Exhibit 99.1

 

 

	Investors and Media
	Christopher Oltmann
	(818) 264-4907

 

PennyMac Financial Services, Inc. Reports

Fourth Quarter 2014 Results

 

Moorpark, CA, February 4, 2015 – PennyMac Financial Services, Inc. (NYSE: PFSI) today reported net income of $45.9 million for the fourth quarter of 2014, on revenue of $141.7 million. Net income attributable to PFSI common stockholders was $8.8 million, or $0.41 per diluted share.

 

Fourth Quarter 2014 Highlights

 

·

Pretax income of $53.2 million, down 15 percent from the prior quarter

 

·

Total net revenue of $141.7 million, up 1 percent from the prior quarter

 

o

Production revenue of $72.4 million, up 1 percent from the prior quarter

 

o

Servicing revenue of $57.6 million, up 3 percent from the prior quarter

 

o

Investment Management revenue of $10.4 million, down 22 percent from the prior quarter

 

·

Total loan production activity of $8.0 billion in unpaid principal balance (UPB), down 7 percent from the prior quarter

 

·

Servicing portfolio reached $106.0 billion in UPB, up 6 percent from September 30, 2014

 

·

Net assets under management remained $2.0 billion

 

 

Notable activity after quarter end:

 

·

Entered into letters of intent to acquire approximately $21 billion in UPB of Agency mortgage servicing rights (MSRs) and expect to sell the excess servicing spread associated with these portfolios to PennyMac Mortgage Investment Trust (PMT)[1]

 

Full-Year 2014 Highlights

 

·

Pretax income of $223.0 million, up 22 percent from the prior year

 

·

Total net revenue of $518.3 million, up 34 percent from the prior year

 

·

Mortgage Banking revenue of $467.9 million, up 41 percent from the prior year

 

·

Investment Management revenue of $49.0 million, down 11 percent from the prior year

 

·

Loan production totaled $29.1 billion, a decrease of 8 percent from the prior year, which included $1.9 billion of consumer direct production, an increase of 74 percent from the prior year

 

“PennyMac Financial continued to grow its core mortgage banking businesses during the fourth quarter with strong performance in consumer direct originations and loan servicing portfolio growth,” said Chairman and Chief Executive Officer Stanford L. Kurland.  “The mortgage origination market is gaining momentum with the low interest rate environment, and the FHA’s recent reduction to its annual mortgage insurance premiums makes mortgage financing more affordable for many borrowers. Industry forecasts expect these factors to lead to an increase in refinance and home purchase activity, and we believe that PFSI is well positioned to capture these opportunities, evidenced by our growing consumer direct origination activities and the pending bulk acquisitions of $21 billion in UPB of Agency MSRs.”

 

 

_______________

[1]

The MSR acquisitions by the Company and PMT’s purchase of excess servicing spread are subject to the negotiation and execution of definitive documentation, continuing due diligence and customary closing conditions, including required regulatory approvals. There can be no assurance that the committed amounts will ultimately be acquired or that the transactions will be completed at all.

 

 

 

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

		Quarter ended December 31, 2014
		Mortgage banking												Investment
		Production				Servicing				Total				Management				Total
		(in thousands)
Revenue
Net gains on mortgage loans held for sale at fair value		$	44,811			$	(162	)		$	44,649			$	–			$	44,649
Loan origination fees			12,528				–				12,528				–				12,528
Fulfillment fees from PMT			11,887				–				11,887				–				11,887
Net servicing fees			–				62,278				62,278				–				62,278
Management fees			–				–				–				10,022				10,022
Carried Interest from Investment Funds			–				–				–				263				263
Net interest income (expense):
Interest income			6,311				2,123				8,434				–				8,434
Interest expense			3,491				6,935				10,426				–				10,426
			2,820				(4,812	)			(1,992	)			–				(1,992	)
Other			386				261				647				65				712
Total net revenue			72,432				57,565				129,997				10,350				140,347
Expenses			34,607				46,143				80,750				7,742				88,492
Income before provision for income taxes and non-segment activities			37,825				11,422				49,247				2,608				51,855
Non-segment activities (1)																			1,378
Income before provision for income taxes		$	37,825			$	11,422			$	49,247			$	2,608			$	53,233

 

 

(1)

Consists primarily of an adjustment 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 PMT, and consumer direct lending.

 

 

PennyMac Financial’s loan production activity totaled $8.0 billion in UPB, of which $5.1 billion in UPB was for its own account, and $2.9 billion was fee-based fulfillment activity for PMT. Interest rate lock commitments (IRLCs) on correspondent government-insured and consumer direct loans totaled $5.9 billion in UPB.

 

Production segment pretax income totaled $37.8 million, a decrease of 3 percent from the third quarter, driven by a decrease in fulfillment fees received from PMT, partially offset by an increase in net gains on mortgage loans held for sale.

 

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

 

		Quarter ended
		December 31, 2014				September 30, 2014				December 31, 2013
		(in thousands)
MSR value		$	59,511			$	61,200			$	50,753
Mortgage servicing rights recapture payable to PennyMac Mortgage Investment Trust			(1,270	)			(2,143	)			(123	)
Provision for representations and warranties			(1,652	)			(1,584	)			(909	)
Cash investment (1)			(20,099	)			(8,472	)			(31,686	)
Fair value changes of pipeline, inventory and hedges			8,159				(868	)			11,418
Net gains on mortgage loans held for sale		$	44,649			$	48,133			$	29,453
(1) Net of cash hedge expense.

 

PennyMac Financial performs fulfillment services for conventional conforming and jumbo loans acquired by PMT in its correspondent production business. These services include, but are not limited to: marketing, relationship management, the approval of correspondent sellers and the ongoing monitoring of their performance; reviews of loan data, documentation and appraisals to assess loan quality and risk; and pricing, hedging and activities related to the subsequent sale and securitization of loans in the secondary mortgage markets for PMT. Fees earned from fulfillment of correspondent loans on behalf of PMT totaled $11.9 million in the fourth quarter, compared to $15.5 million in the third quarter. The decrease was driven by a lower volume of conventional conforming and jumbo correspondent acquisitions by PMT during the fourth quarter. The average fulfillment fee earned for the fourth quarter was 41 basis points.

 

 

Production segment expenses increased to $34.6 million, a 6 percent increase from the third quarter, primarily driven by increased headcount to support higher volumes of consumer direct lending and correspondent aggregation activity.

 

Servicing Segment

 

Servicing includes income from owned MSRs, in addition to subservicing and special servicing activities. Loan servicing pretax income totaled $11.4 million in the fourth quarter, a decrease of 34 percent from the prior quarter. Net loan servicing fees totaled $62.3 million for the quarter, a 16 percent quarter-over-quarter increase, which included $69.9 million in servicing fees reduced by $21.7 million of amortization; $8.8 million of impairment and fair value losses offset, by a $4.3 million gain in fair value of the excess servicing spread financing; and $18.6 million of hedging gains.

 

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

 

		Quarter ended
		December 31, 2014				September 30, 2014				December 31, 2013
		(in thousands)
Servicing fees (1)		$	69,901			$	64,708			$	43,588
Effect of MSRs:
Amortization and realization of cash flows			(21,690	)			(19,703	)			(9,025	)
Change in fair value and (provision for) reversal of impairment of MSRs carried at lower of amortized cost or fair value			(8,755	)			261				(1,669	)
Change in fair value of excess servicing spread financing			4,271				9,539				(2,394	)
Hedging (losses) gains			18,551				(897	)			–
Total amortization, impairment and change in fair value of MSRs			(7,623	)			(10,800	)			(13,088	)
Net loan servicing fees		$	62,278			$	53,908			$	30,500
(1) Includes contractually-specified servicing fees

 

Servicing segment expenses totaled $46.1 million, a 21 percent increase from the third quarter, primarily due to higher losses and loss provisions on claims to the government agencies on defaulted loans, including loans purchased out of Ginnie Mae pools.

 

 

The total servicing portfolio reached $106.0 billion in UPB at December 31, 2014, an increase of 6 percent from the prior quarter end. Of the total servicing portfolio, prime servicing was $101.7 billion in UPB and special servicing was $4.3 billion in UPB. The Company subservices and services under contract $39.7 billion in UPB, an increase of 6 percent from September 30, 2014, primarily resulting from new correspondent acquisitions by PMT. PennyMac Financial’s MSR portfolio grew to $64.7 billion in UPB, an increase of 6 percent over the prior quarter, resulting from the acquisition of government-insured loans in correspondent production, consumer direct lending activities, and the acquisition of MSR portfolios totaling $1.7 billion in UPB from mini-bulk and flow transactions.

 

The table below details PennyMac Financial’s servicing portfolio UPB as of December 31, 2014:

 

		December 31, 2014				September 30, 2014				December 31, 2013
		(in thousands)
Loans serviced at period end:
Prime servicing:
Owned
Mortgage servicing rights
Originated		$	36,564,434			$	33,297,161			$	22,499,847
Acquisitions			28,126,179				27,568,250				22,469,179
			64,690,613				60,865,411				44,969,026
Mortgage servicing liabilities			478,581				391,588				–
Mortgage loans held for sale			1,100,910				1,217,599				506,540
			66,270,104				62,474,598				45,475,566
Subserviced for Advised Entities			35,416,466				33,456,895				26,788,479
Total prime servicing			101,686,570				95,931,493				72,264,045
Special servicing:
Subserviced for Advised Entities			4,293,479				4,152,284				4,844,239
Subserviced for non-affiliates			–				–				89,361
			4,293,479				4,152,284				4,933,600
Owned mortgage servicing rights—Acquisitions			–				–				969,794
Total special servicing			4,293,479				4,152,284				5,903,394
Total loans serviced		$	105,980,049			$	100,083,777			$	78,167,439
Mortgage loans serviced:
Owned
Mortgage servicing rights		$	64,690,613			$	60,865,411			$	45,938,820
Mortgage servicing liabilities			478,581				391,588				–
Mortgage loans held for sale			1,100,910				1,217,599				506,540
			66,270,104				62,474,598				46,445,360
Subserviced			39,709,945				37,609,179				31,722,079
Total mortgage loans serviced		$	105,980,049			$	100,083,777			$	78,167,439

 

 

Investment Management Segment

 

PennyMac Financial manages PMT and certain private investment funds, for which it earns base management fees and incentive compensation. Net assets under management were approximately $2.0 billion as of December 30, 2014, a decrease of 1 percent from September 30, 2014.

 

Pretax income for the Investment Management segment was $2.6 million, a decrease of 58 percent from the third quarter. Carried interest income from the Investment Funds declined by $1.6 million, driven by lower gains in their distressed loan investments during the quarter. Management fees, which include base management fees and incentive fees from PMT and management fees from the Investment Funds, decreased 12 percent from the prior quarter, primarily due to a $1.1 million decline in incentive fee revenue from PMT.

 

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

 

		Quarter ended
		December 31, 2014				September 30, 2014				December 31, 2013
		(in thousands)
Management fees:
PennyMac Mortgage Investment Trust
Base		$	5,938			$	6,033			$	5,601
Performance incentive			2,488				3,590				3,323
			8,426				9,623				8,924
Investment Funds			1,596				1,756				2,031
Total management fees			10,022				11,379				10,955
Carried Interest			263				1,902				3,008
Total management fees and Carried Interest		$	10,285			$	13,281			$	13,963
Net assets of Advised Entities:
PennyMac Mortgage Investment Trust		$	1,578,172			$	1,588,041			$	1,467,114
Investment Funds			424,182				428,040				557,956
		$	2,002,354			$	2,016,081			$	2,025,070

 

 

Expenses

 

Total expenses for the fourth quarter totaled $88.5 million, a 14 percent increase from the third quarter. Compensation expense increased 8 percent from the third quarter to $52.5 million, driven primarily by headcount growth in the consumer direct, correspondent production and servicing areas to support increased volumes of activity.

 

“The mortgage banking business is one that requires high levels of expertise and operational capabilities,” concluded Mr. Kurland. “Since our inception over seven years ago, we have invested in our operating platform and enterprise risk-management capabilities to ensure we have best-in-class compliance, governance and operational functionality. Our highly scalable and legacy-free operating platform has the ability to support future growth and deliver further economies of scale going forward.”

 

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 4, 2015.

 

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

 

 

		December 31, 2014				September 30, 2014				December 31, 2013
		(in thousands, except share data)
ASSETS
Cash		$	76,256			$	77,251			$	30,639
Short-term investments at fair value			21,687				36,335				142,582
Mortgage loans held for sale at fair value			1,147,884				1,259,991				531,004
Servicing advances, net			228,630				195,246				154,328
Derivative assets			38,457				28,400				21,540
Carried Interest due from Investment Funds			67,298				67,035				61,142
Investment in PennyMac Mortgage Investment Trust at fair value			1,582				1,607				1,722
Mortgage servicing rights			730,828				677,413				483,664
Receivable from Investment Funds			2,291				2,702				2,915
Receivable from PennyMac Mortgage Investment Trust			23,871				21,420				18,636
Furniture, fixtures, equipment and building improvements, net			11,339				11,574				9,837
Capitalized software, net			567				580				764
Deferred tax asset			46,038				52,820				63,117
Loans eligible for repurchase			72,539				58,145				46,663
Other			37,858				48,108				15,922
Total assets		$	2,507,125			$	2,538,627			$	1,584,475
LIABILITIES
Mortgage loans sold under agreements to repurchase		$	822,621			$	929,747			$	471,592
Mortgage loan participation and sale agreement			143,638				142,383				–
Note payable			146,855				154,948				52,154
Excess servicing spread financing at fair value			191,166				187,368				138,723
Derivative liabilities			6,513				4,440				2,462
Mortgage servicing liabilities at fair value			6,306				4,091				–
Accounts payable and accrued expenses			62,715				62,712				46,387
Payable to Investment Funds			35,908				35,874				36,937
Payable to PennyMac Mortgage Investment Trust			123,315				104,783				81,174
Payable to exchanged Private National Mortgage Acceptance Company, LLC unitholders under tax receivable agreement			75,024				75,925				71,056
Liability for loans eligible for repurchase			72,539				58,145				46,663
Liability for losses under representations and warranties			13,259				11,762				8,123
Total liabilities			1,699,859				1,772,178				955,271
STOCKHOLDERS' EQUITY
Class A common stock–authorized 200,000,000 shares of $0.0001 par value; issued and outstanding, 21,577,686, 21,525,644 and 20,812,777 shares, respectively			2				2				2
Class B common stock–authorized 1,000 shares of $0.0001 par value; issued and outstanding, 54, 58 and 61 shares, respectively			–				–				–
Additional paid-in capital			162,720				161,309				153,000
Retained earnings			51,242				42,479				14,400
Total stockholders' equity attributable to PennyMac Financial Services, Inc. common stockholders			213,964				203,790				167,402
Noncontrolling interests in Private National Mortgage Acceptance Company, LLC			593,302				562,659				461,802
Total stockholders' equity			807,266				766,449				629,204
Total liabilities and stockholders’ equity		$	2,507,125			$	2,538,627			$	1,584,475

 

 

PENNYMAC FINANCIAL SERVICES, INC.

 

CONSOLIDATED STATEMENTS OF INCOME

 

 

		Quarter ended
		December 31, 2014				September 30, 2014				December 31, 2013
		(in thousands, except per share data)
Revenue
Net gains (losses) on mortgage loans held for sale at fair value		$	44,649			$	48,133			$	29,453
Loan origination fees			12,528				11,823				5,315
Fulfillment fees from PennyMac Mortgage Investment Trust			11,887				15,497				11,087
Net servicing fees:
Loan servicing fees
From non-affiliates			48,944				44,647				26,126
From PennyMac Mortgage Investment Trust			11,426				12,325				12,162
From Investment Funds			(329	)			1,116				1,574
Ancillary and other fees			9,860				6,620				3,726
			69,901				64,708				43,588
Amortization, impairment and change in estimated fair value of mortgage servicing rights			(7,623	)			(10,800	)			(13,088	)
Net servicing fees			62,278				53,908				30,500
Management fees:
From PennyMac Mortgage Investment Trust			8,426				9,623				8,924
From Investment Funds			1,596				1,756				2,031
			10,022				11,379				10,955
Carried Interest from Investment Funds			263				1,902				3,008
Net interest expense:
Interest income			8,434				8,975				4,322
Interest expense			10,426				11,713				4,987
			(1,992	)			(2,738	)			(665	)
Change in fair value of investment in and dividends received from PennyMac Mortgage Investment Trust			(26	)			8				109
Other			2,116				713				658
Total net revenue			141,725				140,625				90,420
Expenses
Compensation			52,475				48,375				34,726
Servicing			19,732				13,914				1,956
Technology			4,525				4,350				3,002
Professional services			2,958				3,290				2,670
Loan origination			3,602				2,537				2,118
Other			5,200				5,467				4,261
Total expenses			88,492				77,933				48,733
Income before provision for income taxes			53,233				62,692				41,687
Provision for income taxes			7,337				7,232				4,430
Net income			45,896				55,460				37,257
Less: Net income attributable to noncontrolling interest			37,133				44,971				30,847
Net income attributable to PennyMac Financial Services, Inc. common stockholders		$	8,763			$	10,489			$	6,410
Earnings per share
Basic		$	0.41			$	0.49			$	0.33
Diluted		$	0.41			$	0.49			$	0.32
Weighted-average common shares outstanding
Basic			21,549				21,432				19,324
Diluted			76,004				75,949				75,922

 

 

PENNYMAC FINANCIAL SERVICES, INC.

 

CONSOLIDATED STATEMENTS OF INCOME

 

		Year ended December 31,
		2014				2013				2012
		(in thousands, except per share data)
Revenue
Net gains on mortgage loans held for sale at fair value		$	167,024				138,013				118,170
Loan origination fees			41,576				23,575				9,634
Fulfillment fees from PennyMac Mortgage Investment Trust			48,719				79,712				62,906
Net loan servicing fees:
Loan servicing fees
From non-affiliates			173,005				61,523				20,673
From PennyMac Mortgage Investment Trust			52,522				39,413				18,608
From Investment Funds			6,425				7,099				10,831
Ancillary and other fees			26,469				11,426				2,245
			258,421				119,461				52,357
Amortization, impairment and change in fair value of mortgage servicing rights			(41,502	)			(29,451	)			(12,252	)
Net loan servicing fees			216,919				90,010				40,105
Management fees:
From PennyMac Mortgage Investment Trust			35,035				32,410				12,436
From Investment Funds			7,473				7,920				9,363
			42,508				40,330				21,799
Carried Interest from Investment Funds			6,156				13,419				10,473
Net interest (expense) income:
Interest income			27,771				15,632				6,354
Interest expense			37,257				16,673				7,879
Net interest (expense) income			(9,486	)			(1,041	)			(1,525	)
Change in fair value of investment in and dividends received from PennyMac Mortgage Investment Trust			(6	)			41				817
Other			4,867				2,500				2,707
Total net revenue			518,277				386,559				265,086
Expenses
Compensation			190,707				148,576				124,014
Servicing			48,430				7,028				3,642
Technology			15,439				9,205				4,455
Professional services			11,108				10,571				5,568
Loan origination			9,554				9,943				2,953
Other			20,006				19,110				6,131
Total expenses			295,244				204,433				146,763
Income before provision for income taxes			223,033				182,126				118,323
Provision for income taxes			26,722				9,961				–
Net income			196,311				172,165			$	118,323
Less: Net income attributable to noncontrolling interest			159,469				157,765
Net income attributable to PennyMac Financial Services, Inc. common stockholders		$	36,842			$	14,400
Earnings per share
Basic		$	1.73			$	0.83
Diluted		$	1.73				0.82
Weighted-average common shares outstanding
Basic			21,250				17,311
Diluted			75,955				75,892

 

 

 

 

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