Market Overview

PennyMac Financial Services, Inc. Reports Second Quarter 2018 Results and Declares Special, One-Time Dividend

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PennyMac Financial Services, Inc. (NYSE:PFSI) today reported net income
of $68.4 million for the second quarter of 2018, on revenue of
$244.3 million. Net income attributable to PFSI common stockholders was
$17.8 million, or $0.70 per diluted share. Book value per share
increased to $21.19, from $20.74 at March 31, 2018.

Additionally, the PFSI Board of Directors declared a special, one-time
cash dividend of $0.40 per share of PFSI Class A common stock. The
dividend represents cash that resulted from previous tax-related
distributions from Private National Mortgage Acceptance Company, LLC
(PNMAC) in excess of PFSI's tax obligations. This dividend will be paid
on August 30, 2018 to Class A common stockholders of record as of August
13, 2018. The Company anticipates that this distribution will be
reported as a return of capital for tax purposes, based on the Company's
current expectations regarding its projected taxable earnings and
profits for the year 2018.1

Also today, a registration statement is being filed by New PennyMac
Financial Services, Inc.2 for a corporate reorganization
that, if completed, would simplify the Company's corporate structure and
convert all equity ownership in PFSI and PNMAC into a single class of
publicly traded common stock.

Second Quarter 2018 Highlights

  • Pretax income was $74.7 million, up from $73.0 million in the prior
    quarter
    • Second quarter results reflect continued strong Servicing segment
      results and a quarterly increase in earnings contribution from the
      Production segment driven by higher volume
  • Production segment pretax income was $19.0 million, up 11 percent from
    the prior quarter and down 71 percent from the second quarter of 2017
    • Total loan acquisitions and originations were $15.9 billion in
      unpaid principal balance (UPB), up 11 percent from the prior
      quarter and down 9 percent from the second quarter of 2017
    • Correspondent government and direct lending interest rate lock
      commitments (IRLCs) totaled $11.9 billion in UPB, up 9 percent
      from the prior quarter and down 12 percent from the second quarter
      of 2017
  • Servicing segment pretax income was $54.6 million, modestly down from
    $54.9 million in the prior quarter and up from a loss of $11.2 million
    from the second quarter of 2017
    • Servicing segment pretax income excluding valuation-related
      changes was $35.8 million, down 1 percent from the prior quarter
      and up 134 percent from the second quarter of 20173
    • The servicing portfolio grew to $263.5 billion in UPB, up 3
      percent from March 31, 2018, and 15 percent from June 30, 2017
  • Investment Management segment pretax income was $1.1 million, up from
    $1.0 million in the prior quarter, and down from $2.5 million in the
    second quarter of 2017
    • Net assets under management were $1.5 billion, essentially
      unchanged from
      March 31, 2018, and down 3 percent from June
      30, 2017
  • Repurchased approximately 236,000 shares of PFSI's Class A common
    stock at a cost of $4.8 million and a weighted average cost of $20.41
    per share

Notable activity after quarter end

  • Completed or entered into agreements to acquire bulk Ginnie Mae
    Mortgage Servicing Right (MSR) portfolios with UPB totaling
    approximately $13.9 billion
    • Completed acquisitions from three sellers totaling $6.5 billion in
      UPB
    • Also entered into agreements for acquisitions from another three
      sellers totaling $7.4 billion in UPB that are expected to close in
      the third quarter4

"We reported solid financial results for the second quarter in a
mortgage origination market that is transitioning and remains
competitive, with lenders managing capacity and production margins for
the higher rate environment," said President and CEO David Spector. "Our
results reflect the strength of our balanced mortgage banking model with
production volume and profits up from the prior quarter and the
Servicing segment's continued strong earnings contribution, which
benefited from an increase in mortgage rates during the quarter. In the
third quarter, we have deployed capital into bulk MSR acquisitions
totaling $6.5 billion in UPB and entered into agreements to acquire
three additional portfolios totaling $7.4 billion in UPB. We also
continue to invest in growth initiatives, such as broker direct lending,
non-delegated correspondent, non-portfolio consumer direct origination
and jumbo mortgages, which have the potential to meaningfully contribute
to our profitability as they gain traction."

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

    Quarter ended June 30, 2018
Mortgage Banking      

 

Investment
Management

Production       Servicing       Total     Total
(in thousands)
Revenue
Net gains on mortgage loans held for sale at fair value $ 33,966 $ 26,980 $ 60,946 $ - $ 60,946
Loan origination fees 24,428 - 24,428 - 24,428
Fulfillment fees from PMT 14,559 - 14,559 - 14,559
Net servicing fees - 113,689 113,689 - 113,689
Management fees - - - 5,664 5,664
Carried Interest from Investment Funds - - - (168 ) (168 )
Net interest income (expense):

 

 

Interest income 16,874 38,230 55,104 - 55,104
Interest expense   1,025   31,576   32,601   15     32,616  
15,849 6,654 22,503 (15 ) 22,488
Other   536   728   1,264   1,428     2,692  
Total net revenue   89,338   148,051   237,389   6,909     244,298  
Direct expenses 49,484 68,160 117,644 799 118,443
Shared services 12,168 16,756 28,924 3,267 32,191
Corporate Overhead 8,668 8,567 17,235 1,731 18,966
Expenses   70,320   93,483   163,803   5,797     169,600  
Pretax income $ 19,018 $ 54,568 $ 73,586 $ 1,112   $ 74,698  

Production Segment

Production includes the correspondent acquisition of newly originated
government-insured mortgage loans for PennyMac Financial's own account,
the underwriting and acquisition of loans from correspondent sellers on
a non-delegated basis, fulfillment services on behalf of PennyMac
Mortgage Investment Trust (NYSE:PMT) and direct lending through the
consumer direct and broker direct channels.

PennyMac Financial's loan production activity for the quarter totaled
$15.9 billion in UPB, of which $10.5 billion in UPB was for its own
account, and $5.4 billion in UPB was fee-based fulfillment activity for
PMT. Correspondent government and direct lending IRLCs totaled $11.9
billion in UPB.

Production segment pretax income was $19.0 million, an increase of
11 percent from the prior quarter and a decrease of 71 percent from the
second quarter of 2017. Production revenue totaled $89.3 million, an
increase of 5 percent from the prior quarter and a decrease of
32 percent from the second quarter of 2017. The quarter-over-quarter
change resulted from a $3.7 million increase in net interest income and
a $2.6 million increase in fulfillment fees from PMT, partially offset
by a $2.2 million decrease in net gains on mortgage loans held for sale.
Net interest income in the second quarter includes $12.5 million in
incentives which the Company is currently entitled to receive under one
of its master repurchase agreements to finance mortgage loans that
satisfy certain consumer relief characteristics, up from $10.2 million
in the prior quarter.

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

     
Quarter ended
June 30,

2018

March 31,

2018

June 30,

2017

(in thousands)
Receipt of MSRs in loan sale transactions $ 153,924 $ 141,873 $ 133,062
Mortgage servicing rights recapture payable to

PennyMac Mortgage Investment Trust

(936 ) (1,425 ) (1,506 )
Provision for representations and warranties, net 143 (379 ) (276 )
Cash investment (1) (106,946 ) (63,594 ) 7,221
Fair value changes of pipeline, inventory and

hedges

  14,761     (5,061 )   (40,410 )
Net gains on mortgage loans held for sale $ 60,946   $ 71,414   $ 98,091  
 
Net gains on mortgage loans held for sale

by segment:

Production $ 33,966   $ 36,198   $ 74,706  
Servicing $ 26,980   $ 35,216   $ 23,385  
 
(1) Net of cash hedge expense
 

PennyMac Financial performs fulfillment services for conventional
conforming 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 the fulfillment of correspondent loans on behalf of PMT
totaled $14.6 million in the second quarter, up 22 percent from the
prior quarter and down 31 percent from the second quarter of 2017. The
quarter-over-quarter increase in fulfillment fee revenue was driven by
higher acquisition volumes by PMT. For the second quarter, the weighted
average fulfillment fee rate was 27 basis points, down from 28 basis
points in the prior quarter.

Production segment expenses were $70.3 million, a 3 percent increase
from the prior quarter and a 10 percent increase from the second quarter
of 2017. The quarter-over-quarter increase was primarily driven by
higher production volumes.

Servicing Segment

Servicing includes income from owned MSRs, subservicing and special
servicing activities. Servicing segment pretax income was $54.6 million
compared with $54.9 million in the prior quarter and an $11.2 million
loss in the second quarter of 2017. Servicing segment revenues totaled
$148.1 million, an increase of 1 percent from the prior quarter and 128
percent from the second quarter of 2017. The quarter-over-quarter
increase reflects a larger servicing portfolio and higher interest
income from custodial deposits, partially offset by increased
realization of MSR cash flows and a decrease in revenue related to the
reperformance of government-insured and guaranteed loans bought out of
Ginnie Mae pools in prior periods.

Net loan servicing fees totaled $113.7 million and included
$161.9 million in servicing fees reduced by $65.2 million in realization
of MSR cash flows. Valuation-related gains totaled $17.0 million, which
includes MSR fair value gains of $42.3 million, associated hedging
losses of $24.3 million and changes in fair value of the excess
servicing spread (ESS) liability resulting in a $1.0 million loss. The
MSR fair value gains primarily resulted from expectations for lower
prepayment activity in the future due to higher mortgage rates.

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

      Quarter ended

June 30,
2018

     

March 31,
2018

     

June 30,
2017

(in thousands)
Servicing fees (1) $ 161,942 $ 160,673 $ 134,192
Effect of MSRs:
Amortization and realization of cash flows (65,227 ) (61,176 ) (55,482 )
Change in fair value and provision for/reversal of impairment of
MSRs carried at lower of amortized cost or fair value
42,259 127,806 (36,927 )
Change in fair value of excess servicing spread

financing

(996 ) (6,921 ) 7,156
Hedging losses   (24,289 )   (103,593 )   (2,026 )
Total amortization, impairment and change in fair

value of MSRs

  (48,253 )   (43,884 )   (87,279 )
Net loan servicing fees $ 113,689   $ 116,789   $ 46,913  
 
(1) Includes contractually-specified servicing fees

Servicing segment revenue also included $27.0 million in net gains on
mortgage loans held for sale from the securitization of reperforming
government-insured and guaranteed loans, compared with $35.2 million in
the prior quarter and $23.4 million in the second quarter of 2017. These
loans were previously purchased out of Ginnie Mae securitizations as
early buyout (EBO) loans and brought back to performing status through
PennyMac Financial's successful servicing efforts, primarily with the
use of loan modifications. Net interest income totaled $6.7 million, up
from net interest expense of $6.3 million in the prior quarter and $5.8
million in the second quarter of 2017. Interest income increased by $9.9
million from the prior quarter, driven by income from custodial deposits
and capitalized interest resulting from an increase in modification of
EBO loans during the quarter. Interest expense decreased by $3.1 million
from the first quarter; interest expense was elevated in the first
quarter due to the accelerated recognition of costs related to the
refinancing of MSR-backed term notes.

Servicing segment expenses totaled $93.5 million, a 2 percent increase
from the prior quarter and a 23 percent increase from the second quarter
of 2017. The quarter-over-quarter increase was driven by servicing
portfolio growth and an increase in EBO-related expenses resulting from
higher volume of buyouts from Ginnie Mae securitizations.

The total servicing portfolio reached $263.5 billion in UPB at June 30,
2018, an increase of 3 percent from the prior quarter end and 15 percent
from a year earlier. Servicing portfolio growth during the quarter was
driven by the Company's loan production activities. Of the total
servicing portfolio, prime servicing was $262.6 billion in UPB and
special servicing was $0.9 billion in UPB. PennyMac Financial
subservices and conducts special servicing for $81.2 billion in UPB, an
increase of 5 percent from March 31, 2018 and 21 percent from a year
earlier. PennyMac Financial's owned MSR portfolio grew to $178.3 billion
in UPB, an increase of 3 percent from the prior quarter end.

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

     

June 30,
2018

     

March 31,
2018

     

June 30,
2017

(in thousands)
Loans serviced at period end:
Prime servicing:
Owned
Mortgage servicing rights
Originated $ 132,307,067 $   125,643,312 $   105,296,264
Acquisitions   45,957,173     47,843,853     51,927,645
178,264,240 173,487,165 157,223,909
Mortgage servicing liabilities 1,569,602 1,766,722 1,698,588
Mortgage loans held for sale   2,448,908     2,512,546     2,915,346
182,282,750 177,766,433 161,837,843
Subserviced for Advised Entities   80,359,635     76,636,300     64,924,592
Total prime servicing   262,642,385     254,402,733     226,762,435
Special servicing:
Subserviced for Advised Entities   854,994     903,138     2,201,340
Total special servicing   854,994     903,138     2,201,340
Total loans serviced $ 263,497,379 $   255,305,871 $   228,963,775
 
Mortgage loans serviced:
Owned
Mortgage servicing rights $ 178,264,240 $ 173,487,165 $ 157,223,909
Mortgage servicing liabilities 1,569,602 1,766,722 1,698,588
Mortgage loans held for sale   2,448,908     2,512,546     2,915,346
182,282,750 177,766,433 161,837,843
Subserviced   81,214,629     77,539,438     67,125,932
Total mortgage loans serviced $ 263,497,379 $   255,305,871 $   228,963,775

Investment Management Segment

PennyMac Financial manages PMT for which it earns base management fees
and may earn incentive compensation. PennyMac Financial has also managed
two private Investment Funds that sold or liquidated all of their
remaining assets in 2017 and the six months ended June 30, 2018. Net
assets under management were $1.5 billion as of June 30, 2018,
essentially unchanged from March 31, 2018, and down 3 percent from June
30, 2017.

Pretax income for the Investment Management segment was $1.1 million,
compared with $1.0 million in the prior quarter and $2.5 million in the
second quarter of 2017. Management fees, which include base management
fees from PMT and the private Investment Funds, decreased 2 percent from
the prior quarter and 6 percent from the second quarter of 2017. No
incentive fee was paid by PMT during the quarter as in the prior
quarter; incentive fees of $0.3 million were paid for the second quarter
of 2017.

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

      Quarter ended

June 30,
2018

     

March 31,
2018

     

June 30,
2017

(in thousands)
Management fees:
PennyMac Mortgage Investment Trust
Base $ 5,728 $ 5,696 $ 5,334
Performance incentive   -     -     304
5,728 5,696 5,638
Investment Funds   (64 )   79     369
Total management fees   5,664     5,775     6,007
Carried Interest   (168 )   (180 )   241
Total management fees and Carried Interest $ 5,496   $ 5,595   $ 6,248
 
Net assets of Advised Entities:
PennyMac Mortgage Investment Trust $ 1,545,487 $ 1,542,258 $ 1,454,832
Investment Funds   765     2,668     144,744
$ 1,546,252   $ 1,544,926   $ 1,599,576

Investment Management segment expenses totaled $5.8 million, down 2
percent from the prior quarter and up 50 percent from the second quarter
of 2017. The increase from the prior year was primarily due to a change
in accounting for expenses reimbursed by PMT under the Company's
management agreement with PMT. Beginning January 1, 2018, PennyMac
Financial is required to include such expense reimbursements in its net
revenue and the expenses reimbursed in its expenses. Previously,
PennyMac Financial accounted for such reimbursements as reductions to
its expenses.

Consolidated Expenses

Total expenses for the second quarter were $169.6 million, a 3 percent
increase from the prior quarter and an 18 percent increase from the
second quarter of 2017. The quarter-over-quarter change was driven by
higher expenses in both the Servicing and Production segments due to
higher volumes of activity.

Executive Chairman Stanford L. Kurland concluded, "We continue to invest
and pursue the buildout of our business model into new market segments,
products and channels. We believe we are well-positioned to expand our
growth and earnings opportunities with the investments we are making in
our Production and Servicing businesses. In consumer direct lending, we
are seeing success in non-portfolio and purchase-money originations,
both of which are important to growing volumes. Further, our investments
in the broker direct channel are beginning to deliver results and
demonstrate our ability to access this previously untapped market
segment. We are making technology investments across our business, such
as in loan servicing where system enhancements will allow us to capture
greater scale efficiencies. We also remain mindful of prudent expense
management and are monitoring the deployment of our human resources and
capital to ensure we continue to operate at high levels of efficiency
and continue delivering attractive returns to stockholders."

Management's slide presentation will be available in the Investor
Relations section of the Company's website at www.ir.pennymacfinancial.com
beginning at 1:10 p.m. (Pacific Daylight Time) on Thursday, August 2,
2018.

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 investment strategies or expansion of existing
business activities or investment strategies; our ability to detect
misconduct and fraud; our ability to mitigate cybersecurity risks and
cyber incidents; our exposure to risks of loss with real estate
investments resulting from adverse weather conditions and man-made or
natural disasters; and our organizational structure and certain
requirements in our charter documents. 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.

Non-solicitation

In connection with a proposed reorganization of the Company, the
Company's wholly-owned subsidiary, New PennyMac Financial Services,
Inc., will be filing a registration statement on Form S-4 with the SEC,
but this registration statement has not yet become effective. The
securities registered under this registration statement may not be sold
nor may offers to buy these securities be accepted before the time the
registration statement becomes effective. This press release shall not
constitute an offer to sell or a solicitation of an offer to buy these
securities, and shall not constitute an offer, solicitation or sale in
any jurisdiction in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities
laws of that jurisdiction.

Additional Information and Where to Find It

In connection with the proposed reorganization, New PennyMac Financial
Services, Inc. (CIK# 0001745916) will be filing a registration statement
on Form S-4 (the "New PennyMac Registration Statement") that includes a
proxy statement of the Company that also constitutes a prospectus of New
PennyMac Financial Services, Inc. (which New PennyMac Registration
Statement has not yet been declared effective). INVESTORS AND SECURITY
HOLDERS ARE URGED TO READ THE PROXY STATEMENT/PROSPECTUS, AND ANY OTHER
RELEVANT DOCUMENTS WHEN THEY BECOME AVAILABLE, BECAUSE THEY CONTAIN, OR
WILL CONTAIN, IMPORTANT INFORMATION ABOUT THE COMPANY, NEW PENNYMAC
FINANCIAL SERVICES, INC. AND THE REORGANIZATION. A definitive proxy
statement will be sent to stockholders of the Company seeking approval
of the reorganization after the New PennyMac Registration Statement is
declared effective. The proxy statement/prospectus and other documents
relating to the reorganization can be obtained free of charge from the
SEC website at www.sec.gov.

Participants in Solicitation

This communication is not a solicitation of a proxy from any investor or
stockholder. However, the Company, New PennyMac Financial Services, Inc.
and certain of their directors and executive officers may be deemed to
be participants in the solicitation of proxies in connection with the
proposed reorganization under the rules of the SEC. Information
regarding the Company's directors and executive officers may be found in
its definitive proxy statement relating to its 2018 Annual Meeting of
Stockholders filed with the SEC on April 17, 2018 and in the proxy
statement/prospectus included in the New PennyMac Registration
Statement. Information regarding New PennyMac Financial Services, Inc.'s
directors and executive officers may be found in the proxy
statement/prospectus included in the New PennyMac Registration
Statement. These documents can be obtained free of charge from the SEC.

 
1

Holders of PFSI Class A common stock who are entitled to
receive the dividend should consult with their individual tax
advisors regarding the tax treatment of the dividend.

2

Please refer to the Registration Statement on Form S-4 to be
filed by New PennyMac Financial Services, Inc. (CIK# 0001745916)
on August 2, 2018.

3

Excludes changes in the fair value of MSRs, the ESS
liability, and gains (losses) on hedging which were $42.3 million,
$(1.0) million, and $(24.3) million, respectively, and a $1.8
million reversal of provision for credit losses on active loans in
the second quarter of 2018.

4

These transactions are subject to continuing due diligence
and customary closing conditions. There can be no assurance
regarding the size of the transactions or that the transactions
will be completed at all.

                 

PENNYMAC FINANCIAL SERVICES, INC.

CONSOLIDATED BALANCE SHEETS (UNAUDITED)

 

June 30,
2018

March 31,
2018

June 30,
2017

(in thousands, except share amounts)
ASSETS
Cash $ 189,663 $ 137,863 $ 75,978
Short-term investments at fair value 98,571 105,890 145,440
Mortgage loans held for sale at fair value 2,527,231 2,584,236 3,037,602
Derivative assets 92,471 89,469 70,075
Servicing advances, net 258,900 284,145 291,907
Carried Interest due from Investment Funds 370 538 71,019
Investment in PennyMac Mortgage Investment Trust at fair value 1,424 1,352 1,372
Mortgage servicing rights 2,486,157 2,354,489 1,951,599
Real estate acquired in settlement of loans 2,300 2,338 822
Furniture, fixtures, equipment and building improvements, net 29,607 30,172 31,418
Capitalized software, net 31,913 28,919 18,197
Assets purchased from PennyMac Mortgage Investment Trust under
agreements

to resell pledged to creditors

138,582 142,938 150,000
Receivable from Investment Funds 12 460 1,330
Receivable from PennyMac Mortgage Investment Trust 19,661 27,356 17,725
Loans eligible for repurchase 879,621 1,018,488 462,487
Other   85,223   94,238   77,767
Total assets $ 6,841,706 $ 6,902,891 $ 6,404,738
 
LIABILITIES
Assets sold under agreements to repurchase $ 1,825,813 $ 1,814,282 $ 3,021,328
Mortgage loan participation and sale agreements 528,368 510,443 243,361
Notes payable 1,140,546 1,140,022 429,692
Obligations under capital lease 13,032 16,435 26,641
Excess servicing spread financing payable to PennyMac Mortgage
Investment

Trust at fair value

229,470 236,002 261,796
Derivative liabilities 4,094 4,476 16,564
Mortgage servicing liabilities at fair value 10,253 12,063 18,295
Accounts payable and accrued expenses 114,005 113,046 132,053
Payable to Investment Funds 404 26 15,236
Payable to PennyMac Mortgage Investment Trust 99,309 117,987 132,709
Payable to exchanged Private National Mortgage Acceptance Company,
LLC

unitholders under tax receivable agreement

46,903 46,037 73,084
Income taxes payable 67,357 58,956 40,672
Liability for loans eligible for repurchase 879,621 1,018,488 462,487
Liability for losses under representations and warranties   20,587   20,429   19,568
Total liabilities   4,979,762   5,108,692   4,893,486
 
STOCKHOLDERS' EQUITY

Class A common stock---authorized 200,000,000 shares of $0.0001
par value;

issued and outstanding, 25,008,655, 24,277,768 and 23,472,795
shares,

respectively

3 2 2

Class B common stock---authorized 1,000 shares of $0.0001 par
value;

issued and outstanding, 45, 45 and 50 shares, respectively

- - -
Additional paid-in capital 229,941 221,495 199,146
Retained earnings   299,951   282,114   185,907
Total stockholders' equity attributable to PennyMac Financial
Services, Inc.

common stockholders

  529,895   503,611   385,055
Noncontrolling interests in Private National Mortgage Acceptance

Company, LLC

  1,332,049   1,290,588   1,126,197
Total stockholders' equity   1,861,944   1,794,199   1,511,252
Total liabilities and stockholders' equity $ 6,841,706 $ 6,902,891 $ 6,404,738
           

PENNYMAC FINANCIAL SERVICES, INC.

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

 
Quarter ended

June 30,
2018

     

March 31,
2018

June 30,
2017

(in thousands, except earnings per share)
Revenue
Net gains on mortgage loans held for sale at fair value $ 60,946 $ 71,414 $ 98,091
Mortgage loan origination fees 24,428 24,563 30,193
Fulfillment fees from PennyMac Mortgage Investment Trust 14,559 11,944 21,107
Net mortgage loan servicing fees:
Mortgage loan servicing fees
From non-affiliates 138,871 135,483 112,348
From PennyMac Mortgage Investment Trust 9,431 11,019 10,099
From Investment Funds 3 - 543
Ancillary and other fees   13,637     14,171     11,202  
161,942 160,673 134,192

Amortization, impairment and change in estimated fair value of
mortgage servicing rights and excess servicing spread

 

(48,253

)   (43,884 )   (87,279 )
Net mortgage loan servicing fees   113,689     116,789     46,913  
Management fees:
From PennyMac Mortgage Investment Trust 5,728 5,696 5,638
From Investment Funds   (64 )   79     369  
  5,664     5,775     6,007  
Carried Interest from Investment Funds (168 ) (180 ) 241
Net interest income (expense):
Interest income 55,104 42,615 34,973
Interest expense   32,616     36,745     36,877  
22,488 5,870 (1,904 )

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

108

182

76

Results of real estate acquired in settlement of loans 13 (28 ) (119 )
Other   2,571     1,872     1,116  
Total net revenue   244,298     238,201     201,721  
Expenses
Compensation 98,540 102,013 82,967
Servicing 28,490 26,299 24,702
Technology 15,154 14,620 11,581
Occupancy and equipment 6,507 6,377 5,965
Professional services 5,587 5,738 4,523
Loan origination 5,144 2,115 5,116
Marketing 2,218 2,161 2,483
Other   7,960     5,882     6,424  
Total expenses   169,600     165,205     143,761  
Income before provision for income taxes 74,698 72,996 57,960
Provision for (benefit from) income taxes   6,293     6,070     7,214  
Net income 68,405 66,926 50,746
Less: Net income attributable to noncontrolling interest   50,568     50,307     40,267  
Net income attributable to PennyMac Financial Services, Inc.

common stockholders

$ 17,837   $ 16,619   $ 10,479  
 
Earnings per share
Basic $ 0.71 $ 0.70 $ 0.45
Diluted $ 0.70 $ 0.67 $ 0.44
Weighted-average common shares outstanding
Basic 24,959 23,832 23,388
Diluted 78,825 79,461 77,650

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