|
|
15,452 |
|
Carried Interest from Investment Funds |
|
|
244 |
|
|
182 |
|
|
837 |
|
|
1,415 |
|
Net interest expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
From non-affiliates |
|
|
18,332 |
|
|
12,651 |
|
|
30,259 |
|
|
21,584 |
|
From PennyMac Mortgage Investment Trust |
|
|
2,222 |
|
|
533 |
|
|
3,824 |
|
|
533 |
|
|
|
|
20,554 |
|
|
13,184 |
|
|
34,083 |
|
|
22,117 |
|
Interest expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
To non-affiliates |
|
|
19,753 |
|
|
10,531 |
|
|
33,725 |
|
|
18,608 |
|
To PennyMac Mortgage Investment Trust |
|
|
5,713 |
|
|
5,818 |
|
|
12,728 |
|
|
9,570 |
|
|
|
|
25,466 |
|
|
16,349 |
|
|
46,453 |
|
|
28,178 |
|
Net interest expense |
|
|
(4,912) |
|
|
(3,165) |
|
|
(12,370) |
|
|
(6,061) |
|
Change in fair value of investment in and dividends received from PennyMac Mortgage Investment Trust |
|
|
229 |
|
|
(244) |
|
|
143 |
|
|
(137) |
|
Result of real estate acquired in settlement of loans |
|
|
393 |
|
|
— |
|
|
(42) |
|
|
— |
|
Other |
|
|
1,346 |
|
|
357 |
|
|
1,809 |
|
|
2,036 |
|
Total net revenue |
|
|
207,806 |
|
|
196,351 |
|
|
351,207 |
|
|
336,665 |
|
Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation |
|
|
83,147 |
|
|
70,422 |
|
|
151,445 |
|
|
128,566 |
|
Servicing |
|
|
13,430 |
|
|
28,603 |
|
|
34,317 |
|
|
38,338 |
|
Technology |
|
|
7,733 |
|
|
6,490 |
|
|
14,580 |
|
|
11,428 |
|
Loan origination |
|
|
4,910 |
|
|
4,148 |
|
|
9,096 |
|
|
8,499 |
|
Professional services |
|
|
4,559 |
|
|
4,074 |
|
|
8,292 |
|
|
6,907 |
|
Other |
|
|
9,769 |
|
|
7,815 |
|
|
19,080 |
|
|
14,890 |
|
Total expenses |
|
|
123,548 |
|
|
121,552 |
|
|
236,810 |
|
|
208,628 |
|
Income before provision for income taxes |
|
|
84,258 |
|
|
74,799 |
|
|
114,397 |
|
|
128,037 |
|
Provision for income taxes |
|
|
9,963 |
|
|
8,619 |
|
|
13,559 |
|
|
14,733 |
|
Net income |
|
|
74,295 |
|
|
66,180 |
|
|
100,838 |
|
|
113,304 |
|
Less: Net income attributable to noncontrolling interest |
|
|
59,820 |
|
|
53,431 |
|
|
81,188 |
|
|
91,527 |
|
Net income attributable to PennyMac Financial Services, Inc. common stockholders |
|
$ |
14,475 |
|
$ |
12,749 |
|
$ |
19,650 |
|
$ |
21,777 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.66 |
|
$ |
0.59 |
|
$ |
0.89 |
|
$ |
1.01 |
|
Diluted |
|
$ |
0.65 |
|
$ |
0.59 |
|
$ |
0.89 |
|
$ |
1.01 |
|
Weighted average common shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
22,078 |
|
|
21,700 |
|
|
22,042 |
|
|
21,647 |
|
Diluted |
|
|
76,280 |
|
|
76,105 |
|
|
76,236 |
|
|
76,063 |
|
The accompanying notes are an integral part of these consolidated financial statements.
6
PENNYMAC FINANCIAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED)
|
|
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, 2014 |
|
21,578 |
|
$ |
2 |
|
|
$ |
162,720 |
|
$ |
51,242 |
|
$ |
593,302 |
|
$ |
807,266 |
|
Net income |
|
— |
|
|
— |
|
|
|
— |
|
|
21,777 |
|
|
91,527 |
|
|
113,304 |
|
Stock and unit-based compensation |
|
72 |
|
|
— |
|
|
|
2,452 |
|
|
— |
|
|
6,146 |
|
|
8,598 |
|
Distributions |
|
— |
|
|
— |
|
|
|
— |
|
|
— |
|
|
(9,627) |
|
|
(9,627) |
|
Issuance of common stock in settlement of directors' fees |
|
8 |
|
|
— |
|
|
|
149 |
|
|
— |
|
|
— |
|
|
149 |
|
Exchange of Class A units of Private National Mortgage Acceptance Company, LLC to |
|
133 |
|
|
— |
|
|
|
2,432 |
|
|
— |
|
|
(2,432) |
|
|
— |
|
Tax effect of exchange of Class A units of Private National Mortgage Acceptance Company, LLC to |
|
— |
|
|
— |
|
|
|
(217) |
|
|
— |
|
|
— |
|
|
(217) |
|
Balance at June 30, 2015 |
|
21,791 |
|
$ |
2 |
|
|
$ |
167,536 |
|
$ |
73,019 |
|
$ |
678,916 |
|
$ |
919,473 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2015 |
|
21,991 |
|
$ |
2 |
|
|
$ |
172,354 |
|
$ |
98,470 |
|
$ |
791,524 |
|
$ |
1,062,350 |
|
Net income |
|
— |
|
|
— |
|
|
|
— |
|
|
19,650 |
|
|
81,188 |
|
|
100,838 |
|
Stock and unit-based compensation |
|
93 |
|
|
— |
|
|
|
2,119 |
|
|
— |
|
|
5,917 |
|
|
8,036 |
|
Issuance of common stock in settlement of directors' fees |
|
12 |
|
|
— |
|
|
|
149 |
|
|
— |
|
|
— |
|
|
149 |
|
Exchange of Class A units of Private National Mortgage Acceptance Company, LLC to Class A common stock of PennyMac Financial Services, Inc. |
|
93 |
|
|
— |
|
|
|
2,640 |
|
|
— |
|
|
(2,640) |
|
|
— |
|
Tax effect of exchange of Class A units of Private National Mortgage Acceptance Company, LLC to |
|
— |
|
|
— |
|
|
|
(520) |
|
|
— |
|
|
— |
|
|
(520) |
|
Balance at June 30, 2016 |
|
22,189 |
|
$ |
2 |
|
|
$ |
176,742 |
|
$ |
118,120 |
|
$ |
875,989 |
|
$ |
1,170,853 |
|
The accompanying notes are an integral part of these consolidated financial statements.
7
PENNYMAC FINANCIAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
|
|
Six months ended June 30, |
|
||||
|
|
2016 |
|
2015 |
|
||
|
|
(in thousands) |
|
||||
|
|
|
|
|
|
|
|
Cash flow from operating activities |
|
|
|
|
|
|
|
Net income |
|
$ |
100,838 |
|
$ |
113,304 |
|
Adjustments to reconcile net income to net cash used in operating activities: |
|
|
|
|
|
|
|
Net gains on mortgage loans held for sale at fair value |
|
|
(221,727) |
|
|
(159,333) |
|
Accrual of servicing rebate payable to Investment Funds |
|
|
148 |
|
|
1,114 |
|
Amortization, impairment and change in fair value of mortgage servicing rights and excess servicing spread |
|
|
191,597 |
|
|
68,605 |
|
Carried Interest from Investment Funds |
|
|
(837) |
|
|
(1,415) |
|
Amortization of debt issuance costs and commitment fees relating to financing facilities |
|
|
5,215 |
|
|
3,631 |
|
Capitalization of interest on mortgage loans held for sale at fair value |
|
|
(13,513) |
|
|
(4,745) |
|
Accrual of interest on excess servicing spread financing |
|
|
12,728 |
|
|
9,570 |
|
Change in fair value of investment in common shares of PennyMac Mortgage Investment Trust |
|
|
(72) |
|
|
275 |
|
Results of real estate acquired in settlement in loans |
|
|
42 |
|
|
— |
|
Stock and unit-based compensation expense |
|
|
8,036 |
|
|
8,598 |
|
Provision for servicing advance losses |
|
|
12,519 |
|
|
16,013 |
|
Depreciation and amortization |
|
|
2,274 |
|
|
911 |
|
Purchase of mortgage loans held for sale from PennyMac Mortgage Investment Trust |
|
|
(16,783,840) |
|
|
(13,514,568) |
|
Originations of mortgage loans held for sale |
|
|
(2,730,709) |
|
|
(2,052,648) |
|
Purchase of mortgage loans from Ginnie Mae securities and early buyout investors for modification and subsequent sale |
|
|
(703,464) |
|
|
(531,842) |
|
Purchase of commercial real estate loans from non-affiliates |
|
|
(5,912) |
|
|
— |
|
Sale and principal payments of mortgage loans held for sale |
|
|
19,176,697 |
|
|
15,619,191 |
|
Sale of loans held for sale to PennyMac Mortgage Investment Trust |
|
|
8,139 |
|
|
10,828 |
|
Repurchase of mortgage loans and real estate acquired in settlement of loans subject to representations and warranties |
|
|
(11,399) |
|
|
(11,567) |
|
Increase in servicing advances |
|
|
(11,182) |
|
|
(32,189) |
|
Increase in receivable from Investment Funds |
|
|
(120) |
|
|
(971) |
|
(Increase) decrease in receivable from PennyMac Mortgage Investment Trust |
|
|
(2,056) |
|
|
9,175 |
|
Decrease in deferred tax asset |
|
|
13,515 |
|
|
12,826 |
|
Payments to exchanged Private National Mortgage Acceptance Company, LLC unitholders under tax receivable agreement |
|
|
— |
|
|
(4,299) |
|
Increase in other assets |
|
|
(10,941) |
|
|
(14,282) |
|
Increase in accounts payable and accrued expenses |
|
|
9,781 |
|
|
20,941 |
|
Decrease in payable to Investment Funds |
|
|
(2,220) |
|
|
(4,653) |
|
(Decrease) increase in payable to PennyMac Mortgage Investment Trust |
|
|
(2,332) |
|
|
16,120 |
|
Net cash used in operating activities |
|
|
(958,795) |
|
|
(421,410) |
|
Cash flow from investing activities |
|
|
|
|
|
|
|
Decrease (increase) in short-term investments |
|
|
5,256 |
|
|
(1,890) |
|
Advance on note receivable from PennyMac Mortgage Investment Trust |
|
|
— |
|
|
(71,072) |
|
Repayment of note receivable from PennyMac Mortgage Investment Trust |
|
|
— |
|
|
18,546 |
|
Purchase of mortgage servicing rights |
|
|
(11) |
|
|
(270,133) |
|
Net settlement of derivative financial instruments used for hedging |
|
|
138,801 |
|
|
(8,293) |
|
Purchase of furniture, fixtures, equipment and building improvements |
|
|
(14,459) |
|
|
(2,277) |
|
Acquisition of capitalized software |
|
|
(3,342) |
|
|
(860) |
|
(Increase) decrease in margin deposits and restricted cash |
|
|
(16,443) |
|
|
19,932 |
|
Net cash provided by (used in) investing activities |
|
|
109,802 |
|
|
(316,047) |
|
Cash flow from financing activities |
|
|
|
|
|
|
|
Sale of assets under agreements to repurchase |
|
|
18,461,897 |
|
|
14,379,136 |
|
Repurchase of assets sold under agreements to repurchase |
|
|
(18,037,356) |
|
|
(13,937,711) |
|
Issuance of mortgage loan participation certificates |
|
|
10,843,858 |
|
|
7,937,026 |
|
Repayment of mortgage loan participation certificates |
|
|
(10,341,436) |
|
|
(7,884,705) |
|
Advances on notes payable |
|
|
68,000 |
|
|
129,012 |
|
Repayment of notes payable |
|
|
(15,671) |
|
|
(29,411) |
|
Issuance of excess servicing spread financing |
|
|
— |
|
|
187,287 |
|
Repayment of excess servicing spread financing |
|
|
(38,281) |
|
|
(31,083) |
|
Repurchase of excess servicing spread financing |
|
|
(59,045) |
|
|
— |
|
Advances of obligations under capital lease |
|
|
12,652 |
|
|
— |
|
Repayment of obligation under capital lease |
|
|
(3,345) |
|
|
(5) |
|
Payment of debt issuance costs |
|
|
(4,037) |
|
|
(3,990) |
|
Distribution to Private National Mortgage Acceptance Company, LLC members |
|
|
— |
|
|
(9,627) |
|
Net cash provided by financing activities |
|
|
887,236 |
|
|
735,929 |
|
Net increase (decrease) in cash |
|
|
38,243 |
|
|
(1,528) |
|
Cash at beginning of period |
|
|
105,472 |
|
|
76,256 |
|
Cash at end of period |
|
$ |
143,715 |
|
$ |
74,728 |
|
The accompanying notes are an integral part of these consolidated financial statements.
8
PENNYMAC FINANCIAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 1—Organization and Basis of Presentation
PennyMac Financial Services, Inc. (“PFSI” or the “Company”) was formed as a Delaware corporation on December 31, 2012. Pursuant to a reorganization, the Company became a holding corporation and its primary asset is an equity interest in Private National Mortgage Acceptance Company, LLC (“PennyMac”). The Company is the managing member of PennyMac and operates and controls all of the businesses and affairs of PennyMac subject to the consent rights of other members under certain circumstances, and consolidates the financial results of PennyMac and its subsidiaries.
PennyMac is a Delaware limited liability company which, through its subsidiaries, engages in mortgage banking and investment management activities. PennyMac’s mortgage banking activities consist of residential mortgage loan production (including correspondent production and consumer direct lending) and mortgage loan servicing. PennyMac’s investment management activities and a portion of its mortgage loan servicing activities are conducted on behalf of investment vehicles that invest in residential mortgage loans and related assets. PennyMac’s primary wholly owned subsidiaries are:
· |
PNMAC Capital Management, LLC (“PCM”)—a Delaware limited liability company registered with the Securities and Exchange Commission (“SEC”) as an investment adviser under the Investment Advisers Act of 1940, as amended. PCM enters into investment management agreements with entities that invest in residential mortgage loans and related assets. |
Presently, PCM has management agreements with PennyMac Mortgage Investment Trust (“PMT”), a publicly held real estate investment trust (“REIT”), PNMAC Mortgage Opportunity Fund, LLC and PNMAC Mortgage Opportunity Fund, L.P., (the “Master Fund”), both registered under the Investment Company Act of 1940, as amended, an affiliate of these registered funds and PNMAC Mortgage Opportunity Fund Investors, LLC (collectively, the “Investment Funds”). Together, the Investment Funds and PMT are referred to as the “Advised Entities.”
· |
PennyMac Loan Services, LLC (“PLS”)—a Delaware limited liability company that services residential mortgage loans on behalf of non-affiliates and the Advised Entities, purchases and originates new prime credit quality residential mortgage loans, and engages in other mortgage banking activities for its own account and the account of PMT. |
PLS is approved as a seller/servicer of mortgage loans by the Federal National Mortgage Association (“Fannie Mae”) and the Federal Home Loan Mortgage Corporation (“Freddie Mac”) and as an issuer of securities guaranteed by the Government National Mortgage Association (“Ginnie Mae”). PLS is a licensed Federal Housing Administration Nonsupervised Title II Lender with the U.S. Department of Housing and Urban Development (“HUD”) and a lender/servicer with the Veterans Administration (“VA”) and U.S. Department of Agriculture (“USDA”) (each an “Agency” and collectively the “Agencies”).
· |
PNMAC Opportunity Fund Associates, LLC (“PMOFA”)—a Delaware limited liability company and the general partner of the Master Fund. PMOFA is entitled to incentive fees representing allocations of profits (“Carried Interest”) from the Master Fund. |
The accompanying consolidated financial statements have been prepared in compliance with accounting principles generally accepted in the United States (“GAAP”) as codified in the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) for interim financial information and with the SEC’s instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, these financial statements and notes do not include all of the information required by GAAP for complete financial statements. The interim consolidated information should be read together with the Company’s Annual Report on Form 10-K for the year ended December 31, 2015.
The accompanying unaudited consolidated financial statements reflect all normal recurring adjustments necessary to present fairly the financial position, income, and cash flows for the interim periods, but are not necessarily
9
indicative of the results of operations to be anticipated for the full year ending December 31, 2016. Intercompany accounts and transactions have been eliminated.
Preparation of financial statements in compliance with GAAP requires management to make estimates and judgments that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, and revenues and expenses during the reporting period. Actual results will likely differ from those estimates.
Note 2—Concentration of Risk
A substantial portion of the Company’s activities relate to the Advised Entities. Fees (generally comprised of fulfillment fees, mortgage loan servicing fees, management fees and Carried Interest) and interest charged to these entities totaled 26% and 10% of total net revenue for the quarters ended June 30, 2016 and 2015, respectively, and 28% and 17% for the six months ended June 30, 2016 and 2015, respectively.
Note 3—Transactions with Affiliates
Transactions with PMT
Operating Activities
Mortgage Loan Production Activities
Following is a summary of mortgage lending and sourcing activity between the Company and PMT:
|
|
Quarter ended June 30, |
|
Six months ended June 30, |
|
||||||||
|
|
2016 |
|
2015 |
|
2016 |
|
2015 |
|
||||
|
|
(in thousands) |
|
||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fulfillment fee revenue |
|
$ |
19,111 |
|
$ |
15,333 |
|
$ |
32,046 |
|
$ |
28,199 |
|
Unpaid principal balance of mortgage loans fulfilled for PMT |
|
$ |
5,174,020 |
|
$ |
3,579,078 |
|
$ |
8,433,383 |
|
$ |
6,469,210 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sourcing fees paid to PMT |
|
$ |
2,824 |
|
$ |
2,427 |
|
$ |
4,773 |
|
$ |
3,848 |
|
Unpaid principal balance of mortgage loans purchased from PMT |
|
$ |
9,409,399 |
|
$ |
8,082,764 |
|
$ |
15,905,121 |
|
$ |
12,818,138 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from sale of mortgage loans held for sale to PMT |
|
$ |
3,424 |
|
$ |
2,423 |
|
$ |
8,139 |
|
$ |
10,828 |
|
Tax service fee from PMT |
|
$ |
1,464 |
|
$ |
1,113 |
|
$ |
2,471 |
|
$ |
2,002 |
|
Mortgage servicing rights and excess servicing spread recapture incurred |
|
$ |
1,915 |
|
$ |
1,456 |
|
$ |
3,867 |
|
$ |
2,745 |
|
Mortgage banking and warehouse service fees paid by PMT |
|
$ |
1 |
|
$ |
— |
|
$ |
2 |
|
$ |
— |
|
10
Mortgage Loan Servicing Activities
Following is a summary of mortgage loan servicing fees earned from PMT:
|
|
Quarter ended June 30, |
|
|
Six months ended June 30, |
|
||||||||
|
|
2016 |
|
2015 |
|
|
2016 |
|
2015 |
|
||||
|
|
(in thousands) |
|
|||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans acquired for sale at fair value: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Base and supplemental |
|
$ |
79 |
|
$ |
42 |
|
|
$ |
135 |
|
$ |
68 |
|
Activity-based |
|
|
172 |
|
|
59 |
|
|
|
287 |
|
|
90 |
|
|
|
|
251 |
|
|
101 |
|
|
|
422 |
|
|
158 |
|
Mortgage loans at fair value: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Base and supplemental |
|
|
2,959 |
|
|
4,210 |
|
|
|
6,359 |
|
|
8,272 |
|
Activity-based |
|
|
8,518 |
|
|
3,093 |
|
|
|
11,967 |
|
|
5,987 |
|
|
|
|
11,477 |
|
|
7,303 |
|
|
|
18,326 |
|
|
14,259 |
|
Mortgage servicing rights: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Base and supplemental |
|
|
4,583 |
|
|
4,627 |
|
|
|
8,927 |
|
|
8,253 |
|
Activity-based |
|
|
116 |
|
|
105 |
|
|
|
205 |
|
|
136 |
|
|
|
|
4,699 |
|
|
4,732 |
|
|
|
9,132 |
|
|
8,389 |
|
|
|
$ |
16,427 |
|
$ |
12,136 |
|
|
$ |
27,880 |
|
$ |
22,806 |
|
Investment Management Activities
The base management fee and the performance incentive fee are both receivable quarterly in arrears. The performance incentive fee may be paid in cash or a combination of cash and PMT’s common shares (subject to a limit of no more than 50% paid in common shares), at PMT’s option.
Following is a summary of the base management and performance incentive fees earned from PMT:
|
|
Quarter ended June 30, |
|
|
Six months ended June 30, |
|
||||||||
|
|
2016 |
|
2015 |
|
|
2016 |
|
2015 |
|
||||
|
|
(in thousands) |
|
|||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Base management |
|
$ |
5,199 |
|
$ |
5,709 |
|
|
$ |
10,551 |
|
$ |
11,439 |
|
Performance incentive |
|
|
— |
|
|
70 |
|
|
|
— |
|
|
1,343 |
|
|
|
$ |
5,199 |
|
$ |
5,779 |
|
|
$ |
10,551 |
|
$ |
12,782 |
|
The term of the management agreement, as amended, expires on February 1, 2017, subject to automatic renewal for additional 18‑month periods, unless terminated earlier in accordance with the terms of the management agreement.
In the event of termination of the management agreement between PMT and the Company, the Company may be entitled to a termination fee in certain circumstances. The termination fee is equal to three times the sum of (a) the average annual base management fee, and (b) the average annual performance incentive fee earned by the Company, in each case during the 24-month period before termination.
11
Expense Reimbursement
PMT reimburses the Company for other expenses, including common overhead expenses incurred on its behalf by the Company, in accordance with the terms of its management agreement. Such amounts are summarized below: