EX-99.1 2 pfsi_ex9901.htm PRESS RELEASE

Exhibit 99.1

	Investors and Media
	Christopher Oltmann
	(818) 264-4907

PennyMac Financial Services, Inc. Reports

Fourth Quarter 2015 Results

Moorpark, CA, February 3, 2016 – PennyMac Financial Services, Inc. (NYSE: PFSI) today reported net income of $68.9 million for the fourth quarter of 2015, on revenue of $187.2 million. Net income attributable to PFSI common stockholders was $12.8 million or $0.58 per diluted share.

Fourth Quarter 2015 Highlights

Pretax income of $77.2 million, up 4 percent from the prior quarter and the highest level on record for PennyMac Financial

Total net revenue of $188.9 million, essentially unchanged from the prior quarter

Production revenue of $104.5 million, down 23 percent from the prior quarter

Servicing revenue of $78.2 million, up 70 percent from the prior quarter

Investment Management revenue of $6.2 million, down 21 percent from the prior quarter

Total loan production activity of $11.1 billion in unpaid principal balance (UPB), down
28 percent from the prior quarter

Servicing portfolio reached $160.3 billion in UPB, up 4 percent from September 30, 2015

Net assets under management were approximately $1.7 billion, down 1 percent from the prior quarter

Full-Year 2015 Highlights

Pretax income of $279.2 million, up 25 percent from the prior year

Total net revenue of $713.1 million, up 38 percent from the prior year

	·	Loan production totaled $48.4 billion in UPB, an increase of 67 percent from the prior year, which included $4.1 billion in UPB of consumer direct production, an increase of 113 percent from the prior year

Servicing portfolio reached $160.3 billion in UPB, up 51 percent from December 31, 2014, driven by the organic additions from loan production and $32.8 billion in UPB of mortgage servicing rights (MSR) acquisitions

“PennyMac Financial concluded another record year with solid financial and operational performance in the fourth quarter, which reflected balanced earnings contributions from the production and servicing segments,” said Chairman and Chief Executive Officer Stanford L. Kurland. “Our mortgage production volumes remained strong despite a seasonally smaller mortgage market and higher interest rates during the quarter. Our servicing segment delivered record pretax income, driven primarily by growth in core servicing profitability and MSR valuation gains that were largely offset by hedging activities. Our consistently strong financial performance reflects our dedicated approach to interest rate risk management across the production pipeline and the MSR asset.”

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

	Quarter ended December 31, 2015
	Mortgage Banking
	Production		Servicing			Total			Investment Management			Total
	(in thousands)
Revenue
Net gains on mortgage loans held for sale at fair value	$	65,893	$	12,843		$	78,736		$	–		$	78,736
Loan origination fees		20,969		–			20,969			–			20,969
Fulfillment fees from PMT		12,855		–			12,855			–			12,855
Net servicing fees		–		76,969			76,969			–			76,969
Management fees		–		–			–			6,329			6,329
Carried Interest from Investment Funds		–		–			–			(270	)		(270	)
Net interest income (expense):
Interest income		9,197		2,788			11,985			–			11,985
Interest expense		4,841		14,635			19,476			–			19,476
		4,356		(11,847	)		(7,491	)		–			(7,491	)
Other		438		247			685			91			776
Total net revenue		104,511		78,212			182,723			6,150			188,873
Expenses		54,219		50,287			104,506			5,494			110,000
Income before provision for income taxes and non-segment activities		50,292		27,925			78,217			656			78,873
Non-segment activities (1)		–		–			–			–			(1,640	)
Income before provision for income taxes	$	50,292	$	27,925		$	78,217		$	656		$	77,233

(1) Consists primarily of the expense associated with an increase to the payable to exchanged Private National Mortgage Acceptance Company, LLC unitholders under tax receivable agreement

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 (NYSE: PMT), and consumer direct lending.

PennyMac Financial’s loan production totaled $11.1 billion in UPB, of which $7.6 billion in UPB was for its own account, and $3.5 billion was fee-based fulfillment activity for PMT. Interest rate lock commitments (IRLCs) on correspondent government-insured and consumer direct loans totaled $8.8 billion in UPB.

Production segment pretax income was $50.3 million, a decrease of 35 percent from the third quarter. Production revenue totaled $104.5 million, a decrease of 23 percent from the third quarter, primarily resulting from a 19 percent quarter-over-quarter decrease in net gains on mortgage loans held for sale. The decrease in preduction revenue was driven by a reduction in government-insured correspondent lock volumes from the elevated levels in the third quarter and reduced margins in the consumer direct lending channel during the fourth quarter. The lower volumes were primarily the result of higher mortgage rates and a seasonally smaller mortgage origination market.

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

	Quarter ended
	December 31, 2015			September 30, 2015			December 31, 2014
	(in thousands)
MSR value	$	112,196		$	153,338		$	59,511
Mortgage servicing rights recapture payable to PennyMac Mortgage Investment Trust		(1,993	)		(3,098	)		(1,270	)
Provision for representations and warranties		(1,978	)		(2,292	)		(1,652	)
Cash investment⁽¹⁾		(7,885	)		(85,426	)		(20,099	)
Fair value changes of pipeline, inventory and hedges		(21,604	)		20,124			8,159
Net gains on mortgage loans held for sale	$	78,736		$	82,646		$	44,649

Net gains on mortgage loans held for sale by segment:
Production	$	65,893		$	81,005
Servicing	$	12,843		$	1,641

(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; review of 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 $12.9 million in the fourth quarter, compared to $17.6 million in the third quarter. The decrease was driven by a 15 percent reduction in conventional loan acquisitions from the third quarter and a decline in the average fulfillment fee rate to 37 basis points, compared to 43 basis points in the third quarter, primarily resulting from contractual discretionary reductions in the fulfillment fee in order to facilitate PMT's successful acquisition of certain loan transactions.

Production segment expenses were $54.2 million, a 6 percent decrease from the third quarter, primarily driven by the decrease in loan production volumes.

Servicing Segment

Servicing includes income from owned MSRs, in addition to subservicing and special servicing activities. The Servicing segment posted pretax income of $27.9 million in the fourth quarter, versus a pretax loss of $6.1 million in the third quarter. Servicing segment revenues in the fourth quarter totaled $78.2 million, a 70 percent increase from the third quarter, primarily resulting from a 34 percent increase in net loan servicing fees.

Net loan servicing fees totaled $77.0 million for the quarter and included $112.7 million in servicing fees reduced by $47.4 million of amortization and realization of MSR cash flows. Net loan servicing fees also included $45.5 million of fair value gains and impairment reversal related to MSRs, partially offset by a $6.9 million loss from the change in fair value of the excess servicing spread (ESS) financing and $27.0 million of related hedging losses.

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

	Quarter ended
	December 31, 2015			September 30, 2015			December 31, 2014
	(in thousands)
Servicing fees ⁽¹⁾	$	112,699		$	106,052		$	69,901
Effect of MSRs:
Amortization and realization of cash flows		(47,403	)		(41,594	)		(21,690	)
Change in fair value and reversal of (provision for) impairment of MSRs carried at lower of amortized cost or fair value		45,513			(47,926	)		(8,755	)
Change in fair value of excess servicing spread financing		(6,864	)		10,271			4,271
Hedging (losses) gains		(26,976	)		30,455			18,551
Total amortization, impairment and change in fair value of MSRs		(35,730	)		(48,794	)		(7,623	)
Net loan servicing fees	$	76,969		$	57,258		$	62,278

(1) Includes contractually-specified servicing fees

Servicing segment revenue also included $12.8 million in net gains on mortgage loans held for sale at fair value in the fourth quarter resulting from the securitization of reperforming government-insured loans, versus $1.6 million in the third quarter. These loans were previously purchased out of Ginnie Mae securitizations and brought back to performing status through PennyMac Financial’s successful servicing efforts, primarily with the use of loan modifications.

Servicing segment expenses totaled $50.3 million, a $1.9 million decrease from the third quarter, largely due to a decline in credit and advance losses partially offset by a modest increase in direct operating expenses driven by the larger portfolio.

The total servicing portfolio reached $160.3 billion in UPB at December 31, 2015, an increase of 4 percent from the prior quarter end. Of the total servicing portfolio, prime servicing was $156.4 billion in UPB and special servicing was $3.8 billion in UPB. The Company subservices and services under contract $47.8 billion in UPB, an increase of 6 percent from September 30, 2015, primarily due to new correspondent acquisitions by PMT. PennyMac Financial’s MSR portfolio grew to $110.6 billion in UPB, an increase of 3 percent over the prior quarter, primarily resulting from the acquisition of government-insured loans in correspondent production and from consumer direct lending activities.

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

	December 31, 2015		September 30, 2015		December 31, 2014
	(in thousands)
Loans serviced at period end:
Prime servicing:
Owned
Mortgage servicing rights
Originated	$	59,880,349	$	54,259,297	$	36,564,434
Acquisitions		50,722,355		52,717,209		28,126,179
		110,602,704		106,976,506		64,690,613
Mortgage servicing liabilities		806,897		957,113		478,581
Mortgage loans held for sale		1,052,485		1,602,692		1,100,910
		112,462,086		109,536,311		66,270,104
Subserviced for Advised Entities		43,963,378		41,303,357		35,416,466
Total prime servicing		156,425,464		150,839,668		101,686,570
Special servicing:
Subserviced for Advised Entities		3,847,254		3,990,744		4,293,479
Total special servicing		3,847,254		3,990,744		4,293,479
Total loans serviced	$	160,272,718	$	154,830,412	$	105,980,049

Mortgage loans serviced:
Owned
Mortgage servicing rights	$	110,602,704	$	106,976,506	$	64,690,613
Mortgage servicing liabilities		806,897		957,113		478,581
Mortgage loans held for sale		1,052,485		1,602,692		1,100,910
		112,462,086		109,536,311		66,270,104
Subserviced		47,810,632		45,294,101		39,709,945
Total mortgage loans serviced	$	160,272,718	$	154,830,412	$	105,980,049

Investment Management Segment

PennyMac Financial manages PMT and certain private investment funds, for which it may earn base management fees and incentive compensation. Net assets under management were approximately $1.7 billion as of December 31, 2015, down 1 percent from September 30, 2015.

Pretax income for the Investment Management segment was $0.7 million, a decrease of $1.5 million from the third quarter of 2015. Management fees, which include base management fees from PMT and the private investment funds and any earned incentive fees from PMT, decreased 2 percent from the prior quarter. Carried interest from the private investment funds decreased by $1.8 million from the prior quarter resulting from the reduced performance of the funds during the quarter.

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

	Quarter ended
	December 31, 2015			September 30, 2015		December 31, 2014
	(in thousands)
Management fees:
PennyMac Mortgage Investment Trust
Base	$	5,670		$	5,742	$	5,938
Performance incentive		–			–		2,488
		5,670			5,742		8,426
Investment Funds		659			714		1,596
Total management fees		6,329			6,456		10,022
Carried Interest		(270	)		1,483		263
Total management fees and Carried Interest	$	6,059		$	7,939	$	10,285

Net assets of Advised Entities:
PennyMac Mortgage Investment Trust	$	1,496,112		$	1,514,430	$	1,578,172
Investment Funds		231,744			238,349		424,182
	$	1,727,856		$	1,752,779	$	2,002,354

Investment Management segment expenses totaled $5.5 million, a 2 percent decrease from the third quarter.

Consolidated Expenses

Total expenses for the fourth quarter were $110.0 million, a 5 percent decrease from the third quarter. The decline in total expenses was largely due to a $2.6 million decrease in compensation expense from the third quarter to refine performance and incentive-based compensation accruals to actual headcount and payment rate.

Mr. Kurland concluded, “PennyMac Financial’s consistently strong financial performance and outperformance relative to the mortgage industry reflects the significant investments we have made in our operational infrastructure, dedicated approach to risk management, and governance culture. We are building the PennyMac platform for continued growth in mortgage lending and for long-term success. We believe our operational infrastructure is highly scalable and well positioned to respond to market opportunities, including the most recent decline in mortgage rates that could drive higher refinance demand.”

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, February 3, 2016.

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: 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 and purchased mortgage servicing rights; 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 (UNAUDITED)

	December 31, 2015		September 30, 2015		December 31, 2014
	(in thousands, except share data)
ASSETS
Cash	$	105,472	$	47,415	$	76,256
Short-term investments at fair value		46,319		24,766		21,687
Mortgage loans held for sale at fair value		1,101,204		1,696,980		1,147,884
Derivative assets		50,280		53,569		38,457
Servicing advances, net		299,354		252,172		228,630
Carried Interest due from Investment Funds		69,926		70,196		67,298
Investment in PennyMac Mortgage Investment Trust at fair value		1,145		1,160		1,582
Mortgage servicing rights		1,411,935		1,307,392		730,828
Furniture, fixtures, equipment and building improvements, net		16,311		14,107		11,339
Note receivable from PennyMac Mortgage Investment Trust secured		150,000		150,000		–
Receivable from Investment Funds		1,316		1,542		2,291
Receivable from PennyMac Mortgage Investment Trust		18,965		17,220		23,871
Capitalized software, net		3,025		2,035		567
Deferred tax asset		18,378		25,878		46,038
Loans eligible for repurchase		166,070		97,455		72,539
Other		45,594		53,435		37,419
Total assets	$	3,505,294	$	3,815,322	$	2,506,686

LIABILITIES
Assets sold under agreements to repurchase	$	1,166,731	$	1,286,411	$	822,252
Mortgage loan participation and sale agreement		234,872		247,410		143,568
Note payable		61,136		406,990		146,855
Obligations under capital lease		13,579		–		–
Excess servicing spread financing at fair value		412,425		418,573		191,166
Derivative liabilities		9,083		4,632		6,513
Mortgage servicing liabilities at fair value		1,399		10,724		6,306
Accounts payable and accrued expenses		89,914		85,530		62,715
Payable to Investment Funds		30,429		30,211		35,908
Payable to PennyMac Mortgage Investment Trust		162,379		147,326		123,315
Payable to exchanged Private National Mortgage Acceptance Company, LLC unitholders under tax receivable agreement		74,315		72,275		75,024
Liability for loans eligible for repurchase		166,070		97,455		72,539
Liability for losses under representations and warranties		20,612		18,478		13,259
Total liabilities		2,442,944		2,826,015		1,699,420

STOCKHOLDERS' EQUITY
Class A common stock¾authorized 200,000,000 shares of $0.0001 par value; issued and outstanding, 21,990,831, 21,842,868 and 21,577,686 shares, respectively		2		2		2
Class B common stock¾authorized 1,000 shares of $0.0001 par value; issued and outstanding, 51, 51 and 54 shares, respectively		–		–		–
Additional paid-in capital		172,354		169,297		162,720
Retained earnings		98,470		85,699		51,242
Total stockholders' equity attributable to PennyMac Financial Services, Inc. common stockholders		270,826		254,998		213,964
Noncontrolling interests in Private National Mortgage Acceptance Company, LLC		791,524		734,309		593,302
Total stockholders' equity		1,062,350		989,307		807,266
Total liabilities and stockholders’ equity	$	3,505,294	$	3,815,322	$	2,506,686

PENNYMAC FINANCIAL SERVICES, INC.

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

	Quarter ended
	December 31, 2015			September 30, 2015			December 31, 2014
	(in thousands, except per share data)
Revenue
Net gains on mortgage loans held for sale at fair value	$	78,736		$	82,646		$	44,649
Loan origination fees		20,969			29,448			12,528
Fulfillment fees from PennyMac Mortgage Investment Trust		12,855			17,553			11,887
Net servicing fees:
Loan servicing fees
From non-affiliates		90,081			83,424			48,944
From PennyMac Mortgage Investment Trust		11,880			11,736			11,426
From Investment Funds		720			796			(329	)
Ancillary and other fees		10,018			10,096			9,860
		112,699			106,052			69,901
Amortization, impairment and change in estimated fair value of mortgage servicing rights		(35,730	)		(48,794	)		(7,623	)
Net servicing fees		76,969			57,258			62,278
Management fees:
From PennyMac Mortgage Investment Trust		5,670			5,742			8,426
From Investment Funds		659			714			1,596
		6,329			6,456			10,022
Carried Interest from Investment Funds		(270	)		1,483			263
Net interest expense:
Interest income		11,985			15,053			8,434
Interest expense		19,415			20,944			10,426
		(7,430	)		(5,891	)		(1,992	)
Change in fair value of investment in and dividends received from PennyMac Mortgage Investment Trust		65			(158	)		(26	)
Other		(984	)		410			2,116
Total net revenue		187,239			189,205			141,725
Expenses
Compensation		71,566			74,129			52,475
Servicing		12,979			16,770			19,732
Technology		7,059			6,676			4,525
Professional services		4,763			3,803			2,958
Loan origination		4,583			4,314			3,602
Other		9,056			9,590			5,200
Total expenses		110,006			115,282			88,492
Income before provision for income taxes		77,233			73,923			53,233
Provision for income taxes		8,327			8,575			7,337
Net income		68,906			65,348			45,896
Less: Net income attributable to noncontrolling interest		56,135			52,668			37,133
Net income attributable to PennyMac Financial Services, Inc. common stockholders	$	12,771		$	12,680		$	8,763

Earnings per share
Basic	$	0.58		$	0.58		$	0.41
Diluted	$	0.58		$	0.58		$	0.41
Weighted-average common shares outstanding
Basic		21,912			21,810			21,549
Diluted		76,132			76,138			76,004

PENNYMAC FINANCIAL SERVICES, INC.

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

	Year ended December 31,
	2015			2014			2013
	(in thousands, except per share data)
Revenue
Net gains on mortgage loans held for sale at fair value	$	320,715		$	167,024		$	138,013
Loan origination fees		91,520			41,576			23,575
Fulfillment fees from PennyMac Mortgage Investment Trust		58,607			48,719			79,712
Net loan servicing fees:
Loan servicing fees
From non-affiliates		290,474			173,005			61,523
From PennyMac Mortgage Investment Trust		46,423			52,522			39,413
From Investment Funds		2,636			6,425			7,099
Ancillary and other fees		43,139			26,469			11,426
		382,672			258,421			119,461
Amortization, impairment and change in fair value of mortgage servicing rights		(153,129	)		(41,502	)		(29,451	)
Net loan servicing fees		229,543			216,919			90,010
Management fees:
From PennyMac Mortgage Investment Trust		24,194			35,035			32,410
From Investment Funds		4,043			7,473			7,920
		28,237			42,508			40,330
Carried Interest from Investment Funds		2,628			6,156			13,419
Net interest expense:
Interest income		49,155			27,771			15,632
Interest expense		68,537			37,257			16,673
Net interest expense		(19,383	)		(9,486	)		(1,041	)
Change in fair value of investment in and dividends received from PennyMac Mortgage Investment Trust		(230	)		(6	)		41
Other		1,472			4,867			2,500
Total net revenue		713,110			518,277			386,559
Expenses
Compensation		274,256			190,707			148,576
Servicing		68,085			48,430			7,028
Technology		25,164			15,439			9,205
Professional services		15,473			11,108			10,571
Loan origination		17,396			9,554			9,943
Other		33,543			20,006			19,110
Total expenses		433,917			295,244			204,433
Income before provision for income taxes		279,193			223,033			182,126
Provision for income taxes		31,635			26,722			9,961
Net income		247,558			196,311			172,165
Less: Net income attributable to noncontrolling interest		200,330			159,469			157,765
Net income attributable to PennyMac Financial Services, Inc. common stockholders	$	47,228		$	36,842		$	14,400

Earnings per share
Basic	$	2.17		$	1.73		$	0.83
Diluted	$	2.17		$	1.73		$	0.82
Weighted-average common shares outstanding
Basic		21,755			21,250			17,311
Diluted		76,104			75,955			75,892