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 |
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For the quarterly period ended March 31, 20142015
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)
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Delaware | 80-0882793 | |
(State or other jurisdiction of |
| (IRS Employer |
incorporation or organization) |
| Identification No.) |
6101 Condor Drive, Moorpark, California | 93021 | |
(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 x☒ No o☐
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 x☒ No o☐
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):
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Large accelerated filer ☐ | Accelerated filer | |
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Non-accelerated filer |
| Smaller reporting company |
(Do not check if a smaller reporting company) |
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o☐ No x☒
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.
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Class | Outstanding at May | 7, 2015 | |
Class A Common Stock, $0.0001 par value |
| 21,657,405 | |
Class B Common Stock, $0.0001 par value |
| 53 |
PENNYMAC FINANCIAL SERVICES, INC.
FORM 10-Q
March 31, 20142015
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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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, 2014, filed with the SEC on March 13, 2015.
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 creation of the Consumer Financial Protection Bureau (“CFPB”), its rules and the enforcement thereof by the CFPB; |
· | 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
PART I. FINANCIAL INFORMATIONINFORMATION
Item 1. Financial StatementsStatements
PENNYMAC FINANCIAL SERVICES, INC.
CONSOLIDATED BALANCE SHEETSSHEETS (UNAUDITED)
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| March 31, |
| December 31, |
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| March 31, |
| December 31, |
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| 2015 |
| 2014 |
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| (in thousands, except share data) |
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| (in thousands, except share data) |
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ASSETS |
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Cash |
| $ | 37,376 |
| $ | 30,639 |
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| $ | 82,032 |
| $ | 76,256 |
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Short-term investments at fair value |
| 40,957 |
| 142,582 |
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| 30,275 |
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| 21,687 |
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Mortgage loans held for sale at fair value (includes $694,028 and $512,350 pledged to secure mortgage loans sold under agreements to repurchase) |
| 717,476 |
| 531,004 |
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Servicing advances (includes $5,564 pledged to secure note payable at December 31, 2013) |
| 171,395 |
| 154,328 |
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Mortgage loans held for sale at fair value (includes $1,132,568 and $976,772 pledged to secure mortgage loans sold under agreements to repurchase; and $196,716 and $148,133 pledged to secure mortgage loan participation and sale agreement) |
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| 1,353,944 |
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| 1,147,884 |
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Derivative assets |
| 21,677 |
| 21,540 |
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| 61,064 |
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| 38,457 |
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Servicing advances, net (includes $20,197 and $18,686 valuation allowance) |
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| 242,397 |
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| 228,630 |
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Carried Interest due from Investment Funds |
| 63,299 |
| 61,142 |
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| 68,531 |
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| 67,298 |
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Investment in PennyMac Mortgage Investment Trust at fair value |
| 1,793 |
| 1,722 |
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| 1,597 |
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| 1,582 |
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Mortgage servicing rights (includes $246,984 and $224,913 mortgage servicing rights at fair value; $272,115 and $258,241 pledged to secure note payable; and $151,019 and $138,723 pledged to secure excess servicing spread financing) |
| 529,128 |
| 483,664 |
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Mortgage servicing rights (includes $361,413 and $325,383 mortgage servicing rights at fair value; $413,582 and $392,254 pledged to secure note payable; and $222,309 and $191,166 subject to excess servicing spread financing) |
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| 790,411 |
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| 730,828 |
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Furniture, fixtures, equipment and building improvements, net |
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| 11,118 |
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| 11,339 |
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Capitalized software, net |
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| 559 |
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| 567 |
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Receivable from Investment Funds |
| 3,062 |
| 2,915 |
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| 2,488 |
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| 2,291 |
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Receivable from PennyMac Mortgage Investment Trust |
| 20,812 |
| 18,636 |
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| 18,719 |
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| 23,871 |
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Furniture, fixtures, equipment and building improvements, net |
| 11,227 |
| 9,837 |
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Capitalized software, net |
| 718 |
| 764 |
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Deferred tax asset |
| 58,206 |
| 63,117 |
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| 42,141 |
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| 46,038 |
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Loans eligible for repurchase |
| 62,508 |
| 46,663 |
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| 112,201 |
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| 72,539 |
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Other |
| 20,911 |
| 15,922 |
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| 40,524 |
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| 37,858 |
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Total assets |
| $ | 1,760,545 |
| $ | 1,584,475 |
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| $ | 2,858,001 |
| $ | 2,507,125 |
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LIABILITIES |
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Mortgage loans sold under agreements to repurchase |
| $ | 567,737 |
| $ | 471,592 |
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| $ | 992,187 |
| $ | 822,621 |
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Mortgage loan participation and sale agreement |
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| 190,762 |
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| 143,638 |
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Note payable |
| 48,819 |
| 52,154 |
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| 134,665 |
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| 146,855 |
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Excess servicing spread financing at fair value payable to PennyMac Mortgage Investment Trust |
| 151,019 |
| 138,723 |
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| 222,309 |
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| 191,166 |
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Derivative liabilities |
| 2,155 |
| 2,462 |
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| 10,903 |
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| 6,513 |
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Accounts payable and accrued expenses |
| 49,772 |
| 46,387 |
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| 86,945 |
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| 62,715 |
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Mortgage servicing liabilities at fair value |
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| 6,529 |
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| 6,306 |
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Payable to Investment Funds |
| 37,106 |
| 36,937 |
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| 32,011 |
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| 35,908 |
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Payable to PennyMac Mortgage Investment Trust |
| 85,706 |
| 81,174 |
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| 130,870 |
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| 123,315 |
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Payable to exchanged Private National Mortgage Acceptance Company, LLC unitholders under tax receivable agreement |
| 71,671 |
| 71,056 |
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| 71,094 |
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| 75,024 |
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Liability for loans eligible for repurchase |
| 62,508 |
| 46,663 |
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| 112,201 |
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| 72,539 |
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Liability for losses under representations and warranties |
| 8,974 |
| 8,123 |
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| 14,689 |
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| 13,259 |
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Total liabilities |
| 1,085,467 |
| 955,271 |
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| 2,005,165 |
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| 1,699,859 |
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Commitments and contingencies |
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STOCKHOLDERS’ EQUITY |
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Class A common stock—authorized 200,000,000 shares of $0.0001 par value; issued and outstanding, 20,879,486 and 20,812,777 shares, respectively |
| $ | 2 |
| $ | 2 |
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Class B common stock—authorized 1,000 shares of $0.0001 par value; 61 shares issued and outstanding |
| — |
| — |
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Class A common stock—authorized 200,000,000 shares of $0.0001 par value; issued and outstanding, 21,657,017 and 21,577,686 shares, respectively |
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| 2 |
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| 2 |
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Class B common stock—authorized 1,000 shares of $0.0001 par value; issued and outstanding, 54 shares |
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| — |
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| — |
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Additional paid-in capital |
| 154,112 |
| 153,000 |
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| 164,656 |
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| 162,720 |
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Retained earnings |
| 22,372 |
| 14,400 |
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| 60,270 |
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| 51,242 |
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Total stockholders’ equity attributable to PennyMac Financial Services, Inc. common stockholders |
| 176,486 |
| 167,402 |
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Total stockholders' equity attributable to PennyMac Financial Services, Inc. common stockholders |
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| 224,928 |
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| 213,964 |
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Noncontrolling interest in Private National Mortgage Acceptance Company, LLC |
| 498,592 |
| 461,802 |
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| 627,908 |
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| 593,302 |
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Total stockholders’ equity |
| 675,078 |
| 629,204 |
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Total stockholders' equity |
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| 852,836 |
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| 807,266 |
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Total liabilities and stockholders’ equity |
| $ | 1,760,545 |
| $ | 1,584,475 |
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| $ | 2,858,001 |
| $ | 2,507,125 |
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The accompanying notes are an integral part of these financial statements.
5
PENNYMAC FINANCIAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF INCOMEINCOME (UNAUDITED)
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| Quarter ended March 31, |
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| 2014 |
| 2013 |
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| Quarter ended March 31, |
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| (in thousands, except per share data) |
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| 2015 |
| 2014 |
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Revenue |
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Net gains on mortgage loans held for sale at fair value |
| $ | 34,538 |
| $ | 39,957 |
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| (in thousands, except per share data) |
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Revenues |
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Net gains on mortgage loans held for sale at fair value: |
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From non-affiliates |
| $ | 76,667 |
| $ | 36,436 |
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Recapture payable to PennyMac Mortgage Investment Trust |
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| (1,289) |
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| (1,898) |
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| 75,378 |
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| 34,538 |
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Loan origination fees |
| 6,880 |
| 5,668 |
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| 16,682 |
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| 6,880 |
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Fulfillment fees from PennyMac Mortgage Investment Trust |
| 8,902 |
| 28,244 |
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| 12,866 |
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| 8,902 |
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Net loan servicing fees: |
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Loan servicing fees |
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From non-affiliates |
| 36,100 |
| 9,057 |
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| 50,101 |
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| 36,100 |
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From PennyMac Mortgage Investment Trust |
| 14,591 |
| 7,726 |
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| 10,670 |
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| 14,591 |
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From Investment Funds |
| 1,477 |
| 2,008 |
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| 968 |
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| 1,477 |
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Ancillary and other fees |
| 5,151 |
| 2,261 |
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| 11,185 |
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| 5,151 |
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| 57,319 |
| 21,052 |
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| 72,924 |
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| 57,319 |
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Amortization, impairment and change in estimated fair value of mortgage servicing rights |
| (13,555 | ) | (5,010 | ) | |||||||||
Amortization, impairment and change in fair value of mortgage servicing rights: |
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Related to servicing for non-affiliates |
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| (53,684) |
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| (18,347) |
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Change in fair value of excess servicing spread payable to PennyMac Mortgage Investment Trust |
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| 7,536 |
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| 4,792 |
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| (46,148) |
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| (13,555) |
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Net loan servicing fees |
| 43,764 |
| 16,042 |
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| 26,776 |
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| 43,764 |
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Management fees: |
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From PennyMac Mortgage Investment Trust |
| 8,074 |
| 6,492 |
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| 7,003 |
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| 8,074 |
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From Investment Funds |
| 2,035 |
| 1,914 |
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| 1,486 |
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| 2,035 |
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| 10,109 |
| 8,406 |
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| 8,489 |
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| 10,109 |
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Carried Interest from Investment Funds |
| 2,157 |
| 4,737 |
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| 1,233 |
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| 2,157 |
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Net interest expense: |
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Interest income |
| 4,110 |
| 1,742 |
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| 8,933 |
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| 4,110 |
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Interest expense |
| 6,386 |
| 3,330 |
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Interest expense: |
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To non-affiliates |
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| 8,077 |
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| 3,524 |
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To PennyMac Mortgage Investment Trust |
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| 3,752 |
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| 2,862 |
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| (2,276 | ) | (1,588 | ) |
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| 11,829 |
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| 6,386 |
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Net interest expense |
|
| (2,896) |
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| (2,276) |
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Change in fair value of investment in and dividends received from PennyMac Mortgage Investment Trust |
| 115 |
| 88 |
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| 107 |
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| 115 |
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Other |
| 1,303 |
| 814 |
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| 1,679 |
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| 1,303 |
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Total net revenue |
| 105,492 |
| 102,368 |
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| 140,314 |
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| 105,492 |
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Expenses |
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Compensation |
| 42,886 |
| 35,681 |
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| 58,144 |
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| 42,886 |
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Loan origination |
| 1,417 |
| 2,507 |
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Servicing |
| 3,090 |
| 1,531 |
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| 9,735 |
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| 3,090 |
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Technology |
| 2,823 |
| 1,586 |
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| 4,938 |
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| 2,823 |
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Professional services |
| 2,199 |
| 2,288 |
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| 2,833 |
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| 2,199 |
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Loan origination |
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| 4,351 |
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| 1,417 |
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Other |
| 4,016 |
| 3,482 |
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| 7,075 |
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| 4,016 |
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Total expenses |
| 56,431 |
| 47,075 |
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| 87,076 |
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| 56,431 |
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Income before provision for income taxes |
| 49,061 |
| 55,293 |
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| 53,238 |
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| 49,061 |
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Provision for income taxes |
| 5,523 |
| — |
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| 6,114 |
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| 5,523 |
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Net income |
| 43,538 |
| $ | 55,293 |
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| 47,124 |
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| 43,538 |
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Less: Net income attributable to noncontrolling interest |
| 35,566 |
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| 38,096 |
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| 35,566 |
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Net income attributable to PennyMac Financial Services, Inc. common stockholders |
| $ | 7,972 |
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| $ | 9,028 |
| $ | 7,972 |
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Earnings per share common stock |
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Earnings per share |
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Basic |
| $ | 0.38 |
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| $ | 0.42 |
| $ | 0.38 |
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Diluted |
| $ | 0.38 |
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| $ | 0.42 |
| $ | 0.38 |
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Weighted-average common stock outstanding |
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Weighted average common shares outstanding |
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Basic |
| 20,866 |
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| 21,593 |
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| 20,866 |
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Diluted |
| 75,952 |
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| 76,050 |
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| 75,952 |
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The accompanying notes are an integral part of these financial statements.
6
PENNYMAC FINANCIAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITYEQUITY (UNAUDITED)
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| PennyMac Financial Services, Inc. Stockholders |
| Noncontrolling interest in |
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| Total |
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| Number of Shares |
| Common stock |
| Additional |
| Retained |
| Private National Mortgage |
| Members’ |
| stockholders’ |
| |||||||||||
|
| Class A |
| Class B |
| Class A |
| Class B |
| paid-in capital |
| earnings |
| Acceptance Company, LLC |
| equity |
| equity |
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| (in thousands) |
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Balance at December 31, 2012 |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| 261,750 |
| 261,750 |
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Capital: |
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Distributions |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| (9,476 | ) | (9,476 | ) | |||||||
Unit-based compensation expense |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| 176 |
| 176 |
| |||||||
Net income |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| 55,293 |
| 55,293 |
| |||||||
Balance at March 31, 2013 |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| 307,743 |
| 307,743 |
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Balance at December 31, 2013 |
| 20,813 |
| — |
| $ | 2 |
| — |
| $ | 153,000 |
| $ | 14,400 |
| $ | 461,802 |
| $ | — |
| $ | 629,204 |
| |
Stock-based compensation expense |
| — |
| — |
| — |
| — |
| 555 |
| — |
| 1,793 |
| — |
| 2,348 |
| |||||||
Distributions |
| — |
| — |
| — |
| — |
| — |
| — |
| (6 | ) | — |
| (6 | ) | |||||||
Net income |
| — |
| — |
| — |
| — |
| — |
| 7,972 |
| 35,566 |
| — |
| 43,538 |
| |||||||
Exchange of Class A units of Private National Mortgage Acceptance Company, LLC to Class A stock of PennyMac Financial Services, Inc. |
| 66 |
| — |
| — |
| — |
| 563 |
| — |
| (563 | ) | — |
| — |
| |||||||
Tax effect of exchange of Class A units of Private National Mortgage Acceptance Company, LLC to Class A stock of PennyMac Financial Services, Inc. |
| — |
| — |
| — |
| — |
| (6 | ) | — |
| — |
| — |
| (6 | ) | |||||||
Balance at March 31, 2014 |
| 20,879 |
| — |
| $ | 2 |
| — |
| $ | 154,112 |
| $ | 22,372 |
| $ | 498,592 |
| $ | — |
| $ | 675,078 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| PennyMac Financial Services, Inc. Stockholders |
| Noncontrolling |
|
|
|
| |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| interest in Private |
|
|
|
| ||
|
|
|
|
|
|
|
|
|
|
|
| Additional |
|
|
|
| National Mortgage |
|
|
|
| ||
|
| Number of Shares |
| Common stock |
| paid-in |
| Retained |
| Acceptance |
|
|
|
| |||||||||
|
| Class A |
| Class B |
| Class A |
| Class B |
| capital |
| earnings |
| Company, LLC |
| Total equity |
| ||||||
|
| (in thousands) |
| ||||||||||||||||||||
Balance at December 31, 2013 |
| 20,813 |
| — |
| $ | 2 |
| $ | — |
| $ | 153,000 |
| $ | 14,400 |
| $ | 461,802 |
| $ | 629,204 |
|
Net income |
| — |
| — |
|
| — |
|
| — |
|
| — |
|
| 7,972 |
|
| 35,566 |
|
| 43,538 |
|
Stock and unit-based compensation |
| — |
| — |
|
| — |
|
| — |
|
| 555 |
|
| — |
|
| 1,793 |
|
| 2,348 |
|
Distributions |
| — |
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| (6) |
|
| (6) |
|
Exchange of Class A units of Private National Mortgage Acceptance Company, LLC to Class A common stock of PennyMac Financial Services, Inc. |
| 66 |
| — |
|
| — |
|
| — |
|
| 563 |
|
| — |
|
| (563) |
|
| — |
|
Tax effect of exchange of Class A units of Private National Mortgage Acceptance Company, LLC to Class A common stock of PennyMac Financial Services, Inc. |
| — |
| — |
|
| — |
|
| — |
|
| (6) |
|
| — |
|
| — |
|
| (6) |
|
Balance at March 31, 2014 |
| 20,879 |
| — |
| $ | 2 |
| $ | — |
| $ | 154,112 |
| $ | 22,372 |
| $ | 498,592 |
| $ | 675,078 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2014 |
| 21,578 |
| — |
|
| 2 |
|
| — |
|
| 162,720 |
|
| 51,242 |
|
| 593,302 |
|
| 807,266 |
|
Net income |
| — |
| — |
|
| — |
|
| — |
|
| — |
|
| 9,028 |
|
| 38,096 |
|
| 47,124 |
|
Stock and unit-based compensation |
| 31 |
| — |
|
| — |
|
| — |
|
| 1,124 |
|
| — |
|
| 2,824 |
|
| 3,948 |
|
Distributions |
| — |
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| (5,522) |
|
| (5,522) |
|
Issuance of common stock in settlement of directors' fees |
| 4 |
| — |
|
| — |
|
| — |
|
| 74 |
|
| — |
|
| — |
|
| 74 |
|
Exchange of Class A units of Private National Mortgage Acceptance Company, LLC to Class A common stock of PennyMac Financial Services, Inc. |
| 44 |
| — |
|
| — |
|
| — |
|
| 792 |
|
| — |
|
| (792) |
|
| — |
|
Tax effect of exchange of Class A units of Private National Mortgage Acceptance Company, LLC to Class A common stock of PennyMac Financial Services, Inc. |
| — |
| — |
|
| — |
|
| — |
|
| (54) |
|
| — |
|
| — |
|
| (54) |
|
Balance at March 31, 2015 |
| 21,657 |
| — |
| $ | 2 |
| $ | — |
| $ | 164,656 |
| $ | 60,270 |
| $ | 627,908 |
| $ | 852,836 |
|
The accompanying notes are an integral part of these financial statements.
7
PENNYMAC FINANCIAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWSFLOWS (UNAUDITED)
|
|
|
|
|
|
|
| |||||||
|
| Quarter ended March 31, |
|
| Quarter ended March 31, |
| ||||||||
|
| 2014 |
| 2013 |
|
| 2015 |
| 2014 |
| ||||
|
| (in thousands) |
|
| (in thousands) |
| ||||||||
Cash flow from operating activities |
|
|
|
|
|
|
|
|
|
|
|
| ||
Net income |
| $ | 43,538 |
| $ | 55,293 |
|
| $ | 47,124 |
| $ | 43,538 |
|
Adjustments to reconcile net income to net cash (used in) provided by operating activities: |
|
|
|
|
| |||||||||
Adjustments to reconcile net income to net cash used in operating activities: |
|
|
|
|
|
|
| |||||||
Net gains on mortgage loans held for sale at fair value |
| (34,538 | ) | (39,957 | ) |
|
| (75,378) |
|
| (34,538) |
| ||
Accrual of servicing rebate to Investment Funds |
| 152 |
| 139 |
|
|
| 104 |
|
| 152 |
| ||
Amortization, impairment and change in fair value of mortgage servicing rights |
| 13,555 |
| 5,010 |
|
|
| 46,148 |
|
| 13,555 |
| ||
Carried Interest from Investment Funds |
| (2,157 | ) | (4,737 | ) |
|
| (1,233) |
|
| (2,157) |
| ||
Accrual of interest on excess servicing spread financing |
| 2,862 |
| — |
|
|
| 3,752 |
|
| 2,862 |
| ||
Amortization of debt issuance costs and commitment fees relating to financing facilities |
| 1,213 |
| 1,145 |
|
|
| 1,708 |
|
| 1,213 |
| ||
Change in fair value of investment in common shares of PennyMac Mortgage Investment Trust |
| (71 | ) | (45 | ) |
|
| (15) |
|
| (71) |
| ||
Stock and unit-based compensation expense |
| 2,473 |
| 176 |
|
|
| 3,948 |
|
| 2,473 |
| ||
Provision for servicing advance losses |
|
| 1,510 |
|
| — |
| |||||||
Depreciation and amortization |
| 286 |
| 137 |
|
|
| 394 |
|
| 286 |
| ||
Purchase of mortgage loans held for sale from PennyMac Mortgage Investment Trust |
| (3,130,530 | ) | (3,548,397 | ) |
|
| (4,989,838) |
|
| (3,130,530) |
| ||
Originations of mortgage loans held for sale, net |
|
| (904,213) |
|
| (317,915) |
| |||||||
Purchase of mortgage loans from Ginnie Mae securities for modification and subsequent sale |
| (26,827 | ) | — |
|
|
| (84,488) |
|
| (26,827) |
| ||
Originations of mortgage loans held for sale, net |
| (317,915 | ) | (268,125 | ) | |||||||||
Capitalization of interest on mortgage loans held for sale at fair value |
|
| (1,154) |
|
| — |
| |||||||
Sale and principal payments of mortgage loans held for sale |
| 3,292,398 |
| 4,060,107 |
|
|
| 5,763,272 |
|
| 3,292,398 |
| ||
Sale of mortgage loans held for sale to PennyMac Mortgage Investment Trust |
| — |
| 990 |
|
|
| 8,405 |
|
| — |
| ||
Repurchase of loans subject to representations and warranties |
| (1,970 | ) | — |
|
|
| (1,294) |
|
| (1,970) |
| ||
Increase in servicing advances |
| (17,067 | ) | (3,435 | ) |
|
| (15,277) |
|
| (17,067) |
| ||
(Increase) decrease in receivable from Investment Funds |
| (299 | ) | 364 |
| |||||||||
(Increase) decrease in receivable from PennyMac Mortgage Investment Trust |
| (1,493 | ) | 2,427 |
| |||||||||
Increase in receivable from Investment Funds |
|
| (301) |
|
| (299) |
| |||||||
Decrease (increase) in receivable from PennyMac Mortgage Investment Trust |
|
| 5,878 |
|
| (1,493) |
| |||||||
Decrease in deferred tax asset |
|
| 4,212 |
|
| 5,520 |
| |||||||
Decrease in payable to exchanged Private National Mortgage Acceptance Company, LLC unitholders under tax receivable agreement |
|
| (4,299) |
|
| — |
| |||||||
Increase in other assets |
| (6,664 | ) | (3,507 | ) |
|
| (5,315) |
|
| (6,664) |
| ||
Decrease in deferred tax asset |
| 5,520 |
| — |
| |||||||||
Increase in accounts payable and accrued expenses |
| 3,263 |
| 6,685 |
|
|
| 24,307 |
|
| 3,263 |
| ||
Increase in payable to Investment Funds |
| 169 |
| 971 |
| |||||||||
(Decrease) increase in payable to Investment Funds |
|
| (3,897) |
|
| 169 |
| |||||||
Increase in payable to PennyMac Mortgage Investment Trust |
| 3,747 |
| 6,997 |
|
|
| 7,446 |
|
| 3,747 |
| ||
Net cash (used in) provided by operating activities |
| (170,355 | ) | 272,238 |
| |||||||||
|
|
|
|
|
| |||||||||
Net cash used in operating activities |
|
| (168,494) |
|
| (170,355) |
| |||||||
Cash flow from investing activities |
|
|
|
|
|
|
|
|
|
|
|
| ||
Decrease (increase) in short-term investments |
| 101,625 |
| (19,500 | ) | |||||||||
(Increase) decrease in short-term investments |
|
| (8,588) |
|
| 101,625 |
| |||||||
Purchase of mortgage servicing rights |
| (25,866 | ) | — |
|
|
| (63,137) |
|
| (25,866) |
| ||
Settlements of derivative financial instruments used for hedging |
|
| 15,404 |
|
| — |
| |||||||
Purchase of furniture, fixtures, equipment and building improvements |
| (2,084 | ) | (1,531 | ) |
|
| (660) |
|
| (2,084) |
| ||
Acquisition of capitalized software |
| (35 | ) | (151 | ) |
|
| (77) |
|
| (35) |
| ||
Increase in margin deposits and restricted cash |
| (2,462 | ) | 5,293 |
|
|
| (1,328) |
|
| (2,462) |
| ||
Net cash provided by (used in) investing activities |
| 71,178 |
| (15,889 | ) |
|
| (58,386) |
|
| 71,178 |
| ||
|
|
|
|
|
| |||||||||
Cash flow from financing activities |
|
|
|
|
|
|
|
|
|
|
|
| ||
Sale of loans under agreements to repurchase |
| 3,161,215 |
| 3,485,093 |
|
|
| 5,431,114 |
|
| 3,161,215 |
| ||
Repurchase of loans sold under agreements to repurchase |
| (3,065,070 | ) | (3,698,578 | ) |
|
| (5,261,548) |
|
| (3,065,070) |
| ||
(Decrease) increase in note payable |
| (3,335 | ) | 10,424 |
| |||||||||
Proceeds from issuance of excess servicing spread financing |
| 20,526 |
| — |
| |||||||||
Issuance of mortgage loan participation certificates |
|
| 3,387,582 |
|
| — |
| |||||||
Repayment of mortgage loan participation certificates |
|
| (3,340,458) |
|
| — |
| |||||||
Repayment of note payable |
|
| (12,190) |
|
| (3,335) |
| |||||||
Issuance of excess servicing spread financing |
|
| 46,412 |
|
| 20,526 |
| |||||||
Repayment of excess servicing spread financing |
| (7,413 | ) | — |
|
|
| (12,731) |
|
| (7,413) |
| ||
Distributions to Private National Mortgage Acceptance Company, LLC partners |
|
| (5,522) |
|
| (6) |
| |||||||
Decrease in leases payable |
| (3 | ) | — |
|
|
| (3) |
|
| (3) |
| ||
Distributions to noncontrolling interest |
| (6 | ) | — |
| |||||||||
Distributions to Private National Mortgage Acceptance Company, LLC partners |
| — |
| (9,476 | ) | |||||||||
Net cash provided by (used in) financing activities |
| 105,914 |
| (212,537 | ) | |||||||||
Net cash provided by financing activities |
|
| 232,656 |
|
| 105,914 |
| |||||||
Net increase in cash |
| 6,737 |
| 43,812 |
|
|
| 5,776 |
|
| 6,737 |
| ||
Cash at beginning of period |
| 30,639 |
| 12,323 |
|
|
| 76,256 |
|
| 30,639 |
| ||
Cash at end of period |
| $ | 37,376 |
| $ | 56,135 |
|
| $ | 82,032 |
| $ | 37,376 |
|
The accompanying notes are an integral part of these financial statements.
PENNYMAC FINANCIAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSSTATEMENTS (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 throughconsolidates the financial results of PennyMac and its subsidiaries, continues to conduct the business previously conducted by these 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 lendingloan production (including correspondent lendingproduction and retailconsumer direct lending) and mortgage loan servicing. PennyMac’s investment management activities and a portion of its 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, and three investment funds: 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;amended, an affiliate of these funds, and PNMAC Mortgage Opportunity Fund Investors, LLC (collectively, “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 portfolios of residential mortgage loans on behalf of non-affiliates or the Advised Entities, 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 (“FHA”) Nonsupervised Title II Lender with the U.S. Department of Housing and Urban Development (“HUD”) and a lender/servicer with the Veterans Administration (“VA”) (eachand U.S. Department of Agriculture (“USDA”). We refer to each of Fannie Mae, Freddie Mac, Ginnie Mae, FHA, VA and USDA as 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.
Initial Public Offering and Recapitalization
On May 14, 2013, PFSI completed an initial public offering (“IPO”) in which it sold approximately 12.8 million shares of its Class A common stock, at a public offering price of $18.00 per share. PFSI received net proceeds of $216.8 million, after deducting underwriting discounts and commissions, from sales of its shares in the IPO. PFSI used these net proceeds to purchase approximately 12.8 million Class A units of PennyMac. PFSI operates and controls all of the business and affairs and consolidates the financial results of PennyMac and its subsidiaries.
The purchase of 12.8 million Class A units of PennyMac has been accounted for as a transfer of interests under common control. Accordingly, the accompanying consolidated financial statements reflect a reclassification of members’ equity to noncontrolling interests in the Company of $315.5 million. This amount represents the carrying value in the Company of the existing owners of PennyMac on the date of the IPO.
Before the IPO, PennyMac completed a reorganization by amending its limited liability company agreement to convert all classes of ownership interests held by its existing owners to a single class of common units. The conversion of existing interests was based on the various interests’ liquidation priorities as specified in PennyMac’s prior limited liability company agreement. In connection with that reorganization, PFSI became the sole managing member of PennyMac.
After the completion of the recapitalization and reorganization transactions, PennyMac became a consolidated subsidiary of the Company. Accordingly, PennyMac’s consolidated financial statements are the Company’s historical financial statements. The historical consolidated financial statements of PennyMac are reflected herein based on the historical ownership interests of the then-existing PennyMac unitholders.
· | 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. |
Tax Receivable Agreement
As part of the IPO, PFSI entered into an Exchange Agreement with PennyMac’s existing unitholders whereby the existing unitholders may exchange their PennyMac units for PFSI stock. Before 2013, PennyMac made an election pursuant to Section 754 of the Internal Revenue Code which remains in effect. As a result of this election an exchange under the Exchange Agreement results in a special adjustment for PFSI that may increase PFSI’s tax basis of certain assets of PennyMac that otherwise would not have been available. These increases in tax basis may reduce the amount of income tax that PFSI would otherwise be required to pay in the future. These increases in tax basis may also decrease gains (or increase losses) on future dispositions of certain assets to the extent a portion of the increased tax basis is allocated to those assets.
As part of the IPO, PFSI entered into a tax receivable agreement with PennyMac’s existing unitholders that will provide for the payment by PFSI to PennyMac exchanged unitholders an amount equal to 85% of the amount of the benefits, if any, that PFSI is deemed to realize as a result of (i) increases in tax basis resulting from the exchanges noted above and (ii) certain other tax benefits related to PFSI entering into the tax receivable agreement, including tax benefits attributable to payments under the tax receivable agreement.
The term of the tax receivable agreement will continue until all such tax benefits have been utilized or expired, unless PFSI exercises its right to terminate the tax receivable agreement. In the event of termination of the tax receivable agreement, the Company would be required to make an immediate payment equal to the present value of the anticipated future net tax benefits, which upfront payment may be made years in advance of the actual realization of such future benefits.
Basis of Presentation
The accompanying consolidated financial statements have been prepared in compliance with generally accepted accounting principles generally accepted(“GAAP”) in the United States (“U.S. GAAP”) as codified in the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“Codification”) 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 U.S. 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, 2013 (the “Annual Report”). Intercompany accounts and transactions have been eliminated.2014.
The accompanying unaudited consolidated financial statements reflect all normal recurring adjustments necessary to present fairly the financial position, results of operations,income, and cash flows for the interim periods, but are not necessarily indicative of the results of operations to be anticipated for the full year ending December 31, 2014.2015. Intercompany accounts and transactions have been eliminated.
9
Preparation of financial statements in compliance with GAAP requires management to make estimates and assumptions 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.
Reclassification of previously presented balances
Certain prior period amounts have been reclassified to conform to the current presentation. Specifically:
·Interest expense is included in Interest income as a new caption of Net interest expense to better reflect results of the Company’s portfolio of interest-earning assets. Previously, Interest expense was included within Total expenses. The reclassification results in the presentation of Net interest expense.
Following is a summary of the reclassifications:
|
| Quarter ended March 31, 2013 |
| |||||||
|
| As reported |
| As previously |
| Reclassification |
| |||
|
| (in thousands) |
| |||||||
Net interest expense (new caption): |
|
|
|
|
|
|
| |||
Interest income |
| $ | 1,742 |
| $ | 1,742 |
| $ | — |
|
Interest expense |
| 3,330 |
| — |
| 3,330 |
| |||
|
| $ | (1,588 | ) | $ | 1,742 |
| $ | (3,330 | ) |
Note 2—Concentration of Risk
A substantial portion of the Company’s activities relate to the Advised Entities. Fees charged to these entities (comprised(generally comprised of management fees, loan servicing fees, net of loan servicing rebates, Carried Interest and fulfillment fees) totaled 35%26% and 50%35% of total net revenues for the quarters ended March 31, 20142015 and 2013,2014, respectively.
Note 3—Transactions with Affiliates
Transactions with PMT
Following is a summary of mortgage lending and sourcing activity between the Company and PMT:
|
|
|
|
|
|
|
|
|
| Quarter ended March 31, |
| ||||
|
| 2015 |
| 2014 |
| ||
|
| (in thousands) |
| ||||
Fulfillment fee revenue |
| $ | 12,866 |
| $ | 8,902 |
|
Unpaid principal balance of loans fulfilled for PennyMac Mortgage Investment Trust |
| $ | 2,890,132 |
| $ | 1,919,578 |
|
|
|
|
|
|
|
|
|
Sourcing fees paid |
| $ | 1,421 |
| $ | 892 |
|
Unpaid principal balance of loans purchased from PennyMac Mortgage Investment Trust |
| $ | 4,735,374 |
| $ | 2,974,077 |
|
Sale of mortgage loans held for sale to PennyMac Mortgage Investment Trust |
| $ | 8,405 |
| $ | — |
|
Mortgage servicing rights recapture recognized |
| $ | — |
| $ | 8 |
|
Following is a summary of mortgage loan servicing fees earned from PMT:
|
|
|
|
|
|
|
|
|
| Quarter ended March 31, |
| ||||
|
| 2015 |
| 2014 |
| ||
|
| (in thousands) |
| ||||
Loan servicing fees relating to PennyMac Mortgage Investment Trust: |
|
|
|
|
|
|
|
Mortgage loans acquired for sale at fair value: |
|
|
|
|
|
|
|
Base and supplemental |
| $ | 26 |
| $ | 17 |
|
Activity-based |
|
| 31 |
|
| 26 |
|
|
|
| 57 |
|
| 43 |
|
Mortgage loans at fair value: |
|
|
|
|
|
|
|
Base and supplemental |
|
| 4,032 |
|
| 4,966 |
|
Activity-based |
|
| 2,894 |
|
| 6,386 |
|
|
|
| 6,926 |
|
| 11,352 |
|
Mortgage servicing rights: |
|
|
|
|
|
|
|
Base and supplemental |
|
| 3,656 |
|
| 3,148 |
|
Activity-based |
|
| 31 |
|
| 48 |
|
|
|
| 3,687 |
|
| 3,196 |
|
|
| $ | 10,670 |
| $ | 14,591 |
|
10
Following is a summary of the management fees earned from PMT:
|
| Quarter ended March 31, |
| ||||
|
| 2014 |
| 2013 |
| ||
|
| (in thousands) |
| ||||
Management fees: |
|
|
|
|
| ||
Base |
| $ | 5,521 |
| $ | 4,364 |
|
Performance incentive |
| 2,553 |
| 2,128 |
| ||
|
| $ | 8,074 |
| $ | 6,492 |
|
|
|
|
|
|
|
|
|
|
| Quarter ended March 31, |
| ||||
|
| 2015 |
| 2014 |
| ||
|
| (in thousands) |
| ||||
Management fees: |
|
|
|
|
|
|
|
Base |
| $ | 5,730 |
| $ | 5,521 |
|
Performance incentive |
|
| 1,273 |
|
| 2,553 |
|
|
| $ | 7,003 |
| $ | 8,074 |
|
In the event of termination by PMT, 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 (or, if the period is than 24 months, annualized) performance incentive fee earned by the Company, in each case during the 24 month24-month period before termination.
Following is a summary of mortgage loan servicing fees earned from PMT:
|
| Quarter ended March 31, |
| ||||
|
| 2014 |
| 2013 |
| ||
|
| (in thousands) |
| ||||
Loan servicing fees: |
|
|
|
|
| ||
Mortgage loans acquired for sale at fair value: |
|
|
|
|
| ||
Base and supplemental |
| $ | 17 |
| $ | 77 |
|
Activity-based |
| 26 |
| 72 |
| ||
|
| 43 |
| 149 |
| ||
Distressed mortgage loans: |
|
|
|
|
| ||
Base and supplemental |
| 4,966 |
| 3,875 |
| ||
Activity-based |
| 6,386 |
| 1,877 |
| ||
|
| 11,352 |
| 5,752 |
| ||
MSRs: |
|
|
|
|
| ||
Base and supplemental |
| 3,148 |
| 1,763 |
| ||
Activity-based |
| 48 |
| 62 |
| ||
|
| 3,196 |
| 1,825 |
| ||
|
| $ | 14,591 |
| $ | 7,726 |
|
Following is a summary of correspondent lendingfinancing activity between the Company and PMT:
|
| Quarter ended March 31, |
| ||||
|
| 2014 |
| 2013 |
| ||
|
| (in thousands) |
| ||||
Fulfillment fee revenue |
| $ | 8,902 |
| $ | 28,244 |
|
UPB of loans fulfilled for PennyMac Mortgage Investment Trust |
| $ | 1,919,578 |
| $ | 4,786,826 |
|
|
|
|
|
|
| ||
Sourcing fees paid |
| $ | 892 |
| $ | 1,010 |
|
Fair value of loans purchased from PennyMac Mortgage Investment Trust |
| $ | 3,130,530 |
| $ | 3,548,397 |
|
|
|
|
|
|
|
|
|
|
| Quarter ended March 31, |
| ||||
|
| 2015 |
| 2014 |
| ||
|
| (in thousands) |
| ||||
Issuance of excess servicing spread |
| $ | 46,412 |
| $ | 20,526 |
|
Repayment of excess servicing spread |
| $ | (12,731) |
| $ | (7,413) |
|
Change in fair value of excess servicing spread |
| $ | (7,536) |
| $ | (4,792) |
|
Interest expense from excess servicing spread |
| $ | 3,752 |
| $ | 2,862 |
|
Excess servicing spread recapture recognized |
| $ | 1,289 |
| $ | 1,890 |
|
Following is a summary of investment activity between the Company and PMT:
|
| Quarter ended March 31, |
| ||||
|
| 2014 |
| 2013 |
| ||
|
| (in thousands) |
| ||||
Issuance of excess servicing spread |
| $ | 20,526 |
| $ | — |
|
Interest expense from excess servicing spread |
| $ | 2,862 |
| $ | — |
|
Excess servicing spread recapture recognized |
| $ | 1,890 |
| $ | — |
|
MSR recapture recognized |
| $ | 8 |
| $ | 133 |
|
Other Transactions
In connection with the IPOinitial public offering (“IPO”) of PMT’s common shares on August 4, 2009, the Company entered into an agreement with PMT pursuant to which PMT agreed to reimburse the CompanyPennyMac for the $2.9 million payment that it made to the underwriters in such offering (the “Conditional Reimbursement”) if PMT satisfied certain performance measures over a specified period of time. Effective February 1, 2013, the parties amended the terms of the reimbursement agreement to provide for the reimbursement to the Company of the Conditional Reimbursement if PMT is required to pay the Company performance incentive fees under the management agreement at a rate of $10 in reimbursement for every $100 of performance incentive fees earned. The reimbursement of the Conditional Reimbursement is subject to a maximum reimbursement in any particular 12 month period of $1.0 million and the maximum amount that may be reimbursed under the agreement is $2.9 million. The Company received payments from PMT totaling $157,000 and $36,000 during the quarterquarters ended March 31, 2014.2015 and 2014, respectively.
In the event the termination fee is payable to the Company under the management agreement and the Company has not received the full amount of the reimbursements and payments under the reimbursement agreement, such amount will be paid in full. The term of the reimbursement agreement expires on February 1, 2019.
11
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:
|
| Quarter ended March 31, |
| ||||
|
| 2014 |
| 2013 |
| ||
|
| (in thousands) |
| ||||
Reimbursement of common overhead incurred by PCM and its affiliates |
| $ | 2,578 |
| $ | 2,606 |
|
Reimbursement of expenses incurred on PMT’s behalf |
| 445 |
| 1,358 |
| ||
|
| $ | 3,023 |
| $ | 3,964 |
|
Payments and settlements during the period (1) |
| $ | 18,386 |
| $ | 33,362 |
|
|
|
|
|
|
|
|
|
|
| Quarter ended March 31, |
| ||||
|
| 2015 |
| 2014 |
| ||
|
| (in thousands) |
| ||||
Reimbursement of: |
|
|
|
|
|
|
|
Common overhead incurred by the Company |
| $ | 2,729 |
| $ | 2,578 |
|
Expenses incurred on PMT's behalf |
|
| 379 |
|
| 445 |
|
|
| $ | 3,108 |
| $ | 3,023 |
|
Payments and settlements during the period (1) |
| $ | 22,752 |
| $ | 18,386 |
|
(1)Payments and settlements include payments for management fees and correspondent lendingproduction activities
itemized in the preceding tables and netting settlements made pursuant to master netting agreements between
the Company and PMT.
Amounts due from PMT are summarized below:
|
| March 31, |
| December 31, |
|
|
|
|
|
|
|
| ||
|
| (in thousands) |
|
| March 31, |
| December 31, |
| ||||||
Servicing fees |
| $ | 8,222 |
| $ | 5,915 |
| |||||||
|
| 2015 |
| 2014 |
| |||||||||
|
| (in thousands) |
| |||||||||||
Management fees |
| 8,074 |
| 8,924 |
|
| $ | 7,003 |
| $ | 8,426 |
| ||
Allocated expenses |
| 2,764 |
| 2,009 |
|
|
| 6,434 |
|
| 6,581 |
| ||
Servicing fees |
|
| 3,432 |
|
| 3,385 |
| |||||||
Underwriting fees |
| 1,752 |
| 1,788 |
|
|
| 980 |
|
| 1,137 |
| ||
Fulfillment fees |
|
| 870 |
|
| 506 |
| |||||||
Unsettled excess servicing spread issuance |
|
| — |
|
| 3,836 |
| |||||||
|
| $ | 20,812 |
| $ | 18,636 |
|
| $ | 18,719 |
| $ | 23,871 |
|
The Company also holds an investment in PMT in the form of 75,000 common shares of beneficial interest as of March 31, 20142015 and December 31, 2013.2014. The common shares of beneficial interest had fair values of $1.8$1.6 million as of both March 31, 2015 and $1.7December 31, 2014.
Of the $130.9 million payable to PMT as of March 31, 20142015, $125.1 million represents deposits made by PMT to fund servicing advances made by the Company, $5.3 million represents other expenses, including unsettled excess servicing spread (“ESS”) financing activity, and $503,000 represents MSR recapture payable to PMT.
Of the $123.3 million payable to PMT as of December 31, 2013, respectively.2014, $116.7 million represents deposits made by PMT to fund servicing advances made by the Company, $6.2 million represents other expenses, including unsettled ESS financing activity, and $460,000 represents MSR recapture payable to PMT.
12
Investment Funds
Amounts due from the Investment Funds are summarized below:
|
| March 31, |
| December 31, |
|
|
|
|
|
|
|
| ||
|
| (in thousands) |
|
| March 31, |
| December 31, |
| ||||||
Receivable from Investment Funds: |
|
|
|
|
| |||||||||
Management fees |
| $ | 2,035 |
| $ | 2,031 |
| |||||||
Loan servicing fees |
| 837 |
| 727 |
| |||||||||
Loan servicing rebate |
| 148 |
| 136 |
| |||||||||
Expense reimbursements |
| 42 |
| 21 |
| |||||||||
|
| 2015 |
| 2014 |
| |||||||||
|
| $ | 3,062 |
| $ | 2,915 |
|
| (in thousands) |
| ||||
Carried Interest due from Investment Funds: |
|
|
|
|
|
|
|
|
|
|
|
| ||
PNMAC Mortgage Opportunity Fund, LLC |
| $ | 38,838 |
| $ | 37,702 |
|
| $ | 41,643 |
| $ | 40,771 |
|
PNMAC Mortgage Opportunity Fund Investors, LLC |
| 24,461 |
| 23,440 |
|
|
| 26,888 |
|
| 26,527 |
| ||
|
| $ | 63,299 |
| $ | 61,142 |
|
| $ | 68,531 |
| $ | 67,298 |
|
Receivable from Investment Funds: |
|
|
|
|
|
|
| |||||||
Management fees |
| $ | 1,488 |
| $ | 1,596 |
| |||||||
Loan servicing fees |
|
| 459 |
|
| 476 |
| |||||||
Expense reimbursements |
|
| 345 |
|
| 30 |
| |||||||
Loan servicing rebate |
|
| 196 |
|
| 189 |
| |||||||
|
| $ | 2,488 |
| $ | 2,291 |
|
Amounts due to the Investment Funds totaling $37.1$32.0 million and $36.9$35.9 million represent amounts advanced by the Investment Funds to fund servicing advances made by the Company as of March 31, 20142015 and December 31, 2013,2014, respectively.
Exchanged Private National Mortgage Acceptance Company, LLC Unitholders
As discussed in Note 1, theThe Company entered into a tax receivable agreement with PennyMac’s existing unitholders on the date of the IPO that will provide for the payment by PFSI to PennyMac’s exchanged unitholders an amount equal to 85% of the amount of the benefits, if any, that PFSI is deemed to realize as a result of (i) increases in tax basis resulting from such unitholders’ exchanges and (ii) certain other tax benefits related to entering into the tax receivable agreement, including tax benefits attributable to payments under the tax receivable agreement. Based on the PennyMac unitholder exchanges to date, the Company has recorded a $71.7$71.1 million liability and it has not made a paymentPayable to exchanged Private National Mortgage Acceptance Company, LLC unitholders under the tax sharingreceivable agreement as of March 31, 2014.2015. During the quarter ended March 31, 2015, the Company made payments under the agreement totaling $4.3 million.
Note 4—Earnings Per Share of Common Stock
Basic earnings per share of common stock is determined using net income attributable to the Company’s common stockholders divided by the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share of common stock is determined by dividing net income attributable to the Company’s common stockholders by the weighted average number of shares of common stock outstanding, assuming all potentially dilutive shares of common stock were issued.
The Company applies the treasury stock method to determine the dilutive weighted average shares of common stock represented by the unvested stock basedstock-based compensation awards and the exchangeable PennyMac Class A units. The diluted earnings per share calculation assumes the exchange of these PennyMac Class A units for shares of common stock. Accordingly, earnings attributable to the Company’s common stockholders is also adjusted to include the earnings allocated to the PennyMac Class A units after taking into account the income taxes applicable to the shares of common stock assumed to be exchanged.
The Company did not disclose March 31, 2013 earnings per share amounts as the Company was not publicly traded.
13
The following table summarizes the basic and diluted earnings per share calculations:
|
|
|
|
|
|
|
| ||||
|
| Quarter ended March 31, |
| ||||||||
|
| Quarter ended |
|
| 2015 |
| 2014 |
| |||
|
| (in thousands, except per |
|
| (in thousands, except per share data) |
| |||||
Basic earnings per share of common stock: |
|
|
|
|
|
|
|
|
|
| |
Net income attributable to PennyMac Financial Services, Inc. common stockholders |
| $ | 7,972 |
|
| $ | 9,028 |
| $ | 7,972 |
|
Weighted-average common stock outstanding |
| 20,866 |
| ||||||||
Basic earnings per share of common stock: |
| $ | 0.38 |
| |||||||
Weighted average shares of common stock outstanding |
|
| 21,593 |
|
| 20,866 |
| ||||
Basic earnings per share of common stock |
| $ | 0.42 |
| $ | 0.38 |
| ||||
|
|
|
|
|
|
|
|
|
|
| |
Diluted earnings per share of common stock: |
|
|
|
|
|
|
|
|
|
| |
Net income |
| $ | 7,972 |
|
| $ | 9,028 |
| $ | 7,972 |
|
Effect of net income attributable to noncontrolling interest, net of tax |
| 21,010 |
| ||||||||
Effect of net income attributable to noncontrolling interest, net of income taxes |
|
| 22,762 |
|
| 21,010 |
| ||||
Diluted net income attributable to common stockholders |
| $ | 28,982 |
|
| $ | 31,790 |
| $ | 28,982 |
|
Weighted-average common stock outstanding |
| 20,866 |
| ||||||||
Weighted average shares of common stock outstanding |
|
| 21,593 |
|
| 20,866 |
| ||||
Dilutive shares: |
|
|
|
|
|
|
|
|
|
| |
PennyMac Class A units exchangeable to common stock |
| 55,051 |
|
|
| 53,562 |
|
| 55,051 |
| |
Non-vested PennyMac Class A units issuable under unit-based stock compensation plan and exchangeable to common stock |
|
| 779 |
|
| — |
| ||||
Shares issuable under stock-based compensation plans |
| 35 |
|
|
| 116 |
|
| 35 |
| |
Diluted weighted-average common stock outstanding |
| 75,952 |
| ||||||||
Diluted weighted average shares of common stock outstanding |
|
| 76,050 |
|
| 75,952 |
| ||||
Diluted earnings per share of common stock |
| $ | 0.38 |
|
| $ | 0.42 |
| $ | 0.38 |
|
Note 5—Loan Sales and Servicing Activities
The Company originates or purchases and sells mortgage loans in the secondary mortgage market without recourse for credit losses. However, the Company maintains continuing involvement with the mortgage loans in the form of servicing arrangements and the liability under representations and warranties it makes to purchasers and insurers of the mortgage loans.
The following table summarizes cash flows between the Company and transferees uponas a result of the sale of mortgage loans in transactions where the Company maintains continuing involvement with the mortgage loans (primarily the obligationas well as aggregate unpaid principal balance information at period end with respect to service theall such mortgage loans on behalf of the loans’ owners or owners’ agents):previously sold:
|
|
|
|
|
|
|
| |||||||
|
| Quarter ended March 31, |
|
| Quarter ended March 31, |
| ||||||||
|
| 2014 |
| 2013 |
|
| 2015 |
| 2014 |
| ||||
|
| (in thousands) |
|
| (in thousands) |
| ||||||||
Cash flows: |
|
|
|
|
|
|
|
|
|
|
|
| ||
Sales proceeds |
| $ | 3,298,915 |
| $ | 4,045,610 |
|
| $ | 5,765,845 |
| $ | 3,298,915 |
|
Servicing fees received |
| $ | 22,184 |
| $ | 9,299 |
|
| $ | 58,969 |
| $ | 22,184 |
|
Net servicing advances |
| $ | (608 | ) | $ | (3,736 | ) |
| $ | 1,902 |
| $ | (608) |
|
Period end information: |
|
|
|
|
|
|
|
|
|
|
|
| ||
Unpaid principal balance (“UPB”) of loans outstanding at end of period |
| $ | 26,289,208 |
| $ | 12,485,598 |
| |||||||
Unpaid principal balance of mortgage loans outstanding at end of period |
| $ | 39,624,553 |
| $ | 26,289,208 |
| |||||||
Delinquencies: |
|
|
|
|
|
|
|
|
|
|
|
| ||
30-89 days |
| $ | 362,131 |
| $ | 119,433 |
|
| $ | 756,211 |
| $ | 362,131 |
|
90 days or more or in foreclosure or bankruptcy |
| $ | 176,608 |
| $ | 36,566 |
|
| $ | 871,250 |
| $ | 176,608 |
|
14
The Company’s mortgage servicing portfolio in unpaid principal balance (“UPB”) is summarized as follows:
|
| March 31, 2014 |
| |||||||
|
| Servicing |
| Contract servicing |
| Total |
| |||
|
| (in thousands) |
| |||||||
Agencies |
| $ | 49,201,662 |
| $ | — |
| $ | 49,201,662 |
|
Affiliated entities |
| — |
| 33,072,540 |
| 33,072,540 |
| |||
Private investors |
| 907,981 |
| 936 |
| 908,917 |
| |||
Mortgage loans held for sale |
| 660,470 |
| — |
| 660,470 |
| |||
|
| $ | 50,770,113 |
| $ | 33,073,476 |
| $ | 83,843,589 |
|
Amount subserviced for the Company |
| $ | 2,214,554 |
| $ | 415,435 |
| $ | 2,629,989 |
|
Delinquent mortgage loans: |
|
|
|
|
|
|
| |||
30 days |
| $ | 872,052 |
| $ | 246,218 |
| $ | 1,118,270 |
|
60 days |
| 407,057 |
| 114,867 |
| 521,924 |
| |||
90 days or more |
| 1,085,662 |
| 1,337,631 |
| 2,423,293 |
| |||
|
| 2,364,771 |
| 1,698,716 |
| 4,063,487 |
| |||
Loans pending foreclosure |
| 187,876 |
| 1,861,167 |
| 2,049,043 |
| |||
|
| $ | 2,552,647 |
| $ | 3,559,883 |
| $ | 6,112,530 |
|
Custodial funds managed by the Company (1) |
| $ | 654,098 |
| $ | 281,921 |
| $ | 936,019 |
|
|
| December 31, 2013 |
| |||||||
|
| Servicing |
| Contract servicing |
| Total |
| |||
|
| (in thousands) |
| |||||||
Agencies |
| $ | 44,969,026 |
| $ | — |
| $ | 44,969,026 |
|
Affiliated entities |
| — |
| 31,632,718 |
| 31,632,718 |
| |||
Private investors |
| 969,794 |
| 89,361 |
| 1,059,155 |
| |||
Mortgage loans held for sale |
| 506,540 |
| — |
| 506,540 |
| |||
|
| $ | 46,445,360 |
| $ | 31,722,079 |
| $ | 78,167,439 |
|
Amount subserviced for the Company |
| $ | 156,347 |
| $ | 582,610 |
| $ | 738,957 |
|
Delinquent mortgage loans: |
|
|
|
|
|
|
| |||
30 days |
| $ | 1,304,054 |
| $ | 263,518 |
| $ | 1,567,572 |
|
60 days |
| 346,912 |
| 112,275 |
| 459,187 |
| |||
90 days or more |
| 605,555 |
| 1,416,498 |
| 2,022,053 |
| |||
|
| 2,256,521 |
| 1,792,291 |
| 4,048,812 |
| |||
Loans pending foreclosure |
| 168,776 |
| 1,792,128 |
| 1,960,904 |
| |||
|
| $ | 2,425,297 |
| $ | 3,584,419 |
| $ | 6,009,716 |
|
Custodial funds managed by the Company (1) |
| $ | 568,161 |
| $ | 246,587 |
| $ | 814,748 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| March 31, 2015 |
| |||||||
|
|
|
| Contract |
|
|
| |||
|
| Servicing |
| servicing and |
| Total |
| |||
|
| rights owned |
| subservicing |
| loans serviced |
| |||
|
| (in thousands) |
| |||||||
Investor: |
|
|
|
|
|
|
|
|
|
|
Non-affiliated entities |
| $ | 72,407,441 |
| $ | — |
| $ | 72,407,441 |
|
Affiliated entities |
|
| — |
|
| 41,542,426 |
|
| 41,542,426 |
|
Mortgage loans held for sale |
|
| 1,288,744 |
|
| — |
|
| 1,288,744 |
|
|
| $ | 73,696,185 |
| $ | 41,542,426 |
| $ | 115,238,611 |
|
Amount subserviced for the Company (1) |
| $ | 4,771,144 |
| $ | 29,786 |
| $ | 4,800,930 |
|
Delinquent mortgage loans: |
|
|
|
|
|
|
|
|
|
|
30 days |
| $ | 1,272,111 |
| $ | 296,631 |
| $ | 1,568,742 |
|
60 days |
|
| 391,777 |
|
| 134,358 |
|
| 526,135 |
|
90 days or more |
|
|
|
|
|
|
|
|
|
|
Not in foreclosure |
|
| 806,491 |
|
| 970,183 |
|
| 1,776,674 |
|
In foreclosure |
|
| 519,756 |
|
| 1,655,088 |
|
| 2,174,844 |
|
Foreclosed |
|
| 30,294 |
|
| 547,863 |
|
| 578,157 |
|
|
| $ | 3,020,429 |
| $ | 3,604,123 |
| $ | 6,624,552 |
|
Custodial funds managed by the Company (2) |
| $ | 2,179,665 |
| $ | 587,846 |
| $ | 2,767,511 |
|
(1) | Certain of the mortgage loans serviced by the Company are subserviced on the Company’s behalf by other mortgage loan servicers. Mortgage loans are subserviced for the Company on a transitional basis for loans where the Company has obtained the rights to service the loans but servicing of the loans has not yet transferred to the Company’s servicing system. |
(2) | Borrower and investor custodial cash accounts relate to mortgage loans serviced under the servicing agreements and are not recorded on the Company’s consolidated balance sheets. The Company earns interest on custodial funds it manages on behalf of the mortgage loans investors, which is recorded as part of the interest income in the Company’s consolidated statements of income. |
(1)Borrower and investor custodial cash accounts relate to loans serviced under the servicing agreements and are not recorded on the Company’s consolidated balance sheets. The Company earns interest on custodial funds it manages on behalf of the loans’ investors, which is recorded as part of the interest income in the Company’s consolidated statements of income.
|
|
|
|
|
|
|
|
|
|
|
|
| December 31, 2014 |
| |||||||
|
|
|
| Contract |
|
|
| |||
|
| Servicing |
| servicing and |
| Total |
| |||
|
| rights owned |
| subservicing |
| loans serviced |
| |||
|
| (in thousands) |
| |||||||
Investor: |
|
|
|
|
|
|
|
|
|
|
Non-affiliated entities |
| $ | 65,169,194 |
| $ | — |
| $ | 65,169,194 |
|
Affiliated entities |
|
| — |
|
| 39,709,945 |
|
| 39,709,945 |
|
Mortgage loans held for sale |
|
| 1,100,910 |
|
| — |
|
| 1,100,910 |
|
|
| $ | 66,270,104 |
| $ | 39,709,945 |
| $ | 105,980,049 |
|
Amount subserviced for the Company |
| $ | — |
| $ | 330,768 |
| $ | 330,768 |
|
Delinquent mortgage loans: |
|
|
|
|
|
|
|
|
|
|
30 days |
| $ | 1,372,915 |
| $ | 302,091 |
| $ | 1,675,006 |
|
60 days |
|
| 434,428 |
|
| 135,777 |
|
| 570,205 |
|
90 days or more |
|
|
|
|
|
|
|
|
|
|
Not in foreclosure |
|
| 779,129 |
|
| 1,057,973 |
|
| 1,837,102 |
|
In foreclosure |
|
| 422,330 |
|
| 1,544,762 |
|
| 1,967,092 |
|
Foreclosed |
|
| 32,444 |
|
| 533,067 |
|
| 565,511 |
|
|
| $ | 3,041,246 |
|
| 3,573,670 |
| $ | 6,614,916 |
|
Custodial funds managed by the Company (1) |
| $ | 1,522,295 |
| $ | 388,498 |
| $ | 1,910,793 |
|
(1) | Borrower and investor custodial cash accounts relate to mortgage loans serviced under the servicing agreements and are not recorded on the Company’s consolidated balance sheets. The Company earns interest on custodial funds it manages on behalf of the mortgage loans investors, which is recorded as part of the interest income in the Company’s consolidated statements of income. |
15
Following is a summary of the geographical distribution of loans included in the Company’s servicing portfolio for the top five and all other states as measured by the total UPB:
|
|
|
|
|
|
|
| |||||||
|
| March 31, |
| December 31, |
| |||||||||
State |
| March 31, |
| December 31, |
|
| 2015 |
| 2014 |
| ||||
|
| (in thousands) |
|
| (in thousands) |
| ||||||||
California |
| $ | 30,959,910 |
| $ | 30,320,616 |
|
| $ | 34,192,278 |
| $ | 33,751,630 |
|
Texas |
| 4,801,408 |
| 4,470,123 |
|
|
| 7,880,148 |
|
| 6,954,778 |
| ||
Virginia |
| 4,300,935 |
| 3,769,683 |
|
|
| 6,795,903 |
|
| 6,360,171 |
| ||
Florida |
| 3,810,018 |
| 3,416,274 |
|
|
| 6,315,648 |
|
| 5,573,215 |
| ||
Washington |
| 3,096,898 |
| 2,760,900 |
|
|
| * |
|
| 3,830,587 |
| ||
Maryland |
|
| 4,193,669 |
|
| * |
| |||||||
All other states |
| 36,874,420 |
| 33,429,843 |
|
|
| 55,860,965 |
|
| 49,509,668 |
| ||
|
| $ | 83,843,589 |
| $ | 78,167,439 |
|
| $ | 115,238,611 |
| $ | 105,980,049 |
|
Certain* State did not represent a top five state as of the loans serviced by the Company are subserviced on the Company’s behalf by other mortgage loan servicers. Loans are subserviced for the Company on a transitional basis for loans where the Company has obtained the rights to service the loans but servicing of the loans has not yet transferred to the Company’s servicing system.respective date.
Note 6—Netting of Financial Instruments
The Company uses derivative financial instruments to manage exposure to interest rate risk for the interest rate lock commitments (“IRLCs”) it makes to purchase or originate mortgage loans at specified interest rates, its inventory of mortgage loans held for sale and mortgage servicing rights (“MSRs”).MSRs. The Company has elected to present net derivative asset and liability positions, and cash collateral obtained from (or posted to) its counterparties when subject to a master netting arrangement that is legally enforceable on all counterparties in the event of default. The derivatives that are not subject to a master netting arrangement are IRLCs.
Following are summaries of derivative assets and related set offnetting amounts.
Offsetting of Derivative Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
|
| March 31, 2015 |
| December 31, 2014 |
| |||||||||||||||||||||||||||||||||
|
| Gross |
| Gross amount |
| Net amount |
| Gross |
| Gross amount |
| Net amount |
| |||||||||||||||||||||||||
|
| amount of |
| offset |
| of assets |
| amount of |
| offset |
| of assets |
| |||||||||||||||||||||||||
|
| March 31, 2014 |
| December 31, 2013 |
|
| recognized |
| in the |
| in the |
| recognized |
| in the |
| in the |
| ||||||||||||||||||||
|
| Gross |
| Gross |
| Net |
| Gross |
| Gross |
| Net |
|
| assets |
| balance sheet |
| balance sheet |
| assets |
| balance sheet |
| balance sheet |
| ||||||||||||
|
| (in thousands) |
|
| (in thousands) |
| ||||||||||||||||||||||||||||||||
Derivatives subject to master netting arrangements: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| �� |
|
|
|
|
|
|
|
|
|
| ||||||
Forward purchase contracts |
| $ | 33,048 |
| $ | — |
| $ | 33,048 |
| $ | 9,060 |
| $ | — |
| $ | 9,060 |
| |||||||||||||||||||
Forward sale contracts |
|
| 909 |
|
| — |
|
| 909 |
|
| 320 |
|
| — |
|
| 320 |
| |||||||||||||||||||
MBS put options |
| $ | 434 |
| $ | — |
| $ | 434 |
| $ | 665 |
| $ | — |
| $ | 665 |
|
|
| 449 |
|
| — |
|
| 449 |
|
| 476 |
|
| — |
|
| 476 |
|
MBS call options |
| 328 |
| — |
| 328 |
| 91 |
| — |
| 91 |
|
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
| ||||||
Forward purchase contracts |
| 1,942 |
| — |
| 1,942 |
| 416 |
| — |
| 416 |
| |||||||||||||||||||||||||
Forward sale contracts |
| 5,008 |
| — |
| 5,008 |
| 18,762 |
| — |
| 18,762 |
| |||||||||||||||||||||||||
Put options on Eurodollar futures |
| 277 |
| — |
| 277 |
| — |
| — |
| — |
| |||||||||||||||||||||||||
Call options on Eurodollar futures |
| 62 |
| — |
| 62 |
| — |
| — |
| — |
| |||||||||||||||||||||||||
Put options on interest rate futures purchase contracts |
|
| 894 |
|
| — |
|
| 894 |
|
| 862 |
|
| — |
|
| 862 |
| |||||||||||||||||||
Call options on interest rate futures purchase contracts |
|
| 4,011 |
|
| — |
|
| 4,011 |
|
| 2,193 |
|
| — |
|
| 2,193 |
| |||||||||||||||||||
Netting |
| — |
| (2,707 | ) | (2,707 | ) | — |
| (7,358 | ) | (7,358 | ) |
|
| — |
|
| (33,595) |
|
| (33,595) |
|
| — |
|
| (7,807) |
|
| (7,807) |
| ||||||
|
| 8,051 |
| (2,707 | ) | 5,344 |
| 19,934 |
| (7,358 | ) | 12,576 |
|
|
| 39,311 |
|
| (33,595) |
|
| 5,716 |
|
| 12,911 |
|
| (7,807) |
|
| 5,104 |
| ||||||
Derivatives not subject to master netting arrangements - IRLCs |
| 16,333 |
| — |
| 16,333 |
| 8,964 |
| — |
| 8,964 |
|
|
| 55,348 |
|
| — |
|
| 55,348 |
|
| 33,353 |
|
| — |
|
| 33,353 |
| ||||||
|
| $ | 24,384 |
| $ | (2,707 | ) | $ | 21,677 |
| $ | 28,898 |
| $ | (7,358 | ) | $ | 21,540 |
|
| $ | 94,659 |
| $ | (33,595) |
| $ | 61,064 |
| $ | 46,264 |
| $ | (7,807) |
| $ | 38,457 |
|
16
Derivative Assets, Financial Assets, and Collateral Held by Counterparty
The following table summarizes by significant counterparty the amount of derivative asset positions after considering master netting arrangements and financial instruments or cash pledged that do not meet the accounting guidance qualifying for netting.
|
| March 31, 2014 |
| December 31, 2013 |
| ||||||||||||||||||||
|
|
|
| Gross amount not |
|
|
|
|
| Gross amount not offset in |
|
|
| ||||||||||||
|
| Net amount |
| Financial |
| Cash |
| Net |
| Net amount |
| Financial |
| Cash |
| Net |
| ||||||||
|
| (in thousands) |
| ||||||||||||||||||||||
Interest rate lock commitments |
| $ | 16,333 |
| $ | — |
| $ | — |
| $ | 16,333 |
| $ | 8,964 |
| $ | — |
| $ | — |
| $ | 8,964 |
|
Citibank, N.A. |
| 1,330 |
| — |
| — |
| 1,330 |
| — |
| — |
| — |
| — |
| ||||||||
Bank of America, N.A. |
| 880 |
| — |
| — |
| 880 |
| 1,680 |
| — |
| — |
| 1,680 |
| ||||||||
Goldman Sachs |
| 781 |
| — |
| — |
| 781 |
| 16 |
| — |
| — |
| 16 |
| ||||||||
Daiwa Capital Markets |
| 494 |
| — |
| — |
| 494 |
| 1,190 |
| — |
| — |
| 1,190 |
| ||||||||
Credit Suisse First Boston Mortgage Capital LLC |
| 321 |
| — |
| — |
| 321 |
| 2,149 |
| — |
| — |
| 2,149 |
| ||||||||
Morgan Stanley Bank, N.A. |
| 157 |
| — |
| — |
| 157 |
| 1,704 |
| — |
| — |
| 1,704 |
| ||||||||
Others |
| 1,381 |
| — |
| — |
| 1,381 |
| 5,837 |
| — |
| — |
| 5,837 |
| ||||||||
|
| $ | 21,677 |
| $ | — |
| $ | — |
| $ | 21,677 |
| $ | 21,540 |
| $ | — |
| $ | — |
| $ | 21,540 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| March 31, 2015 |
| December 31, 2014 |
| ||||||||||||||||||||
|
|
|
|
| Gross amount not |
|
|
|
|
|
|
| Gross amount not |
|
|
|
| ||||||||
|
|
|
|
| offset in the |
|
|
|
|
|
|
| offset in the |
|
|
|
| ||||||||
|
|
|
|
| consolidated |
|
|
|
|
|
|
| consolidated |
|
|
|
| ||||||||
|
|
|
|
| balance sheet |
|
|
|
|
|
|
| balance sheet |
|
|
|
| ||||||||
|
| Net amount |
|
|
|
|
|
|
|
|
|
| Net amount |
|
|
|
|
|
|
|
|
|
| ||
|
| of assets |
|
|
| Cash |
|
|
|
| of assets |
|
|
| Cash |
|
|
| |||||||
|
| in the |
| Financial |
| collateral |
| Net |
| in the |
| Financial |
| collateral |
| Net |
| ||||||||
|
| balance sheet |
| instruments |
| received |
| amount |
| balance sheet |
| instruments |
| received |
| amount |
| ||||||||
|
| (in thousands) |
| ||||||||||||||||||||||
Interest rate lock commitments |
| $ | 55,348 |
| $ | — |
| $ | — |
| $ | 55,348 |
| $ | 33,353 |
| $ | — |
| $ | — |
| $ | 33,353 |
|
RJ O'Brien |
|
| 4,023 |
|
| — |
|
| — |
|
| 4,023 |
|
| 2,005 |
|
| — |
|
| — |
|
| 2,005 |
|
Jefferies & Co. |
|
| 937 |
|
| — |
|
| — |
|
| 937 |
|
| 764 |
|
| — |
|
| — |
|
| 764 |
|
Cantor Fitzgerald, LP |
|
| 332 |
|
| — |
|
| — |
|
| 332 |
|
| — |
|
| — |
|
| — |
|
| — |
|
Bank of New York Mellon |
|
| 221 |
|
| — |
|
| — |
|
| 221 |
|
| — |
|
| — |
|
| — |
|
| — |
|
Goldman Sachs |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 600 |
|
| — |
|
| — |
|
| 600 |
|
JP Morgan |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 526 |
|
| — |
|
| — |
|
| 526 |
|
Wells Fargo |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 379 |
|
| — |
|
| — |
|
| 379 |
|
Nomura |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 322 |
|
| — |
|
| — |
|
| 322 |
|
Others |
|
| 203 |
|
| — |
|
| — |
|
| 203 |
|
| 508 |
|
| — |
|
| — |
|
| 508 |
|
|
| $ | 61,064 |
| $ | — |
| $ | — |
| $ | 61,064 |
| $ | 38,457 |
| $ | — |
| $ | — |
| $ | 38,457 |
|
Offsetting of Derivative Liabilities and Financial Liabilities
Following is a summary of net derivative liabilities and assets sold under agreements to repurchase and related set offnetting amounts. As discussed above, all derivatives with the exception of IRLCs are subject to master netting arrangements. The assetsmortgage loans sold under agreements to repurchase do not qualify for netting.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
|
| March 31, 2015 |
| December 31, 2014 |
| |||||||||||||||||||||||||||||||||
|
|
|
|
|
| Net |
|
|
|
|
|
|
| Net |
| |||||||||||||||||||||||
|
|
|
|
|
| amount |
|
|
|
|
|
|
| amount |
| |||||||||||||||||||||||
|
| Gross |
| Gross amount |
| of liabilities |
| Gross |
| Gross amount |
| of liabilities |
| |||||||||||||||||||||||||
|
| amount of |
| offset in the |
| in the |
| amount of |
| offset in the |
| in the |
| |||||||||||||||||||||||||
|
| March 31, 2014 |
| December 31, 2013 |
|
| recognized |
| consolidated |
| consolidated |
| recognized |
| consolidated |
| consolidated |
| ||||||||||||||||||||
|
| Gross |
| Gross amount |
| Net |
| Gross |
| Gross amount |
| Net |
|
| liabilities |
| balance sheet |
| balance sheet |
| liabilities |
| balance sheet |
| balance sheet |
| ||||||||||||
|
| (in thousands) |
|
| (in thousands) |
| ||||||||||||||||||||||||||||||||
Derivatives subject to a master netting arrangement: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Forward purchase contracts |
| $ | 2,392 |
| $ | — |
| $ | 2,392 |
| $ | 6,542 |
| $ | — |
| $ | 6,542 |
|
| $ | 909 |
| $ | — |
| $ | 909 |
| $ | 141 |
| $ | — |
| $ | 141 |
|
Forward sale contracts |
| 2,327 |
| — |
| 2,327 |
| 504 |
| — |
| 504 |
|
|
| 46,711 |
|
| — |
|
| 46,711 |
|
| 16,110 |
|
| — |
|
| 16,110 |
| ||||||
Put options on interest rate futures sale contracts |
|
| 141 |
|
| — |
|
| 141 |
|
| 8 |
|
| — |
|
| 8 |
| |||||||||||||||||||
Netting |
| — |
| (4,600 | ) | (4,600 | ) | — |
| (6,787 | ) | (6,787 | ) |
|
| — |
|
| (37,814) |
|
| (37,814) |
|
| — |
|
| (10,698) |
|
| (10,698) |
| ||||||
|
| 4,719 |
| (4,600 | ) | 119 |
| 7,046 |
| (6,787 | ) | 259 |
|
|
| 47,761 |
|
| (37,814) |
|
| 9,947 |
|
| 16,259 |
|
| (10,698) |
|
| 5,561 |
| ||||||
Derivatives not subject to a master netting arrangement - IRLCs |
| 2,036 |
| — |
| 2,036 |
| 2,203 |
| — |
| 2,203 |
|
|
| 956 |
|
| — |
|
| 956 |
|
| 952 |
|
| — |
|
| 952 |
| ||||||
Total derivatives |
| 6,755 |
| (4,600 | ) | 2,155 |
| 9,249 |
| (6,787 | ) | 2,462 |
|
|
| 48,717 |
|
| (37,814) |
|
| 10,903 |
|
| 17,211 |
|
| (10,698) |
|
| 6,513 |
| ||||||
Mortgage loans sold under agreements to repurchase |
| 567,737 |
| — |
| 567,737 |
| 471,592 |
| — |
| 471,592 |
|
|
| 992,187 |
|
| — |
|
| 992,187 |
|
| 822,621 |
|
| — |
|
| 822,621 |
| ||||||
|
| $ | 574,492 |
| $ | (4,600 | ) | $ | 569,892 |
| $ | 480,841 |
| $ | (6,787 | ) | $ | 474,054 |
|
| $ | 1,040,904 |
| $ | (37,814) |
| $ | 1,003,090 |
| $ | 839,832 |
| $ | (10,698) |
| $ | 829,134 |
|
17
Derivative Liabilities, Financial Liabilities, and Collateral Held by Counterparty
The following table summarizes by significant counterparty the amount of derivative liabilities and assetsmortgage loans sold under agreements to repurchase after considering master netting arrangements and financial instruments or cash pledged that does not qualify under the accounting guidance for netting. All assets sold under agreements to repurchase are secured by sufficient collateral or exceedhave fair value that exceeds the liability amount recorded on the consolidated balance sheets.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||
|
| March 31, 2015 |
| December 31, 2014 |
| ||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
| Gross amount |
|
|
|
|
|
|
| Gross amount |
|
|
|
| ||||||||||||||||||||||||||||||||||||
|
|
|
|
| not offset in the |
|
|
|
|
|
|
| not offset in the |
|
|
|
| ||||||||||||||||||||||||||||||||||||
|
|
|
|
| consolidated |
|
|
|
|
|
|
| consolidated |
|
|
|
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| March 31, 2014 |
| December 31, 2013 |
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| balance sheet |
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| balance sheet |
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| Gross amount |
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| Gross amount |
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| Net amount |
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| Net amount |
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| Net amount of |
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| Net amount of |
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|
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|
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| of liabilities |
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| of liabilities |
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| |||||||||||||
|
| liabilities |
|
|
| Cash |
|
|
| liabilities |
|
|
| Cash |
|
|
|
| in the |
|
|
|
| Cash |
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|
|
| in the |
|
|
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| Cash |
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| |||||||||||||||
|
| in the consolidated |
| Financial |
| collateral |
| Net |
| in the consolidated |
| Financial |
| collateral |
| Net |
|
| consolidated |
| Financial |
| collateral |
| Net |
| consolidated |
| Financial |
| collateral |
| Net |
| |||||||||||||||||||
|
| balance sheet |
| instruments |
| pledged |
| amount |
| balance sheet |
| instruments |
| pledged |
| amount |
|
| balance sheet |
| instruments |
| pledged |
| amount |
| balance sheet |
| instruments |
| pledged |
| amount |
| |||||||||||||||||||
|
| (in thousands) |
|
| (in thousands) |
| |||||||||||||||||||||||||||||||||||||||||||||||
Interest rate lock commitments |
| $ | 2,036 |
| $ |
| — |
| $ | — |
| $ | 2,036 |
| $ | 2,203 |
| $ | — |
| $ | — |
| $ |
| 2,203 |
|
| $ | 956 |
| $ | — |
| $ | — |
| $ | 956 |
| $ | 952 |
| $ | — |
| $ | — |
| $ | 952 |
| |
Credit Suisse First Boston Mortgage Capital LLC |
|
| 246,998 |
|
| (246,998 | ) |
| — |
|
| — |
|
| 198,888 |
|
| (198,888 | ) |
| — |
|
| — | �� |
|
| 501,400 |
|
| (498,333) |
|
| — |
|
| 3,067 |
|
| 464,737 |
|
| (463,541) |
|
| — |
|
| 1,196 |
| |||
Bank of America, N.A. |
| 211,791 |
| (211,791 | ) | — |
| — |
| 234,511 |
| (234,511 | ) | — |
| — |
|
|
| 272,970 |
|
| (271,868) |
|
| — |
|
| 1,102 |
|
| 236,909 |
|
| (236,771) |
|
| — |
|
| 138 |
| |||||||||||
Morgan Stanley Bank, N.A. |
| 108,676 |
| (108,676 | ) | — |
| — |
| 38,193 |
| (38,193 | ) | — |
| — |
|
|
| 122,263 |
|
| (121,986) |
|
| — |
|
| 277 |
|
| 122,148 |
|
| (122,031) |
|
| — |
|
| 117 |
| |||||||||||
Citibank, N.A. |
| 272 |
| (272 | ) | — |
| — |
| — |
| — |
| — |
| — |
|
|
| 101,126 |
|
| (100,000) |
|
| — |
|
| 1,126 |
|
| 699 |
|
| (278) |
|
| — |
|
| 421 |
| |||||||||||
Nomura |
|
| 1,110 |
|
| — |
|
| — |
|
| 1,110 |
|
| — |
|
| — |
|
| — |
|
| — |
| ||||||||||||||||||||||||||||
JP Morgan |
|
| 704 |
|
| — |
|
| — |
|
| 704 |
|
| — |
|
| — |
|
| — |
|
| — |
| ||||||||||||||||||||||||||||
Daiwa Capital Markets |
|
| 598 |
|
| — |
|
| — |
|
| 598 |
|
| 291 |
|
| — |
|
| — |
|
| 291 |
| ||||||||||||||||||||||||||||
Bank of Oklahoma |
|
| 481 |
|
| — |
|
| — |
|
| 481 |
|
| 486 |
|
| — |
|
| — |
|
| 486 |
| ||||||||||||||||||||||||||||
Bank of New York Mellon |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 1,552 |
|
| — |
|
| — |
|
| 1,552 |
| ||||||||||||||||||||||||||||
Others |
| 119 |
| — |
| — |
| 119 |
| 259 |
| — |
| — |
| 259 |
|
|
| 1,482 |
|
| — |
|
| — |
|
| 1,482 |
|
| 1,360 |
|
| — |
|
| — |
|
| 1,360 |
| |||||||||||
|
| $ | 569,892 |
| $ |
| (567,737 | ) | $ |
| — |
| $ | 2,155 |
| $ | 474,054 |
| $ | (471,592 | ) | $ | — |
| $ |
| 2,462 |
|
| $ | 1,003,090 |
| $ | (992,187) |
| $ | — |
| $ | 10,903 |
| $ | 829,134 |
| $ | (822,621) |
| $ | — |
| $ | 6,513 |
|
Note 7—Fair Value
The Company’s consolidated financial statements include assets and liabilities that are measured based on their estimated fair values. The application of fair value estimates may be on a recurring or nonrecurring basis depending on the accounting principles applicable to the specific asset or liability and whether management has elected to carry the item at its estimated fair value as discussed in the following paragraphs.
Fair Value Accounting Elections
Management identified all of its non-cash financial assets and its originated MSRs relating to loans with initial interest rates of more than 4.5% and MSRs purchased subject to excess servicing spread (“ESS”) financingESS to be accounted for at estimated fair value so changes in fair value will be reflected in results of operationsincome as they occur and more timely reflect the results of the Company’s performance. Management has also identified its ESS financing to be accounted for at fair value as a means of hedging the related MSR’s fair value risk.
18
For originated MSRs relating to mortgage loans with initial interest rates of less than or equal to 4.5%, management has concluded that such assets present different risks to the Company than originated MSRs relating to mortgage loans with initial interest rates of more than 4.5% and therefore require a different risk management approach. Management’s risk management efforts relating to these assets are aimed at mainly moderating the effects of non-interest rate risks on fair value, such as the effect of changes in home prices on the assets’ fair values. Management has identified these assets for accounting using the amortization method.
Management’s risk management efforts in connection with MSRs relating to mortgage loans with initial interest rates of more than 4.5% are aimed at mainly moderating the effects of changes in interest rates on the assets’ fair values. At times duringDuring the three monthsquarters ended March 31, 20142015 and 2013,2014, derivatives were used to hedge the fair value changes of the MSRs.
Financial Statement Items Measured at Fair Value on a Recurring Basis
Following is a summary of financial statement items that are measured at estimated fair value on a recurring basis:
|
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|
|
|
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| |||||||||||||
|
| March 31, 2014 |
|
| March 31, 2015 |
| ||||||||||||||||||||
|
| Level 1 |
| Level 2 |
| Level 3 |
| Total |
|
| Level 1 |
| Level 2 |
| Level 3 |
| Total |
| ||||||||
|
| (in thousands) |
|
| (in thousands) |
| ||||||||||||||||||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Short-term investments |
| $ | 40,957 |
| $ | — |
| $ | — |
| $ | 40,957 |
|
| $ | 30,275 |
| $ | — |
| $ | — |
| $ | 30,275 |
|
Mortgage loans held for sale at fair value |
| — |
| 713,491 |
| 3,985 |
| 717,476 |
|
|
| — |
|
| 1,270,260 |
|
| 83,684 |
|
| 1,353,944 |
| ||||
Derivative assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Interest rate lock commitments |
| — |
| — |
| 16,333 |
| 16,333 |
|
|
| — |
|
| — |
|
| 55,348 |
|
| 55,348 |
| ||||
Forward purchase contracts |
| — |
| 1,942 |
| — |
| 1,942 |
|
|
| — |
|
| 33,048 |
|
| — |
|
| 33,048 |
| ||||
Forward sales contracts |
| — |
| 5,008 |
| — |
| 5,008 |
|
|
| — |
|
| 909 |
|
| — |
|
| 909 |
| ||||
MBS put options |
| — |
| 434 |
| — |
| 434 |
|
|
| — |
|
| 449 |
|
| — |
|
| 449 |
| ||||
MBS call options |
| — |
| 328 |
| — |
| 328 |
| |||||||||||||||||
Put options on Eurodollar futures |
| — |
| 277 |
| — |
| 277 |
| |||||||||||||||||
Call options on Eurodollar futures |
| — |
| 62 |
| — |
| 62 |
| |||||||||||||||||
Put options on interest rate futures purchase contracts |
|
| 894 |
|
| — |
|
| — |
|
| 894 |
| |||||||||||||
Call options on interest rate futures purchase contracts |
|
| 4,011 |
|
| — |
|
| — |
|
| 4,011 |
| |||||||||||||
Total derivative assets before netting |
| — |
| 8,051 |
| 16,333 |
| 24,384 |
|
|
| 4,905 |
|
| 34,406 |
|
| 55,348 |
|
| 94,659 |
| ||||
Netting (1) |
| — |
| — |
| — |
| (2,707 | ) |
|
| — |
|
| — |
|
| — |
|
| (33,595) |
| ||||
Total derivative assets |
| — |
| 8,051 |
| 16,333 |
| 21,677 |
|
|
| 4,905 |
|
| 34,406 |
|
| 55,348 |
|
| 61,064 |
| ||||
Investment in PennyMac Mortgage |
| 1,793 |
| — |
| — |
| 1,793 |
|
|
| 1,597 |
|
| — |
|
| — |
|
| 1,597 |
| ||||
Mortgage servicing rights at fair value |
| — |
| — |
| 246,984 |
| 246,984 |
|
|
| — |
|
| — |
|
| 361,413 |
|
| 361,413 |
| ||||
|
| $ | 42,750 |
| $ | 721,542 |
| $ | 267,302 |
| $ | 1,028,887 |
|
| $ | 36,777 |
| $ | 1,304,666 |
| $ | 500,445 |
| $ | 1,808,293 |
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Excess servicing spread financing at fair value payable to PennyMac Mortgage Investment Trust |
| $ | — |
| $ | — |
| $ | 151,019 |
| $ | 151,019 |
|
| $ | — |
| $ | — |
| $ | 222,309 |
| $ | 222,309 |
|
Derivative liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Interest rate lock commitments |
| — |
| — |
| 2,036 |
| 2,036 |
|
|
| — |
|
| — |
|
| 956 |
|
| 956 |
| ||||
Forward purchase contracts |
| — |
| 2,392 |
| — |
| 2,392 |
|
|
| — |
|
| 909 |
|
| — |
|
| 909 |
| ||||
Forward sales contracts |
| — |
| 2,327 |
| — |
| 2,327 |
|
|
| — |
|
| 46,711 |
|
| — |
|
| 46,711 |
| ||||
Put options on interest rate futures sale contracts |
|
| 141 |
|
| — |
|
| — |
|
| 141 |
| |||||||||||||
Total derivative liabilities before netting |
| — |
| 4,719 |
| 2,036 |
| 6,755 |
|
|
| 141 |
|
| 47,620 |
|
| 956 |
|
| 48,717 |
| ||||
Netting (1) |
| — |
| — |
| — |
| (4,600 | ) |
|
| — |
|
| — |
|
| — |
|
| (37,814) | �� | ||||
Total derivative liabilities |
| — |
| 4,719 |
| 2,036 |
| 2,155 |
|
|
| 141 |
|
| 47,620 |
|
| 956 |
|
| 10,903 |
| ||||
Mortgage servicing liabilities |
|
| — |
|
| — |
|
| 6,529 |
|
| 6,529 |
| |||||||||||||
|
| $ | — |
| $ | 4,719 |
| $ | 153,055 |
| $ | 153,174 |
|
| $ | 141 |
| $ | 47,620 |
| $ | 229,794 |
| $ | 239,741 |
|
(1) | Derivatives are reported net of cash collateral received and paid and, to the extent that the criteria of the accounting guidance covering the offsetting of amounts related to certain contracts are met, positions with the same counterparty are netted as part of a legally enforceable master netting agreement. |
19
(1)Derivatives are reported net of cash collateral received and paid and, to the extent that the criteria of the accounting guidance covering the offsetting of amounts related to certain contracts are met, positions with the same counterparty are netted as part of a legally enforceable master netting agreement.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| December 31, 2014 |
| ||||||||||
|
| Level 1 |
| Level 2 |
| Level 3 |
| Total |
| ||||
|
| (in thousands) |
| ||||||||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term investments |
| $ | 21,687 |
| $ | — |
| $ | — |
| $ | 21,687 |
|
Mortgage loans held for sale at fair value |
|
| — |
|
| 937,976 |
|
| 209,908 |
|
| 1,147,884 |
|
Derivative assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate lock commitments |
|
| — |
|
| — |
|
| 33,353 |
|
| 33,353 |
|
Forward purchase contracts |
|
| — |
|
| 9,060 |
|
| — |
|
| 9,060 |
|
Forward sales contracts |
|
| — |
|
| 320 |
|
| — |
|
| 320 |
|
MBS put options |
|
| — |
|
| 476 |
|
| — |
|
| 476 |
|
Put options on interest rate futures purchase contracts |
|
| 862 |
|
| — |
|
| — |
|
| 862 |
|
Call options on interest rate futures purchase contracts |
|
| 2,193 |
|
| — |
|
| — |
|
| 2,193 |
|
Total derivative assets before netting |
|
| 3,055 |
|
| 9,856 |
|
| 33,353 |
|
| 46,264 |
|
Netting (1) |
|
| — |
|
| — |
|
| — |
|
| (7,807) |
|
Total derivative assets |
|
| 3,055 |
|
| 9,856 |
|
| 33,353 |
|
| 38,457 |
|
Investment in PennyMac Mortgage Investment Trust |
|
| 1,582 |
|
|
|
|
|
|
|
| 1,582 |
|
Mortgage servicing rights at fair value |
|
| — |
|
| — |
|
| 325,383 |
|
| 325,383 |
|
|
| $ | 26,324 |
| $ | 947,832 |
| $ | 568,644 |
| $ | 1,534,993 |
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Excess servicing spread financing at fair value payable to PennyMac Mortgage Investment Trust |
| $ | — |
| $ | — |
| $ | 191,166 |
| $ | 191,166 |
|
Derivative liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate lock commitments |
|
| — |
|
| — |
|
| 952 |
|
| 952 |
|
Forward purchase contracts |
|
| — |
|
| 141 |
|
| — |
|
| 141 |
|
Forward sales contracts |
|
| — |
|
| 16,110 |
|
| — |
|
| 16,110 |
|
Put options on interest rate futures sale contracts |
|
| 8 |
|
| — |
|
| — |
|
| 8 |
|
Total derivative liabilities before netting |
|
| 8 |
|
| 16,251 |
|
| 952 |
|
| 17,211 |
|
Netting (1) |
|
| — |
|
| — |
|
| — |
|
| (10,698) |
|
Total derivative liabilities |
|
| 8 |
|
| 16,251 |
|
| 952 |
|
| 6,513 |
|
Mortgage servicing liabilities |
|
| — |
|
| — |
|
| 6,306 |
|
| 6,306 |
|
|
| $ | 8 |
| $ | 16,251 |
| $ | 198,424 |
| $ | 203,985 |
|
(1) | Derivatives are reported net of cash collateral received and paid and, to the extent that the criteria of the accounting guidance covering the offsetting of amounts related to certain contracts are met, positions with the same counterparty are netted as part of a legally enforceable master netting agreement. |
|
| December 31, 2013 |
| ||||||||||
|
| Level 1 |
| Level 2 |
| Level 3 |
| Total |
| ||||
|
| (in thousands) |
| ||||||||||
Assets: |
|
|
|
|
|
|
|
|
| ||||
Short-term investments |
| $ | 142,582 |
| $ | — |
| $ | — |
| $ | 142,582 |
|
Mortgage loans held for sale at fair value |
| — |
| 527,071 |
| 3,933 |
| 531,004 |
| ||||
Derivative assets: |
|
|
|
|
|
|
|
|
| ||||
Interest rate lock commitments |
| — |
| — |
| 8,964 |
| 8,964 |
| ||||
Forward purchase contracts |
| — |
| 416 |
| — |
| 416 |
| ||||
Forward sales contracts |
| — |
| 18,762 |
| — |
| 18,762 |
| ||||
MBS put options |
| — |
| 665 |
| — |
| 665 |
| ||||
MBS call options |
| — |
| 91 |
| — |
| 91 |
| ||||
Total derivative assets before netting |
| — |
| 19,934 |
| 8,964 |
| 28,898 |
| ||||
Netting (1) |
| — |
| — |
| — |
| (7,358 | ) | ||||
Total derivative assets |
| — |
| 19,934 |
| 8,964 |
| 21,540 |
| ||||
Investment in PennyMac Mortgage |
| 1,722 |
| — |
| — |
| 1,722 |
| ||||
Mortgage servicing rights at fair value |
| — |
| — |
| 224,913 |
| 224,913 |
| ||||
|
| $ | 144,304 |
| $ | 547,005 |
| $ | 237,810 |
| $ | 921,761 |
|
Liabilities: |
|
|
|
|
|
|
|
|
| ||||
Excess servicing spread financing at fair value payable to PennyMac Mortgage Investment Trust |
| $ | — |
| $ | — |
| $ | 138,723 |
| $ | 138,723 |
|
Derivative liabilities: |
|
|
|
|
|
|
|
|
| ||||
Interest rate lock commitments |
| — |
| — |
| 2,203 |
| 2,203 |
| ||||
Forward purchase contracts |
| — |
| 6,542 |
| — |
| 6,542 |
| ||||
Forward sales contracts |
| — |
| 504 |
| — |
| 504 |
| ||||
Total derivative liabilities before netting |
| — |
| 7,046 |
| 2,203 |
| 9,249 |
| ||||
Netting (1) |
| — |
| — |
| — |
| (6,787 | ) | ||||
Total derivative liabilities |
| — |
| 7,046 |
| 2,203 |
| 2,462 |
| ||||
|
| $ | — |
| $ | 7,046 |
| $ | 140,926 |
| $ | 141,185 |
|
20
(1)Derivatives are reported net of cash collateral received and paid and, to the extent that the criteria of the accounting guidance covering the set off of amounts related to certain contracts are met, positions with the same counterparty are netted as part of a legally enforceable master netting agreement.
As shown above, certain of the Company’s mortgage loans held for sale, IRLCs, MSRs at fair value, IRLCs, and ESS financing at fair value are measured using Level 3 inputs. Following is aare roll forwardforwards of these items for the quarters ended March 31, 20142015 and 2013 where Level 3 significant inputs were used on a recurring basis:2014:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
|
| Quarter ended March 31, 2015 |
| |||||||||||||||||||||||
|
| Mortgage |
| Net interest |
| Mortgage |
|
|
|
| ||||||||||||||||
|
| Quarter ended March 31, 2014 |
|
| loans held |
| rate lock |
| servicing |
|
|
|
| |||||||||||||
|
| Mortgage |
| Net interest |
| Mortgage |
| Total |
|
| for sale |
| commitments (1) |
| rights |
|
| Total |
| |||||||
|
| (in thousands) |
|
| (in thousands) |
| ||||||||||||||||||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Balance, December 31, 2013 |
| $ | 3,933 |
| $ | 6,761 |
| $ | 224,913 |
| $ | 235,607 |
| |||||||||||||
Repurchases of mortgage loans subject to representations and warranties |
| — |
| — |
| — |
| — |
| |||||||||||||||||
Balance, December 31, 2014 |
| $ | 209,908 |
| $ | 32,401 |
| $ | 325,383 |
| $ | 567,692 |
| |||||||||||||
Purchases |
|
| 65,613 |
|
| — |
|
| 63,137 |
|
| 128,750 |
| |||||||||||||
Sales |
|
| (125,268) |
|
| — |
|
| — |
|
| (125,268) |
| |||||||||||||
Repayments |
| (14 | ) | — |
| — |
| (14 | ) |
|
| (8,392) |
|
| — |
|
| — |
|
| (8,392) |
| ||||
Interest rate lock commitments issued, net |
| — |
| 36,438 |
| — |
| 36,438 |
|
|
| — |
|
| 82,780 |
|
| — |
|
| 82,780 |
| ||||
Purchases |
| — |
| — |
| 25,866 |
| 25,866 |
| |||||||||||||||||
MSRs received as proceeds from mortgage loan sales |
| — |
| — |
| 6,933 |
| 6,933 |
| |||||||||||||||||
Sales |
| — |
| — |
| — |
| — |
| |||||||||||||||||
Mortgage servicing rights resulting from mortgage loan sales |
|
| — |
|
| — |
|
| 2,675 |
|
| 2,675 |
| |||||||||||||
Changes in fair value included in income arising from: |
|
|
|
|
|
|
|
|
|
|
| — |
|
| — |
|
| — |
|
|
|
| ||||
Changes in instrument-specific credit risk |
| — |
|
|
|
|
| — |
|
|
| (33) |
|
| — |
|
| — |
|
| (33) |
| ||||
Other factors |
| 66 |
| 5,353 |
| (10,728 | ) | (5,309 | ) |
|
| 778 |
|
| (47) |
|
| (29,782) |
|
| (29,051) |
| ||||
|
| 66 |
| 5,353 |
| (10,728 | ) | (5,309 | ) |
|
| 745 |
|
| (47) |
|
| (29,782) |
|
| (29,084) |
| ||||
Transfers to Level 2 mortgage loans held for sale (2) |
|
| (58,922) |
|
| — |
|
| — |
|
| (58,922) |
| |||||||||||||
Transfers of interest rate lock commitments to mortgage loans held for sale |
| — |
| (34,255 | ) | — |
| (34,255 | ) |
|
| — |
|
| (60,742) |
|
| — |
|
| (60,742) |
| ||||
Balance, March 31, 2014 |
| $ | 3,985 |
| $ | 14,297 |
| $ | 246,984 |
| $ | 265,266 |
| |||||||||||||
Changes in fair value recognized during the period relating to assets still held at March 31, 2014 |
| $ | 66 |
| $ | 14,297 |
| $ | (10,728 | ) |
|
| ||||||||||||||
Balance, March 31, 2015 |
| $ | 83,684 |
| $ | 54,392 |
| $ | 361,413 |
| $ | 499,489 |
| |||||||||||||
Changes in fair value recognized during the period relating to assets still held at March 31, 2015 |
| $ | 640 |
| $ | (47) |
| $ | (29,782) |
| $ | (29,189) |
|
(1) |
|
(2) | Mortgage loans held for sale transferred from Level 3 to Level 2 as a result of the mortgage loan becoming saleable into active mortgage markets pursuant to a loan modification, borrower reperformance or resolution of deficiencies. |
|
|
|
|
|
|
|
|
|
|
|
|
| Quarter ended March 31, 2015 |
| |||||||
|
| Excess |
|
|
|
|
|
| ||
|
| servicing |
| Mortgage |
|
|
|
| ||
|
| spread |
| servicing |
|
|
|
| ||
|
| financing |
| liabilities |
| Total |
| |||
|
| (in thousands) |
| |||||||
Liabilities: |
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2014 |
| $ | 191,166 |
| $ | 6,306 |
| $ | 197,472 |
|
Proceeds received from issuance of excess servicing spread |
|
| 46,412 |
|
| — |
|
| 46,412 |
|
Mortgage servicing liabilities resulting from mortgage loan sales |
|
| — |
|
| 2,928 |
|
| 2,928 |
|
Excess servicing spread issued pursuant to a recapture agreement with PennyMac Mortgage Investment Trust |
|
| 1,246 |
|
| — |
|
| 1,246 |
|
Accrual of interest on excess servicing spread |
|
| 3,752 |
|
| — |
|
| 3,752 |
|
Repayments |
|
| (12,731) |
|
| — |
|
| (12,731) |
|
Changes in fair value included in income |
|
| (7,536) |
|
| (2,705) |
|
| (10,241) |
|
Balance, March 31, 2015 |
| $ | 222,309 |
| $ | 6,529 |
| $ | 228,838 |
|
Changes in fair value recognized during the period relating to liabilities still held at March 31, 2015 |
| $ | (7,536) |
| $ | (2,705) |
| $ | (10,241) |
|
21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Quarter ended March 31, 2014 |
| ||||||||||
|
| Mortgage |
| Net interest |
| Mortgage |
|
|
|
| |||
|
| loans held |
| rate lock |
| servicing |
|
|
|
| |||
|
| for sale |
| commitments (1) |
| rights |
| Total |
| ||||
|
| (in thousands) |
| ||||||||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2013 |
| $ | 3,933 |
| $ | 6,761 |
| $ | 224,913 |
| $ | 235,607 |
|
Purchases |
|
| — |
|
| — |
|
| 25,866 |
|
| 25,866 |
|
Repayments |
|
| (14) |
|
| — |
|
| — |
|
| (14) |
|
Interest rate lock commitments issued, net |
|
| — |
|
| 36,438 |
|
| — |
|
| 36,438 |
|
Mortgage servicing rights resulting from mortgage loan sales |
|
| — |
|
| — |
|
| 6,933 |
|
| 6,933 |
|
Changes in fair value included in income arising from: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in instrument-specific credit risk |
|
| — |
|
| — |
|
|
|
|
| — |
|
Other factors |
|
| 66 |
|
| 5,353 |
|
| (10,728) |
|
| (5,309) |
|
|
|
| 66 |
|
| 5,353 |
|
| (10,728) |
|
| (5,309) |
|
Transfers of interest rate lock commitments to mortgage loans held for sale |
|
| — |
|
| (34,255) |
|
| — |
|
| (34,255) |
|
Balance, March 31, 2014 |
| $ | 3,985 |
| $ | 14,297 |
| $ | 246,984 |
| $ | 265,266 |
|
Changes in fair value recognized during the period relating to assets still held at March 31, 2014 |
| $ | 66 |
| $ | 14,297 |
| $ | (10,728) |
| $ | 3,635 |
|
(1) | For the purpose of this table, the interest rate lock asset and liability positions are shown net. |
Excess | ||||
servicing | ||||
spread | ||||
financing | ||||
(in thousands) | ||||
Liability: | ||||
Balance, December 31, 2013 | $ | 138,723 | ||
Proceeds received from issuance of excess servicing spread | 20,526 | |||
Excess servicing spread issued pursuant to a recapture agreement with PennyMac Mortgage Investment | 1,113 | |||
Accrual of interest on excess servicing spread | 2,862 | |||
Repayments | (7,413) | |||
Changes in fair value included in income | (4,792) | |||
Balance, March 31, 2014 | $ | 151,019 | ||
Changes in fair value recognized during the period relating to liability still held at March 31, 2014 | $ | (4,792) |
The information used in the preceding roll forwards represents activity for any financial statement items identified as using Level 3 significant inputs at either the beginning or the end of the periods presented. The Company had no transfers in or out among the levels other thanarising from transfers of IRLCs to mortgage loans held for sale at fair value upon purchase or funding of the respective mortgage loans.loans and from the return to salability in the active secondary market of certain loans held for sale. Such loans became saleable into the active secondary market due to curing of the
22
loans’ defects through borrower reperformance, modification of the loan or resolution of deficiencies contained in the borrowers’ credit file.
Net gains (losses) from changes in estimated fair values included in earningsincome for financial statement items carried at estimated fair value as a result of management’s election of the fair value option by income statement line item are summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
|
| Quarter ended March 31, |
| |||||||||||||||||||||||||||||||||||
|
| 2015 |
| 2014 |
| |||||||||||||||||||||||||||||||||
|
| Net gains on |
|
|
|
|
|
|
| Net gains on |
|
|
|
|
|
|
| |||||||||||||||||||||
|
| mortgage |
|
|
|
|
|
|
| mortgage |
|
|
|
|
|
|
| |||||||||||||||||||||
|
| Quarter ended March 31, |
|
| loans held |
| Net loan |
|
|
|
| loans held |
| Net loan |
|
|
|
| ||||||||||||||||||||
|
| 2014 |
| 2013 |
|
| for sale at |
| servicing |
|
|
|
| for sale at |
| servicing |
|
|
|
| ||||||||||||||||||
|
| Net gains on mortgage |
| Net |
| Total |
| Net gains on mortgage |
| Net |
| Total |
|
| fair value |
| fees |
| Total |
| fair value |
| fees |
| Total |
| ||||||||||||
|
| (in thousands) |
|
| (in thousands) |
| ||||||||||||||||||||||||||||||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Mortgage loans held for sale at fair value |
| $ | 49,902 |
| $ | — |
| $ | 49,902 |
| $ | 26,161 |
| $ | — |
| $ | 26,161 |
|
| $ | 84,531 |
| $ | — |
| $ | 84,531 |
| $ | 49,902 |
| $ | — |
| $ | 49,902 |
|
Mortgage servicing rights at fair value |
| — |
| (10,728 | ) | (10,728 | ) | — |
| (1,179 | ) | (1,179 | ) |
|
| — |
|
| (29,782) |
|
| (29,782) |
|
| — |
|
| (10,728) |
|
| (10,728) |
| ||||||
|
| $ | 49,902 |
| $ | (10,728 | ) | $ | 39,174 |
| $ | 26,161 |
| $ | (1,179 | ) | $ | 24,982 |
|
| $ | 84,531 |
| $ | (29,782) |
| $ | 54,749 |
| $ | 49,902 |
| $ | (10,728) |
| $ | 39,174 |
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Excess servicing spread financing at fair value payable to PennyMac Mortgage Investment Trust |
| $ | — |
| $ | 4,792 |
| $ | 4,792 |
| $ | — |
| $ | — |
| $ | — |
|
| $ | — |
| $ | 7,536 |
| $ | 7,536 |
| $ | — |
| $ | 4,792 |
| $ | 4,792 |
|
Mortgage servicing liabilities |
|
| — |
|
| 2,705 |
|
| 2,705 |
|
| — |
|
| — |
|
| — |
| |||||||||||||||||||
|
| $ | — |
| $ | 4,792 |
| $ | 4,792 |
| $ | — |
| $ | — |
| $ | — |
|
| $ | — |
| $ | 10,241 |
| $ | 10,241 |
| $ | — |
| $ | 4,792 |
| $ | 4,792 |
|
Following are the fair value and related principal amounts due upon maturity of assets and liabilities accounted for under the fair value option:
|
|
|
|
|
|
|
|
|
|
| ||||||||||
|
| March 31, 2015 |
| |||||||||||||||||
|
|
|
|
| Principal |
|
|
|
| |||||||||||
|
|
|
|
| amount |
|
|
|
| |||||||||||
|
| March 31, 2014 |
|
| Fair |
| due upon |
|
|
|
| |||||||||
|
| Fair |
| Principal amount |
| Difference |
|
| value |
| maturity |
| Difference |
| ||||||
|
| (in thousands) |
|
| (in thousands) |
| ||||||||||||||
Mortgage loans held for sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Current through 89 days delinquent |
| $ | 714,558 |
| $ | 675,815 |
| $ | 38,743 |
|
| $ | 1,284,168 |
| $ | 1,209,848 |
| $ | 74,320 |
|
90 days or more delinquent: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Not in foreclosure |
| 2,108 |
| 2,116 |
| (8 | ) |
|
| 43,214 |
|
| 45,670 |
|
| (2,456) |
| |||
In foreclosure |
| 810 |
| 904 |
| (94 | ) |
|
| 26,562 |
|
| 27,588 |
|
| (1,026) |
| |||
|
| $ | 717,476 |
| $ | 678,835 |
| $ | 38,641 |
|
| $ | 1,353,944 |
| $ | 1,283,106 |
| $ | 70,838 |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
|
| December 31, 2014 |
| |||||||||||||||||
|
|
|
|
| Principal |
|
|
|
| |||||||||||
|
|
|
|
| amount |
|
|
|
| |||||||||||
|
| December 31, 2013 |
|
| Fair |
| due upon |
|
|
|
| |||||||||
|
| Fair |
| Principal amount |
| Difference |
|
| value |
| maturity |
| Difference |
| ||||||
|
| (in thousands) |
|
| (in thousands) |
| ||||||||||||||
Mortgage loans held for sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Current through 89 days delinquent |
| $ | 524,665 |
| $ | 504,705 |
| $ | 19,960 |
|
| $ | 950,697 |
| $ | 894,924 |
| $ | 55,773 |
|
90 days or more delinquent: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Not in foreclosure |
| 5,567 |
| 5,479 |
| 88 |
|
|
| 126,171 |
|
| 128,533 |
|
| (2,362) |
| |||
In foreclosure |
| 772 |
| 660 |
| 112 |
|
|
| 71,016 |
|
| 72,039 |
|
| (1,023) |
| |||
|
| $ | 531,004 |
| $ | 510,844 |
| $ | 20,160 |
|
| $ | 1,147,884 |
| $ | 1,095,496 |
| $ | 52,388 |
|
23
Financial Statement Items Measured at Fair Value on a Nonrecurring Basis
Following is a summary of financial statement items that are measured at estimated fair value on a nonrecurring basis:
|
| March 31, 2014 |
| ||||||||||
|
| Level 1 |
| Level 2 |
| Level 3 |
| Total |
| ||||
|
| (in thousands) |
| ||||||||||
Mortgage servicing rights at lower of amortized cost or fair value |
| $ | — |
| $ | — |
| $ | 69,160 |
| $ | 69,160 |
|
|
| $ | — |
| $ | — |
| $ | 69,160 |
| $ | 69,160 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| March 31, 2015 |
| ||||||||||
|
| Level 1 |
| Level 2 |
| Level 3 |
| Total |
| ||||
|
| (in thousands) |
| ||||||||||
Mortgage servicing rights at lower of amortized cost or fair value |
| $ | — |
| $ | — |
| $ | 305,005 |
| $ | 305,005 |
|
|
| $ | — |
| $ | — |
| $ | 305,005 |
| $ | 305,005 |
|
|
| December 31, 2013 |
| ||||||||||
|
| Level 1 |
| Level 2 |
| Level 3 |
| Total |
| ||||
|
| (in thousands) |
| ||||||||||
Mortgage servicing rights at lower of amortized cost or fair value |
| $ | — |
| $ | — |
| $ | 136,690 |
| $ | 136,690 |
|
|
| $ | — |
| $ | — |
| $ | 136,690 |
| $ | 136,690 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| December 31, 2014 |
| ||||||||||
|
| Level 1 |
| Level 2 |
| Level 3 |
| Total |
| ||||
|
| (in thousands) |
| ||||||||||
Mortgage servicing rights at lower of amortized cost or fair value |
| $ | — |
| $ | — |
| $ | 139,505 |
| $ | 139,505 |
|
|
| $ | — |
| $ | — |
| $ | 139,505 |
| $ | 139,505 |
|
The following table summarizes the total gains (losses)losses on assets measured at estimated fair valuesvalue on a nonrecurring basis:
|
| Quarter ended March 31, |
| ||||
|
| 2014 |
| 2013 |
| ||
|
| (in thousands) |
| ||||
Mortgage servicing rights at lower of amortized cost or fair value |
| $ | (421 | ) | $ | 555 |
|
|
| $ | (421 | ) | $ | 555 |
|
|
|
|
|
|
|
|
|
|
| Quarter ended March 31, |
| ||||
|
| 2015 |
| 2014 |
| ||
|
| (in thousands) |
| ||||
Mortgage servicing rights at lower of amortized cost or fair value |
| $ | (31,692) |
| $ | (421) |
|
|
| $ | (31,692) |
| $ | (421) |
|
Fair Value of Financial Instruments Carried at Amortized Cost
The Company’s Cash as well as its Carried Interest due from Investment Funds, Mortgage loans sold under agreements to repurchase, Note payable, Carried Interest due from Investment Funds, and amounts receivable from and payable to the Advised Entities are carried at amortized cost.
Cash is measured using a “Level 1” significant inputs. The Company’s borrowings carried at amortized cost do not have active markets or observable inputs and the fair value is measured using management’s best estimate of fair value, where the inputs into the determination of fair value require significant management judgment or estimation. The Company has classified these financial instruments as “Level 3” financial statement items as of March 31, 2014 and December 31, 2013 due to the lack of current market activity and the Company’s reliance on unobservable inputs to estimate the fair value.input.
Management has concluded that the carrying value of the Carried Interest due from Investment Funds approximates its fair value as the balance represents the amount distributable to the Company at the balance sheet date assuming liquidation of the Investment Funds. Management has concluded that
The Company’s Mortgage loans sold under agreements to repurchase, Mortgage loan participation and sale agreement and Note payable are carried at amortized cost. These borrowings do not have observable inputs and the estimated fair value is measured using management’s estimate of fair value, where the Note payable approximatesinputs into the agreements’ carryingdetermination of fair value due to the agreement’s short term and variable interest rate.require significant judgment or estimation. The Company has classified these financial instruments as “Level 3” financial statement items as of March 31, 2015 and December 31, 2014 due to the lack of current market activity and the Company’s reliance on unobservableobservable inputs to estimate these instruments’the fair value. Management has concluded that the fair value of these borrowings approximates their carrying values due to their short terms and variable interest rates.
The Company also carries the receivablereceivables from and payablepayables to the Advised Entities at cost. Management has concluded that the estimated fair value of such balances approximates thetheir carrying valuevalues due to the short terms of such balances.
Valuation Techniques and Assumptions
Most of the Company’s financial assets includingand its ESS liability are carried at fair value with changes in fair value recognized in current period income. Certain of the Company’s financial assets and all of its MSRs and ESS are “Level 3” financial statement items which require the use of significant unobservable inputs inthat are significant to the estimation of the items’ fair values. Unobservable inputs reflect the Company’s own assumptions about the factors that market participants use in pricing an asset or liability, and are based on the best information available under the circumstances.
24
Due to the difficulty in estimating the fair values of “Level 3” financial statement items, management has assigned the estimating of fair value of these assets to specialized staff and subjects the valuation process to significant executive management oversight. The Company’s Financial Analysis and Valuation group (the “FAV group”), which is responsible for valuing and monitoring the Company’s investment portfolios and maintenance of its valuation policies and procedures, estimatesestimating the fair values of “Level 3” financial instrumentsstatement items and MSRs.maintaining its valuation policies and procedures.
TheWith respect to the Level 3 valuations, the FAV group reports to the Company’s senior management valuation committee, which oversees and approves the valuations. The FAV group monitors the models used for valuation of the Company’s “Level 3” financial statement items, including the models’ performance versus actual results, and reports those results to the Company’s senior management valuation committee. The results developed in the FAV group’s monitoring activities may be used to calibrate subsequent projections used for valuation.Company’s senior management valuation committee includes PFSI’s chief executive, financial, operating, credit and asset/liability management officers.
The FAV group is responsible for reporting to the Company’s senior management valuation committee on a monthly basis on the changes in the valuation of the portfolio, including major factors affecting the valuation and any changes in model methods and assumptions.inputs. To assess the reasonableness of its valuations, the FAV group presents an analysis of the effect on the valuation of changes to the significant inputs to the models.
Following is a description of the techniques and assumptionsinputs used in estimating the fair values of “Level 2” and “Level 3” fair value financial statement items:
Mortgage Loans Held for Sale
MostA substantial portion of the Company’s mortgage loans held for sale at fair value are salablesaleable into active markets and are therefore categorized as “Level 2” fair value financial statement items and their fair values are estimateddetermined using their quoted market or contracted price or market price equivalent.
Certain of the Company’s mortgage loans may become non salablenon-saleable into active markets due to identification of a defect by the Company or to the repurchase of a mortgage loanloans with an identified defect. Becausedefects. The Company may also purchase certain delinquent government guaranteed or insured mortgage loans from Ginnie Mae guaranteed pools in its servicing portfolio. The Company’s right to purchase such mortgage loans are generallyarises as the result of the borrower’s failure to make payments for at least three consecutive months preceding the month of repurchase by the Company and provides an alternative to the Company’s obligation to continue advancing principal and interest at the coupon rate of the related Ginnie Mae security. To the extent such mortgage loans (“early buyout loans”) have not salablebecome saleable into activeanother Ginnie Mae guaranteed security by becoming current either through the borrower’s reperformance or through completion of a modification of the mortgage markets, they are classified asloan’s terms, the Company measures such mortgage loans along with other mortgage loans with identified defects using “Level 3” financial statement items. inputs.
The significant unobservable inputs used in the fair value measurement of the Company’s “non-salable”“Level 3” mortgage loans held for sale at fair value are discount rates, home price projections, voluntary prepayment speeds and defaulttotal prepayment speeds. Significant changes in any of those inputs in isolation could result in a significant change to the mortgage loans’ fair value measurement. Increases in home price projections are generally accompanied by an increase in voluntary prepayment speeds.
25
Following is a quantitative summary of key “Level 3” inputs used in the valuation of “Level 3” mortgage loans held for sale at fair value:
|
| March 31, 2014 |
| December 31, 2013 |
|
|
|
|
|
|
Key inputs |
| Range |
|
| March 31, 2015 |
| December 31, 2014 |
| ||
Discount rate |
| 7.8% - 13.4% |
| 7.8% - 13.4% |
|
|
|
|
|
|
|
| (9.2%) |
| (8.9%) |
| |||||
Range |
| 2.4% - 9.7% |
| 2.3% - 9.6% |
| |||||
Weighted average |
| 2.6% |
| 2.4% |
| |||||
Twelve-month projected housing price index change |
| 4.1% - 4.3% |
| 4.5% - 4.7% |
|
|
|
|
|
|
|
| (4.2%) |
| (4.6%) |
| |||||
Prepayment speed (1) |
| 2.3% - 5.8% |
| 1.6% - 5.1% |
| |||||
|
| (4.9%) |
| (4.4%) |
| |||||
Range |
| 3.3% - 6.1% |
| 4.2% - 5.4% |
| |||||
Weighted average |
| 3.7% |
| 4.5% |
| |||||
Prepayment/resale speed (1) |
|
|
|
|
| |||||
Range |
| 0.8% - 17.1% |
| 1.3% - 15.5% |
| |||||
Weighted average |
| 15.7% |
| 15.1% |
| |||||
Total prepayment speed (2) |
| 4.6% - 5.8% |
| 2.9% - 5.2% |
|
|
|
|
|
|
|
| (5.5%) |
| (4.7%) |
| |||||
Range |
| 1.0% - 39.1% |
| 2.1% - 38.1% |
| |||||
Weighted average |
| 34.7% |
| 35.7% |
|
(1) PrepaymentVoluntary prepayment/resale speed is measured using Life Voluntary Conditional Prepayment Rate (“CPR”).
(2)Total prepayment speed is measured using Life Total CPR.
Changes in fair value attributable to changes in instrument specific credit risk are measured by reference to the change in the respective loan’s delinquency status at period end from the later of the beginning of the period or acquisition date. Changes in fair value of mortgage loans held for sale are included in Net gains on mortgage loans held for sale at fair value in the consolidated statements of income.
Derivative Financial Instruments
The Company categorizes IRLCs as a “Level 3” financial statement item. The Company estimates the fair value of an IRLC based on quoted Agency mortgage-backed securities (“MBS”) prices, its estimate of the fair value of the MSRs it expects to receive in the sale of the mortgage loans and the probability that the mortgage loan will fund or be purchased (the “pull-through rate”).
The significant unobservable inputs used in the fair value measurement of the Company’s IRLCs are the pull-through rate and the MSR component of the Company’s estimate of the value of the mortgage loans it has committed to purchase. Significant changes in the pull-through rate or the MSR component of the IRLCs, in isolation, could result in significant changes in fair value measurement. The financial effects of changes in these assumptions are generally inversely correlated as increasing interest rates have a positive effect on the fair value of the MSR component of IRLC fair value, but increase the pull throughpull-through rate for loans that have decreased in fair value.
Following is a quantitative summary of key unobservable inputs used in the valuation of IRLCs:
|
|
|
|
|
| |||||
|
| March 31, 2014 |
| December 31, 2013 |
|
|
|
|
|
|
Key inputs |
| Range |
|
| March 31, 2015 |
| December 31, 2014 |
| ||
Pull-through rate |
| 60.8% - 98.0% |
| 62.1% - 98.1% |
|
|
|
|
|
|
|
| (78.5%) |
| (81.7%) |
| |||||
MSR value expressed as: |
|
|
|
|
| |||||
Range |
| 54.1% - 100.0% |
| 55.4% - 99.9% |
| |||||
Weighted average |
| 87.5% |
| 85.5% |
| |||||
Mortgage servicing rights value expressed as: |
|
|
|
|
| |||||
Servicing fee multiple |
| 1.9 - 5.1 |
| 2.0 - 5.0 |
|
|
|
|
|
|
|
| (3.7) |
| (3.7) |
| |||||
Percentage of UPB |
| 0.4% - 2.4% |
| 0.4% - 2.4% |
| |||||
|
| (1.0%) |
| (0.9%) |
| |||||
Range |
| 1.9 - 4.8 |
| 2.0 - 5.0 |
| |||||
Weighted average |
| 3.2 |
| 3.7 |
| |||||
Percentage of unpaid principal balance |
|
|
|
|
| |||||
Range |
| 0.4% - 3.0% |
| 0.4% - 3.1% |
| |||||
Weighted average |
| 1.4% |
| 1.2% |
|
26
Hedging Derivatives
The remaining derivative financial instruments held or issued by the Company are categorized as “Level 1” or “Level 2” financial statement items. The Company estimates the fair value of commitments to sell or purchase loans based on quotedobservable MBS prices. The Company estimates the fair value of the MBS options and futures it purchases and sells based on observed interest rate volatilities in the MBS market. Changes in fair value of IRLCs and related hedging derivatives are included in Net gains on mortgage loans held for sale at fair value in the consolidated statements of income.
Mortgage Servicing Rights
MSRs are categorized as “Level 3” fair value financial statement items. The Company uses a discounted cash flow approach to estimate the fair value of MSRs. This approach consists of projecting net servicing cash flows discounted at a rate that management believes market participants would use in their determinations of fair value. The key inputs used in the estimation of the fair value of MSRs include prepayment rates of the underlying loans, the applicable discount rate or pricing spread, and the per-loan annual cost to service the respective mortgage loans.
The results of the estimates of fair value of MSRs are reported to the Company’s senior management valuation committee as part of their review and approval of monthly valuation results. Changes in the fair value of MSRs are included in Net servicing fees—Amortization, impairment and change in estimated fair value of mortgage servicing rights in the consolidated statements of income.
Key assumptionsFollowing are the key inputs used in determining the fair value of MSRs at the time of initial recognition, are as follows:excluding MSR purchases:
|
| Quarter ended March 31, |
|
|
|
|
|
|
|
|
|
| ||||||
|
| 2014 |
| 2013 |
|
| Quarter ended March 31, |
| ||||||||||
|
| Range |
|
| 2015 |
| 2014 |
| ||||||||||
|
| Fair |
| Amortized |
| Fair |
| Amortized |
|
| Fair |
| Amortized |
| Fair |
| Amortized |
|
|
| (Amount recognized and UPB of underlying mortgage loans in thousands) |
|
| value |
| cost |
| value |
| cost |
| ||||||
|
| (Amount recognized and unpaid principal balance of underlying mortgage loans in thousands) |
| |||||||||||||||
MSR and pool characteristics: |
|
|
|
|
|
|
|
|
| |||||||||
Amount recognized |
| $6,933 |
| $30,581 |
| $3 |
| $41,733 |
|
| $2,675 |
| $67,281 |
| $6,933 |
| $30,581 |
|
UPB of underlying mortgage loans |
| $511,467 |
| $2,623,599 |
| $324 |
| $3,856,356 |
| |||||||||
Weighted-average servicing fee rate (in basis points) |
| 32 |
| 30 |
| 25 |
| 26 |
| |||||||||
|
|
|
|
|
|
|
|
|
| |||||||||
Unpaid principal balance of underlying mortgage loans |
| $241,518 |
| $5,137,085 |
| $511,467 |
| $2,623,599 |
| |||||||||
Weighted average servicing fee rate (in basis points) |
| 31 |
| 33 |
| 32 |
| 30 |
| |||||||||
Inputs: |
|
|
|
|
|
|
|
|
| |||||||||
Pricing spread (1) |
| 8.5% - 13.8% |
| 7.3% - 14.8% |
| 8.6% - 8.9% |
| 5.4% - 12.5% |
|
|
|
|
|
|
|
|
|
|
|
| (11.2%) |
| (10.5%) |
| (8.7%) |
| (8.5%) |
| |||||||||
Range |
| 7.3% - 14.4% |
| 6.8% - 15.9% |
| 8.5% - 13.8% |
| 7.3% - 14.8% |
| |||||||||
Weighted average |
| 10.7% |
| 9.8% |
| 11.2% |
| 10.5% |
| |||||||||
Annual total prepayment speed (2) |
| 7.9% - 17.2% |
| 7.6% - 45.3% |
| 11.3% - 12.7% |
| 8.5% - 16.5% |
|
|
|
|
|
|
|
|
|
|
|
| (8.5%) |
| (8.1%) |
| (12.4%) |
| (8.8%) |
| |||||||||
Range |
| 7.8% - 62.4% |
| 7.6% - 39.4% |
| 7.9% - 17.2% |
| 7.6% - 45.3% |
| |||||||||
Weighted average |
| 11.9% |
| 8.9% |
| 8.5% |
| 8.1% |
| |||||||||
Life (in years) |
| 2.7 – 7.5 |
| 1.5 – 7.5 |
| 6.5 – 6.7 |
| 2.9 – 6.9 |
|
|
|
|
|
|
|
|
|
|
|
| (7.2) |
| (7.1) |
| (6.5) |
| (6.7) |
| |||||||||
Range |
| 1.1 – 7.3 |
| 1.8 – 7.3 |
| 2.7 – 7.5 |
| 1.5 – 7.5 |
| |||||||||
Weighted average |
| 6.1 |
| 6.9 |
| 7.2 |
| 7.1 |
| |||||||||
Per-loan annual cost of servicing |
| $68 – $100 |
| $68 – $100 |
| $68 – $68 |
| $68 – $120 |
|
|
|
|
|
|
|
|
|
|
|
| ($97) |
| ($100) |
| ($68) |
| ($100) |
| |||||||||
Range |
| $59 – $82 |
| $59 – $82 |
| $68 – $100 |
| $68 – $100 |
| |||||||||
Weighted average |
| $74 |
| $75 |
| $97 |
| $100 |
|
(1) | Pricing spread represents a margin that is applied to a reference interest rate’s forward rate curve to develop periodic discount rates. The Company applies a pricing spread to the United States Dollar London Interbank Offered Rate (“LIBOR”) curve for purposes of discounting cash flows relating to MSRs acquired as proceeds from the sale of mortgage loans. |
(1)Pricing spread represents a margin that is applied to a reference interest rate’s forward rate curve to develop periodic discount rates. The Company applies a pricing spread to the United States Dollar London Interbank Offering Rate (“LIBOR”) curve for purposes of discounting cash flows relating to MSRs acquired as proceeds from the sale of mortgage loans.
(2) | Prepayment speed is measured using Life Total CPR. |
(2)Prepayment speed is measured using Life Total CPR.
27
Following is a quantitative summary of key inputs used in the valuation of the Company’s MSRs at period end and the effect on the estimated fair value from adverse changes in those assumptionsinputs (weighted averages are based upon UPB):
Purchased MSRs Backed by Distressed Mortgage Loans
|
| March 31, 2014 |
| December 31, 2013 |
| ||||
|
| Range |
| ||||||
|
| Fair |
| Amortized |
| Fair |
| Amortized |
|
|
| (Carrying value, UPB of underlying mortgage loans and effect on value amounts in thousands) |
| ||||||
Carrying value |
| $10,896 |
| — |
| $10,129 |
| — |
|
UPB of underlying mortgage loans |
| $907,981 |
| — |
| $969,794 |
| — |
|
Weighted-average note interest rate |
| 5.79% |
| — |
| 5.80% |
| — |
|
Weighted-average servicing fee rate (in basis points) |
| 50 |
| — |
| 50 |
| — |
|
Discount rate |
| 12.1% – 12.1% |
| — |
| 15.3% – 15.3% |
| — |
|
|
| (12.1%) |
| — |
| (15.3%) |
| — |
|
Effect on fair value of: |
|
|
|
|
|
|
|
|
|
5% adverse change |
| ($229) |
| — |
| ($251) |
| — |
|
10% adverse change |
| ($449) |
| — |
| ($490) |
| — |
|
20% adverse change |
| ($864) |
| — |
| ($937) |
| — |
|
Life (in years) |
| 5.1 - 5.1 |
| — |
| 5.0 - 5.0 |
| — |
|
|
| (5.1) |
|
|
| (5.0) |
|
|
|
Prepayment speed (1) |
| 11.3% – 11.3% |
| — |
| 11.4% – 11.4% |
| — |
|
|
| (11.3%) |
| — |
| (11.4%) |
| — |
|
Effect on fair value of: |
|
|
|
|
|
|
|
|
|
5% adverse change |
| ($258) |
| — |
| ($231) |
| — |
|
10% adverse change |
| ($511) |
| — |
| ($456) |
| — |
|
20% adverse change |
| ($1,000) |
| — |
| ($898) |
| — |
|
Per-loan annual cost of servicing |
| $211 – $211 |
| — |
| $218 – $218 |
| — |
|
|
| ($211) |
| — |
| ($218) |
| — |
|
Effect on fair value of: |
|
|
|
|
|
|
|
|
|
5% adverse change |
| ($211) |
| — |
| ($197) |
| — |
|
10% adverse change |
| ($421) |
| — |
| ($393) |
| — |
|
20% adverse change |
| ($842) |
| — |
| ($787) |
| — |
|
|
|
|
|
|
|
|
|
|
|
|
| March 31, 2015 |
| December 31, 2014 |
| ||||
|
| Fair |
| Amortized |
| Fair |
| Amortized |
|
|
| value |
| cost |
| value |
| cost |
|
|
| (Carrying value, unpaid principal balance of underlying |
| ||||||
|
| mortgage loans and effect on fair value amounts in thousands) |
| ||||||
MSR and pool characteristics: |
|
|
|
|
|
|
|
|
|
Carrying value |
| $361,413 |
| $428,998 |
| $325,383 |
| $405,445 |
|
Unpaid principal balance of underlying mortgage loans |
| $35,738,618 |
| $36,247,371 |
| $30,945,000 |
| $33,745,613 |
|
Weighted average note interest rate |
| 4.15% |
| 3.81% |
| 4.24% |
| 3.82% |
|
Weighted average servicing fee rate (in basis points) |
| 30 |
| 30 |
| 31 |
| 30 |
|
Inputs: |
|
|
|
|
|
|
|
|
|
Pricing spread (1) (2) |
|
|
|
|
|
|
|
|
|
Range |
| 3.4% – 21.3% |
| 6.3% – 16.4% |
| 2.9% – 21.3% |
| 6.3% – 15.3% |
|
Weighted average |
| 9.2% |
| 9.3% |
| 9.2% |
| 9.7% |
|
Effect on fair value of: |
|
|
|
|
|
|
|
|
|
5% adverse change |
| ($6,167) |
| ($8,680) |
| ($5,550) |
| ($8,710) |
|
10% adverse change |
| ($12,120) |
| ($17,037) |
| ($10,908) |
| ($17,083) |
|
20% adverse change |
| ($23,429) |
| ($32,848) |
| ($21,084) |
| ($32,890) |
|
Average life (in years) |
|
|
|
|
|
|
|
|
|
Range |
| 0.4 – 8.2 |
| 1.3 – 7.3 |
| 0.4 – 8.2 |
| 1.6 – 7.3 |
|
Weighted average |
| 5.7 |
| 6.7 |
| 5.8 |
| 6.8 |
|
Prepayment speed (1) (3) |
|
|
|
|
|
|
|
|
|
Range |
| 7.6% – 66.4% |
| 7.7% – 56.5% |
| 7.6% – 60.5% |
| 7.6% – 42.8% |
|
Weighted average |
| 11.8% |
| 9.4% |
| 11.2% |
| 8.5% |
|
Effect on fair value of: |
|
|
|
|
|
|
|
|
|
5% adverse change |
| ($8,094) |
| ($8,635) |
| ($7,052) |
| ($7,359) |
|
10% adverse change |
| ($15,866) |
| ($16,977) |
| ($13,835) |
| ($14,494) |
|
20% adverse change |
| ($30,519) |
| ($32,837) |
| ($26,654) |
| ($28,132) |
|
Annual per-loan cost of servicing (1) |
|
|
|
|
|
|
|
|
|
Range |
| $60 – $99 |
| $59 – $82 |
| $59 – $109 |
| $59 – $81 |
|
Weighted average |
| $76 |
| $76 |
| $76 |
| $75 |
|
Effect on fair value of: |
|
|
|
|
|
|
|
|
|
5% adverse change |
| ($3,344) |
| ($3,201) |
| ($2,910) |
| ($2,992) |
|
10% adverse change |
| ($6,688) |
| ($6,402) |
| ($5,819) |
| ($5,983) |
|
20% adverse change |
| ($13,377) |
| ($12,803) |
| ($11,638) |
| ($11,967) |
|
(1) | The effect on value of an adverse change in one of the above-mentioned key inputs may result in recognition of MSR impairment. The extent of the recognized MSR impairment will depend on the relationship of fair value to the carrying value of such MSRs. |
(1)Prepayment speed is measured using Life Voluntary CPR.
(2) | Pricing spread represents a margin that is applied to a reference interest rate’s forward curve to develop periodic discount rates. The Company applies a pricing spread to the United States Dollar LIBOR curve for purposes of discounting cash flows relating to MSRs acquired as proceeds from the sale of mortgage loans and purchased MSRs not backed by pools of distressed mortgage loans. |
(3) | Prepayment speed is measured using Life Total CPR. |
All Other MSRs
|
| March 31, 2014 |
| December 31, 2013 |
| ||||
|
| Range |
| ||||||
|
| Fair |
| Amortized |
| Fair |
| Amortized |
|
|
| (Carrying value, UPB of underlying mortgage loans and effect on value amounts in thousands) |
| ||||||
Carrying value |
| $236,088 |
| $282,144 |
| $214,784 |
| $258,751 |
|
UPB of underlying mortgage loans |
| $24,536,177 |
| $24,665,485 |
| $22,469,179 |
| $22,499,847 |
|
Weighted-average note interest rate |
| 4.44% |
| 3.70% |
| 4.48% |
| 3.65% |
|
Weighted-average servicing fee rate (in basis points) |
| 32 |
| 29 |
| 32 |
| 29 |
|
Pricing spread (1) |
| 2.9% – 19.6% |
| 6.3% – 14.8% |
| 2.9% – 18.0% |
| 6.3% – 14.5% |
|
|
| (8.2%) |
| (9.0%) |
| (7.5%) |
| (8.7%) |
|
Effect on fair value of: |
|
|
|
|
|
|
|
|
|
5% adverse change |
| ($3,844) |
| ($6,448) |
| ($3,551) |
| ($5,312) |
|
10% adverse change |
| ($7,562) |
| ($12,638) |
| ($6,900) |
| ($10,395) |
|
20% adverse change |
| ($14,647) |
| ($24,298) |
| ($13,305) |
| ($20,039) |
|
|
|
|
|
|
|
|
|
|
|
Average life (in years) |
| 0.1 – 14.3 |
| 1.6 – 7.3 |
| 0.1 – 14.4 |
| 1.5 – 7.3 |
|
|
| (5.8) |
| (6.9) |
| (6.2) |
| (7.0) |
|
|
|
|
|
|
|
|
|
|
|
Prepayment speed (2) |
| 7.7% – 54.6% |
| 7.6% – 43.9% |
| 7.8% – 50.8% |
| 7.6% – 42.5% |
|
|
| (10.4%) |
| (8.1%) |
| (9.7%) |
| (8.0%) |
|
Effect on fair value of: |
|
|
|
|
|
|
|
|
|
5% adverse change |
| ($4,857) |
| ($4,944) |
| ($4,622) |
| ($4,615) |
|
10% adverse change |
| ($9,538) |
| ($9,747) |
| ($9,073) |
| ($9,097) |
|
20% adverse change |
| ($18,409) |
| ($18,952) |
| ($17,500) |
| ($17,684) |
|
|
|
|
|
|
|
|
|
|
|
Per-loan annual cost of servicing |
| $68 – $115 |
| $68 – $100 |
| $68 – $115 |
| $68 – $100 |
|
|
| ($88) |
| ($99) |
| ($87) |
| ($99) |
|
Effect on fair value of: |
|
|
|
|
|
|
|
|
|
5% adverse change |
| ($2,925) |
| ($2,855) |
| ($2,817) |
| ($2,609) |
|
10% adverse change |
| ($5,850) |
| ($5,711) |
| ($5,633) |
| ($5,217) |
|
20% adverse change |
| ($11,701) |
| ($11,422) |
| ($11,266) |
| ($10,434) |
|
(1)Pricing spread represents a margin that is applied to a reference interest rate’s forward curve to develop periodic discount rates. The Company applies a pricing spread to the United States Dollar LIBOR curve for purposes of discounting cash flows relating to MSRs acquired as proceeds from the sale of mortgage loans and purchased MSRs not backed by pools of distressed mortgage loans.
(2)Prepayment speed is measured using Life Total CPR.
The preceding sensitivity analyses are limited in that they were performed at a particular point in time; only contemplate the movements in the indicated variables; do not incorporate changes to other variables; are subject to the accuracy of various models and assumptions used; and do not incorporate other factors that would affect the Company’s overall financial performance in such scenarios, including operational adjustments made by management to account for changing circumstances. For these reasons, the preceding estimates should not be viewed as earnings forecasts.
28
Excess Servicing Spread Financing at Fair Value
The Company categorizes ESS financing as a “Level 3” financial statement item. The Company uses a discounted cash flow approach to estimate the fair value of ESS financing. The key inputs used in the estimation of ESS financingfair value include pricing spread average life, and prepayment speed. Significant changes to anyeither of those inputs in isolation could result in a significant change in the ESS financing fair value measurement.value. Changes in these key assumptionsinputs are not necessarily directly related.
ESS is generally subject to loss infair value increases when mortgage interest rates decrease. Decreasingincrease. Increasing mortgage interest rates normally encourage increasedslow mortgage refinancing activity. IncreasedDecreased refinancing activity reducesincreases the life of the loans underlying the ESS, thereby reducing ESS financing’sincreasing ESS’ fair value. Reductionsvalue, which is the liability owed to PMT. Increases in the fair value of ESS financing affectdecrease income primarily throughand are included in Amortization, impairment and change in fair value.value of mortgage servicing rights.
Interest expense for ESS financing is accrued using the interest method based upon the expected incomecash flows from the ESS through the expected life of the underlying mortgage loans. Changes to expected cash flows result in a changeOther changes in fair value which isare recorded in Amortization, impairment and change in estimated fair value of mortgage servicing rights.
Following are the key inputs used in determiningestimating the fair value of ESS financing:ESS:
|
| March 31, |
| December 31, |
|
Key inputs |
| Range |
| ||
UPB of underlying loans (in thousands) |
| $22,246,336 |
| $20,512,659 |
|
Average servicing fee rate (in basis points) |
| 32 |
| 32 |
|
Average excess servicing spread (in basis points) |
| 16 |
| 16 |
|
Pricing spread (1) |
| 1.7% - 14.4% |
| 2.8% - 14.4% |
|
|
| (4.8%) |
| (5.4%) |
|
Average life |
| 0.6 - 7.3 |
| 0.9 - 8.0 |
|
|
| (5.7) |
| (6.1) |
|
Prepayment speed (2) |
| 7.7% - 63.8% |
| 7.7% - 48.6% |
|
|
| (10.4%) |
| (9.7%) |
|
|
|
|
|
|
|
|
| March 31, |
| December 31, |
|
Key inputs |
| 2015 |
| 2014 |
|
Unpaid principal balance of underlying loans (in thousands) |
| $33,621,619 |
| $28,227,340 |
|
Average servicing fee rate (in basis points) |
| 30 |
| 31 |
|
Average excess servicing spread (in basis points) |
| 16 |
| 16 |
|
Pricing spread (1) |
|
|
|
|
|
Range |
| 1.7% - 12.4% |
| 1.7% - 12.0% |
|
Weighted average |
| 5.5% |
| 5.3% |
|
Average life (in years) |
|
|
|
|
|
Range |
| 0.3 - 7.3 |
| 0.4 - 7.3 |
|
Weighted average |
| 5.7 |
| 5.8 |
|
Annualized prepayment speed (2) |
|
|
|
|
|
Range |
| 7.6% - 77.3% |
| 7.6% - 74.6% |
|
Weighted average |
| 11.6% |
| 11.2% |
|
(1)Pricing spread represents a margin that is applied to a reference interest rate’s forward rate curve to develop periodic discount rates. The Company applies a pricing spread to the united statesUnited States LIBOR curve for purposes of discounting cash flows relating to ESS.
(2)Prepayment speed is measured using Life Total CPR.
Note 8—Mortgage Loans Held for Sale at Fair Value
Mortgage loans held for sale at fair value include the following:
|
|
|
|
|
|
|
| |||||||
|
| March 31, |
| December 31, |
| |||||||||
|
| March 31, |
| December 31, |
|
| 2015 |
| 2014 |
| ||||
|
| (in thousands) |
|
| (in thousands) |
| ||||||||
Government-insured or guaranteed |
| $ | 692,265 |
| $ | 482,066 |
|
| $ | 1,183,544 |
| $ | 866,148 |
|
Conventional conforming |
| 21,226 |
| 45,005 |
|
|
| 86,716 |
|
| 66,229 |
| ||
Repurchased mortgage loans |
| 3,985 |
| 3,933 |
| |||||||||
Jumbo |
|
| — |
|
| 5,599 |
| |||||||
Delinquent mortgage loans purchased from Ginnie Mae pools serviced by the Company |
|
| 75,569 |
|
| 206,331 |
| |||||||
Mortgage loans repurchased pursuant to representations and warranties |
|
| 8,115 |
|
| 3,577 |
| |||||||
|
| $ | 717,476 |
| $ | 531,004 |
|
| $ | 1,353,944 |
| $ | 1,147,884 |
|
Fair value of mortgage loans pledged to secure mortgage loans sold under agreements to repurchase |
| $ | 694,028 |
| $ | 512,350 |
|
| $ | 1,132,568 |
| $ | 976,772 |
|
Fair value of mortgage loans pledged to secure mortgage loan participation and sale agreement |
| $ | 196,716 |
| $ | 148,133 |
|
29
Note 9—Derivative Financial Instruments
The Company is exposed to pricefair value risk relative to its mortgage loans held for sale as well as to its IRLCs.IRLCs and MSRs. The Company bears pricefair value risk from the time an IRLC is made to PMT or a loan applicant to the time the mortgage loan is sold. The Company is exposed to loss in fair value of its IRLCs and mortgage loans held for sale when market mortgage interest rates increase. The Company is also exposed to loss in fair value of its MSRs when market mortgage interest rates decrease.
The Company engages in interest rate risk management activities in an effort to reduce the variability of earnings caused by changes in market interest rates. To manage this pricefair value risk resulting from interest rate risk, the Company uses derivative financial instruments acquired with the intention of reducing the risk that changes in market interest rates will result in unfavorable changes in the fair value of the Company’s IRLCs, inventory of mortgage loans held for sale and MSRs.
The Company does not use derivative financial instruments for purposes other than in support of its risk management activities other than IRLCs, which are generated in the normal course of business when the Company commits to purchase or originate mortgage loans held for sale. The Company records all derivative financial instruments at fair value and records changes in fair value in current period income.
The Company had the following derivative financial instruments recorded on its consolidated balance sheets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
|
| March 31, 2015 |
| December 31, 2014 |
| |||||||||||||||||||||||||||||
|
| March 31, 2014 |
| December 31, 2013 |
|
|
|
| Fair value |
|
|
| Fair value |
| ||||||||||||||||||||
|
|
|
| Fair value |
|
|
| Fair value |
|
| Notional |
| Derivative |
| Derivative |
| Notional |
| Derivative |
| Derivative |
| ||||||||||||
Instrument |
| Notional |
| Derivative |
| Derivative |
| Notional |
| Derivative |
| Derivative |
|
| amount |
| assets |
| liabilities |
| amount |
| assets |
| liabilities |
| ||||||||
|
| (in thousands) |
|
| (in thousands) |
| ||||||||||||||||||||||||||||
Derivatives not designated as hedging instruments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Free-standing derivatives: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Interest rate lock commitments |
| 1,202,126 |
| $ | 16,333 |
| $ | 2,036 |
| 971,783 |
| $ | 8,964 |
| $ | 2,203 |
|
| 3,123,645 |
| $ | 55,348 |
| $ | 956 |
| 1,765,597 |
| $ | 33,353 |
| $ | 952 |
|
Forward purchase contracts |
| 1,506,667 |
| 1,942 |
| 2,392 |
| 1,418,527 |
| 416 |
| 6,542 |
|
| 5,124,867 |
|
| 33,048 |
|
| 909 |
| 2,634,218 |
|
| 9,060 |
|
| 141 |
| ||||
Forward sales contracts |
| 2,829,176 |
| 5,008 |
| 2,327 |
| 2,659,000 |
| 18,762 |
| 504 |
|
| 7,464,527 |
|
| 909 |
|
| 46,711 |
| 3,901,851 |
|
| 320 |
|
| 16,110 |
| ||||
MBS put options |
| 175,000 |
| 434 |
| — |
| 185,000 |
| 665 |
| — |
|
| 450,000 |
|
| 449 |
|
| — |
| 340,000 |
|
| 476 |
|
| — |
| ||||
MBS call options |
| 160,000 |
| 328 |
| — |
| 105,000 |
| 91 |
| — |
| |||||||||||||||||||||
Put options on Eurodollar futures |
| 325,000 |
| 277 |
| — |
|
|
| — |
| — |
| |||||||||||||||||||||
Call options on Eurodollar futures |
| 100,000 |
| 62 |
| — |
|
|
| — |
| — |
| |||||||||||||||||||||
Put options on interest rate futures purchase contracts |
| 1,470,500 |
|
| 894 |
|
| — |
| 755,000 |
|
| 862 |
|
| — |
| |||||||||||||||||
Call options on interest rate futures purchase contracts |
| 870,000 |
|
| 4,011 |
|
| — |
| 630,000 |
|
| 2,193 |
|
| — |
| |||||||||||||||||
Put options on interest rate futures sale contracts |
| 100,000 |
|
| — |
|
| 141 |
| 50,000 |
|
| — |
|
| 8 |
| |||||||||||||||||
Total derivatives before netting |
|
|
| 24,384 |
| 6,755 |
|
|
| 28,898 |
| 9,249 |
|
|
|
|
| 94,659 |
|
| 48,717 |
|
|
|
| 46,264 |
|
| 17,211 |
| ||||
Netting |
|
|
| (2,707 | ) | (4,600 | ) |
|
| (7,358 | ) | (6,787 | ) |
|
|
|
| (33,595) |
|
| (37,814) |
|
|
|
| (7,807) |
|
| (10,698) |
| ||||
|
|
|
| $ | 21,677 |
| $ | 2,155 |
|
|
| $ | 21,540 |
| $ | 2,462 |
|
|
|
| $ | 61,064 |
| $ | 10,903 |
|
|
| $ | 38,457 |
| $ | 6,513 |
|
Margin deposits with (collateral received from) derivative counterparties, net |
|
|
| $ | (4,219) |
|
|
|
|
|
| $ | (2,891) |
|
|
|
|
30
The following table summarizes the notional value activity for derivative contracts used to hedgein the Company’s IRLCs, inventory of mortgage loans held for sale at fair value and MSRs:hedging activities:
Period/Instrument |
| Balance |
| Additions |
| Dispositions/ |
| Balance |
|
|
| (in thousands) |
| ||||||
Quarter ended March 31, 2014 |
|
|
|
|
|
|
|
|
|
Forward purchase contracts |
| 1,418,527 |
| 6,899,388 |
| (6,811,248 | ) | 1,506,667 |
|
Forward sales contracts |
| 2,659,000 |
| 10,540,119 |
| (10,369,943 | ) | 2,829,176 |
|
MBS put options |
| 185,000 |
| 385,000 |
| (395,000 | ) | 175,000 |
|
MBS call options |
| 105,000 |
| 395,000 |
| (340,000 | ) | 160,000 |
|
Put options on Eurodollar futures |
| — |
| 325,000 |
| — |
| 325,000 |
|
Call options on Eurodollar futures |
| — |
| 175,000 |
| (75,000 | ) | 100,000 |
|
Treasury future purchase contracts |
| — |
| 21,600 |
| (21,600 | ) | — |
|
Treasury future sale contracts |
| — |
| 30,700 |
| (30,700 | ) | — |
|
Period/Instrument |
| Balance |
| Additions |
| Dispositions/ |
| Balance |
|
|
| (in thousands) |
| ||||||
Quarter ended March 31, 2013 |
|
|
|
|
|
|
|
|
|
Forward purchase contracts |
| 1,021,981 |
| 10,195,550 |
| (9,868,231 | ) | 1,349,300 |
|
Forward sales contracts |
| 2,621,948 |
| 14,677,256 |
| (14,276,494 | ) | 3,022,710 |
|
MBS put options |
| 500,000 |
| 965,000 |
| (1,140,000 | ) | 325,000 |
|
MBS call options |
| — |
| 850,000 |
| (550,000 | ) | 300,000 |
|
|
|
|
|
|
|
|
|
|
|
|
| Quarter ended March 31, 2015 |
| ||||||
|
| Balance |
|
|
|
|
| Balance |
|
|
| beginning of |
|
|
| Dispositions/ |
| end of |
|
Instrument |
| period |
| Additions |
| expirations |
| period |
|
|
| (in thousands) |
| ||||||
Forward purchase contracts |
| 2,634,218 |
| 19,635,850 |
| (17,145,201) |
| 5,124,867 |
|
Forward sale contracts |
| 3,901,851 |
| 26,740,272 |
| (23,177,596) |
| 7,464,527 |
|
MBS put options |
| 340,000 |
| 785,000 |
| (675,000) |
| 450,000 |
|
Put options on interest rate futures purchase contracts |
| 755,000 |
| 1,540,500 |
| (825,000) |
| 1,470,500 |
|
Call options on interest rate futures purchase contracts |
| 630,000 |
| 745,000 |
| (505,000) |
| 870,000 |
|
Put options on interest rate futures sale contracts |
| 50,000 |
| 50,000 |
| — |
| 100,000 |
|
Call options on interest rate futures sale contracts |
| — |
| 35,100 |
| (35,100) |
| — |
|
|
|
|
|
|
|
|
|
|
|
|
| Quarter ended March 31, 2014 |
| ||||||
|
| Balance |
|
|
|
|
| Balance |
|
|
| beginning of |
|
|
| Dispositions/ |
| end of |
|
Period/Instrument |
| period |
| Additions |
| expirations |
| period |
|
|
| (in thousands) |
| ||||||
Forward purchase contracts |
| 1,418,527 |
| 6,899,388 |
| (6,811,248) |
| 1,506,667 |
|
Forward sale contracts |
| 2,659,000 |
| 10,540,119 |
| (10,369,943) |
| 2,829,176 |
|
MBS put options |
| 185,000 |
| 385,000 |
| (395,000) |
| 175,000 |
|
MBS call options |
| 105,000 |
| 395,000 |
| (340,000) |
| 160,000 |
|
Put options on interest rate futures sales contracts |
| — |
| 325,000 |
| — |
| 325,000 |
|
Call options on interest rate futures sales contracts |
| — |
| 175,000 |
| (75,000) |
| 100,000 |
|
Treasury futures purchase contracts |
| — |
| 21,600 |
| (21,600) |
| — |
|
Treasury futures sale contracts |
| — |
| 30,700 |
| (30,700) |
| — |
|
The Company recorded net losses on derivative financial instruments used to hedge IRLCs and mortgage loans held for sale at fair value totaling $20.1$25.8 million and net gains on derivative financial instruments totaling $12.3$20.1 million for the quarters ended March 31, 20142015 and 2013,2014, respectively. Derivative gains and losses used to hedge IRLCs and mortgage loans held for sale at fair value are included in Net gains on mortgage loans held for sale at fair value in the Company’s consolidated statements of income.
The Company recorded net gains on derivatives used to hedge fair value changes of MSRs totaling $17.1 million for the quarter ended March 31, 2015 and net losses on derivatives used to hedge fair value changes of MSRs totaling $431,000 and $1.3 million for the quartersquarter ended March 31, 20142014. Gains and 2013, respectively. Thelosses on derivative lossesfinancial instruments used to hedge fair value changes of MSRs are included in Amortization, impairment and change in estimated fair value of mortgage servicing rights in the Company’s consolidated statements of income.
31
Note 10—Mortgage Servicing Rights
Carried at Fair Value:
The activity in MSRs carried at fair value is as follows:
|
| Quarter ended March 31, |
| ||||
|
| 2014 |
| 2013 |
| ||
|
| (in thousands) |
| ||||
Balance at beginning of period |
| $ | 224,913 |
| $ | 19,798 |
|
Additions: |
|
|
|
|
| ||
Purchases |
| 25,866 |
| — |
| ||
MSRs resulting from loan sales |
| 6,933 |
| 3 |
| ||
|
| 32,799 |
| 3 |
| ||
Change in fair value: |
|
|
|
|
| ||
Due to changes in valuation inputs or assumptions used in valuation model (1) |
| (2,956 | ) | (90 | ) | ||
Other changes in fair value (2) |
| (7,772 | ) | (1,089 | ) | ||
Total change in fair value |
| (10,728 | ) | (1,179 | ) | ||
Balance at end of period |
| $ | 246,984 |
| $ | 18,622 |
|
|
|
|
|
|
|
|
|
| Quarter ended March 31, | ||||
|
| 2015 |
| 2014 | ||
|
| (in thousands) | ||||
Balance at beginning of period |
| $ | 325,383 |
| $ | 224,913 |
Additions: |
|
|
|
|
|
|
Purchases |
|
| 63,137 |
|
| 25,866 |
Mortgage servicing rights resulting from mortgage loan sales |
|
| 2,675 |
|
| 6,933 |
|
|
| 65,812 |
|
| 32,799 |
Change in fair value due to: |
|
|
|
|
|
|
Changes in valuation inputs or assumptions used in valuation model (1) |
|
| (17,715) |
|
| (2,956) |
Other changes in fair value (2) |
|
| (12,067) |
|
| (7,772) |
Total change in fair value |
|
| (29,782) |
|
| (10,728) |
Balance at end of period |
| $ | 361,413 |
| $ | 246,984 |
Fair value of mortgage servicing rights pledged to secure note payable |
| $ | 413,582 |
| $ | 272,115 |
(1) | Principally reflects changes in discount rates and prepayment speed inputs, primarily due to changes in market mortgage interest rates. |
| (2) | Represents changes due to realization of cash flows. |
(2)Represents changes due to realization of cash flows.
Carried at Lower of Amortized Cost or Fair Value:
The activity in MSRs carried at the lower of amortized cost or fair value is summarized below:
|
|
|
|
|
|
|
| |||||||
|
| Quarter ended March 31, |
|
| Quarter ended March 31, |
| ||||||||
|
| 2014 |
| 2013 |
|
| 2015 |
| 2014 |
| ||||
|
| (in thousands) |
|
| (in thousands) |
| ||||||||
Amortized cost: |
|
|
|
|
|
|
|
|
|
|
|
| ||
Balance at beginning of period |
| $ | 263,373 |
| $ | 92,155 |
|
| $ | 415,245 |
| $ | 263,373 |
|
Additions: |
|
|
|
|
| |||||||||
MSRs resulting from loan sales |
| 30,581 |
| 41,733 |
| |||||||||
Mortgage servicing rights resulting from mortgage loan sales |
|
| 67,281 |
|
| 30,581 |
| |||||||
Amortization |
| (6,767 | ) | (3,095 | ) |
|
| (12,036) |
|
| (6,767) |
| ||
Application of valuation allowance to write down MSRs with other-than-temporary impairment |
| — |
| — |
| |||||||||
Application of valuation allowance to write down mortgage servicing rights with other-than-temporary impairment |
|
| — |
|
| — |
| |||||||
Balance at end of period |
| 287,187 |
| 130,793 |
|
|
| 470,490 |
|
| 287,187 |
| ||
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Valuation allowance: |
|
|
|
|
|
|
|
|
|
|
|
| ||
Balance at beginning of period |
| (4,622 | ) | (2,978 | ) |
|
| (9,800) |
|
| (4,622) |
| ||
(Additions) reversals |
| (421 | ) | 555 |
| |||||||||
Application of valuation allowance to write down MSRs with other-than-temporary impairment |
| — |
| — |
| |||||||||
Additions |
|
| (31,692) |
|
| (421) |
| |||||||
Application of valuation allowance to write down mortgage servicing rights with other-than-temporary impairment |
|
| — |
|
| — |
| |||||||
Balance at end of period |
| (5,043 | ) | (2,423 | ) |
|
| (41,492) |
|
| (5,043) |
| ||
MSRs, net |
| $ | 282,144 |
| $ | 128,370 |
| |||||||
Estimated fair value of MSRs at end of period |
| $ | 291,535 |
| $ | 137,553 |
| |||||||
Mortgage servicing rights, net |
| $ | 428,998 |
| $ | 282,144 |
| |||||||
Fair value of mortgage servicing rights at end of period |
| $ | 437,824 |
| $ | 291,535 |
| |||||||
Fair value of mortgage servicing rights at beginning of period |
| $ | 416,802 |
| $ | 269,422 |
|
32
The following table summarizes the Company’s estimate of future amortization of its existing MSRs. This projection was developed using the assumptions made by managementinputs used in itsthe March 31, 20142015 valuation of MSRs. The assumptionsinputs underlying the following estimate will change as market conditions and portfolio composition and behavior change, causing both actual and projected amortization levels to change over time.
|
|
|
| |||||
|
| Estimated MSR |
|
| Estimated MSR |
| ||
Twelve month period ending March 31, |
| amortization |
|
| amortization |
| ||
|
| (in thousands) |
|
| (in thousands) |
| ||
2015 |
| $ | 26,075 |
| ||||
2016 |
| 25,705 |
|
| $ | 49,285 |
| |
2017 |
| 25,342 |
|
| 47,769 |
| ||
2018 |
| 24,525 |
|
| 44,250 |
| ||
2019 |
| 23,027 |
|
| 40,463 |
| ||
2020 |
| 36,640 |
| |||||
Thereafter |
| 162,513 |
|
|
| 252,083 |
| |
|
| $ | 287,187 |
|
| $ | 470,490 |
|
Servicing fees relating to MSRs are recorded in Net servicing fees—Loan servicing fees—From non-affiliates on the consolidated statements of income; late charges and other ancillary fees relating to MSRs are recorded in Net servicing fees—Loan servicing fees—Ancillary and other fees on the consolidated statements of income andincome. The fees are summarized below:
|
|
|
|
|
|
|
| |||||||
|
| Quarter ended March 31, |
|
| Quarter ended March 31, |
| ||||||||
|
| 2014 |
| 2013 |
|
| 2015 |
| 2014 |
| ||||
|
| (in thousands) |
|
| (in thousands) |
| ||||||||
Contractual servicing fees |
| $ | 36,100 |
| $ | 9,057 |
|
| $ | 50,101 |
| $ | 36,100 |
|
Ancillary and other fees |
|
|
|
|
| |||||||||
Ancillary and other fees: |
|
|
|
|
|
|
| |||||||
Late charges |
| 887 |
| 413 |
|
|
| 1,651 |
|
| 887 |
| ||
Other |
| 176 |
| 102 |
|
|
| 711 |
|
| 176 |
| ||
|
| $ | 37,163 |
| $ | 9,572 |
|
| $ | 52,463 |
| $ | 37,163 |
|
Table of ContentsMortgage Servicing Liabilities Carried at Fair Value:
The activity in mortgage servicing liabilities carried at fair value is summarized below:
Quarter ended | ||||
March 31, 2015 | ||||
(in thousands) | ||||
Amortized cost: | ||||
Balance at beginning of period | $ | 6,306 | ||
Mortgage servicing liabilities resulting from mortgage loan sales | 2,928 | |||
Change in fair value | (2,705) | |||
Balance at end of period | $ | 6,529 |
Note 11—Carried Interest Due from Investment Funds
The activity in the Company’s Carried Interest due from Investment Funds is summarized as follows:
|
|
|
|
|
|
|
| |||||||
|
| Quarter ended March 31, |
|
| Quarter ended March 31, |
| ||||||||
|
| 2014 |
| 2013 |
|
| 2015 |
| 2014 |
| ||||
|
| (in thousands) |
|
| (in thousands) |
| ||||||||
Balance at beginning of period |
| $ | 61,142 |
| $ | 47,723 |
|
| $ | 67,298 |
| $ | 61,142 |
|
Carried Interest recognized during the period |
| 2,157 |
| 4,737 |
|
|
| 1,233 |
|
| 2,157 |
| ||
Proceeds received during the period |
| — |
| — |
|
|
| — |
|
| — |
| ||
Balance at end of period |
| $ | 63,299 |
| $ | 52,460 |
|
| $ | 68,531 |
| $ | 63,299 |
|
33
The amount of the Carried Interest that will be received by the Company depends on the Investment Funds’ future performance. As a result, the amount of Carried Interest recorded by the Company at period end is subject to adjustment based on future resultsthe cash flows that would be produced assuming termination of the Investment Funds at period end and may be reduced in future years.periods based on the performance of the Investment Funds in those periods. However, the Company is not required to pay guaranteed returns to the Investment Funds and the amount of any reduction to Carried Interest will only be reducedlimited to the extent of amounts previously recognized.
Management expects the Carried Interest to be collected by the Company when the Investment Funds liquidate. The commitment period for the Investment Funds ended on December 31, 2011. The Investment Fund limited liability company and limited partnership agreements specify that the funds will continue in existence through December 31, 2016, subject to three one-year extensions by PCM at its discretion.
Note 12—Investment in PennyMac Mortgage Investment Trust at Fair Value
Following is a summary of Change in fair value of investment in and dividends received from PennyMac Mortgage Investment Trust:
|
|
|
|
|
|
|
| |||||||
|
| Quarter ended March 31, |
|
| Quarter ended March 31, |
| ||||||||
|
| 2014 |
| 2013 |
|
| 2015 |
| 2014 |
| ||||
|
| (in thousands) |
|
| (in thousands) |
| ||||||||
Dividends |
| $ | 44 |
| $ | 43 |
|
| $ | 92 |
| $ | 44 |
|
Change in fair value |
| 71 |
| 45 |
|
|
| 15 |
|
| 71 |
| ||
|
| $ | 115 |
| $ | 88 |
|
| $ | 107 |
| $ | 115 |
|
|
|
|
|
|
| |||||||||
Fair value of PennyMac Mortgage Investment Trust shares at period end |
| $ | 1,793 |
| $ | 1,942 |
|
| $ | 1,597 |
| $ | 1,793 |
|
Note 13—Borrowings
As of March 31, 2014,2015, the Company maintained fivesix borrowing facilities: four facilities that provide funding for sales of mortgage loans under agreements to repurchase; one facility that provides for sale of mortgage loan participation certificates; and one note payable secured by MSRs and servicing advances made relating to certain loans in the Company’s mortgage loan servicing portfolio.
The borrowing facilities contain various covenants, including financial covenants governing PLS’s net worth, debt to equity ratio, profitability and liquidity. Management believes that PLS was in compliance with these requirements as of March 31, 2015.
Mortgage Loans Sold Under Agreement to Repurchase
TheThree of the borrowing facilities secured by mortgage loans held for sale are in the form of mortgage loan sale and repurchase agreements. Eligible mortgage loans are sold at advance rates based on the loan type. Interest is charged at a rate based on the buyer’s overnight cost-ofcost of funds rate for one agreement and based on LIBOR for the other three agreements. Loans soldMortgage loans financed under these agreements may be re-pledged by the lenders.
34
Financial data pertaining to mortgage loans sold under agreements to repurchase are as follows:
|
| Quarter ended March 31, |
| ||||
|
| 2014 |
| 2013 |
| ||
|
| (dollar amounts in thousands) |
| ||||
Period end: |
|
|
|
|
| ||
Balance |
| $ | 567,737 |
| $ | 180,049 |
|
Unused amount (1) |
| $ | 432,263 |
| $ | 319,951 |
|
Weighted-average interest rate |
| 1.76 | % | 2.21 | % | ||
Fair value of loans securing agreements to repurchase |
| $ | 694,028 |
| $ | 197,693 |
|
During the period: |
|
|
|
|
| ||
Average balance of loans sold under agreements to repurchase |
| $ | 291,093 |
| $ | 275,061 |
|
Weighted-average interest rate (2) |
| 1.78 | % | 2.26 | % | ||
Total interest expense |
| $ | 2,329 |
| $ | 2,375 |
|
Maximum daily amount outstanding |
| $ | 567,737 |
| $ | 479,860 |
|
|
|
|
|
|
|
|
|
|
| Quarter ended March 31, |
| ||||
|
| 2015 |
| 2014 |
| ||
|
| (in thousands) |
| ||||
Period end: |
|
|
|
|
|
|
|
Balance |
| $ | 992,187 |
| $ | 567,737 |
|
Unused amount (1) |
| $ | 307,813 |
| $ | 432,263 |
|
Weighted average interest rate (3) |
|
| 1.82 | % |
| 1.76 | % |
Fair value of mortgage loans securing agreements to repurchase |
| $ | 1,132,568 |
| $ | 694,028 |
|
Margin deposits placed with counterparties (2) |
| $ | 1,500 |
| $ | 1,500 |
|
During the period: |
|
|
|
|
|
|
|
Average balance of mortgage loans sold under agreements to repurchase |
| $ | 616,896 |
| $ | 291,093 |
|
Weighted average interest rate (3) |
|
| 1.79 | % |
| 1.78 | % |
Total interest expense |
| $ | 3,809 |
| $ | 2,329 |
|
Maximum daily amount outstanding |
| $ | 992,187 |
| $ | 567,737 |
|
(1) | The amount the Company is able to borrow under mortgage loan repurchase agreements is tied to the fair value of unencumbered mortgage loans eligible to secure those agreements and the Company’s ability to fund the agreements’ margin requirements relating to the mortgage loans sold. |
(1)The amount the Company is able to borrow under loan repurchase agreements is tied to the fair value of unencumbered mortgage loans eligible to secure those agreements and the Company’s ability to fund the agreements’ margin requirements relating to the mortgage loans sold.
(2) Margin deposits are included in Other assets on the consolidated balance sheet. (3) Excludes the effect of amortization of commitment fees totaling $980,000 and $1.0 million for the quarters ended March 31, 2015 and 2014, respectively. Following is a summary of maturities of outstanding advances under repurchase agreements by maturity date: Remaining maturity at March 31, 2014 Balance (in thousands) Within 30 days $ 5,501 Over 30 to 90 days 561,357 Over 90 days 879 $ 567,737 Weighted-average maturity (in months) 2.5 Remaining maturity at March 31, 2015 Balance (in thousands) Within 30 days $ Over 30 to 90 days Over 90 days to 180 days — Over 180 days $ Weighted average maturity (in months) The amount at risk (the fair value of the assets pledged plus the related margin deposit, less the amount advanced by the counterparty and accrued interest) relating to the Company’s mortgage loans held for sale sold under agreements to repurchase is summarized by counterparty below as of March 31, Counterparty Amount at risk Weighted-average Facility maturity (in thousands) Credit Suisse First Boston Mortgage Capital LLC $ 63,790 June 20, 2014 October 31, 2014 Bank of America, N.A. $ 54,550 June 19, 2014 January 30, 2015 Morgan Stanley $ 9,020 May 18, 2014 July 1, 2014 Citibank, N.A. $ 24 March 8, 2014 July 24, 2014 Weighted average maturity of advances under repurchase Counterparty Amount at risk agreement Facility maturity (in thousands) Credit Suisse First Boston Mortgage Capital LLC $ July 8, 2015 October 30, 2015 Bank of America, N.A. $ June 17, 2015 January 30, 2016 Morgan Stanley Bank, N.A. $ May 17, 2015 June 29, 2015 Citibank, N.A. $ May 6, 2015 September 7, 2015 The Company is subject to margin calls during the period the agreements are outstanding and therefore may be required to repay a portion of the borrowings before the respective agreements mature if the fair value (as determined by the applicable lender) of the mortgage loans securing those agreements decreases. 35 Mortgage Loan Participation and Sale Agreement One of the borrowing facilities secured by mortgage loans held for sale is in the form of a mortgage loan participation and sale agreement. Participation certificates, each of which represents an undivided beneficial ownership interest in mortgage loans that have been pooled with Fannie Mae, Freddie Mac or Ginnie Mae, are sold to the lender pending the securitization of the mortgage loans and sale of the resulting securities. A commitment to sell the securities resulting from the pending securitization between the Company and a non-affiliate is also assigned to the lender at the time a participation certificate is sold. The purchase price paid by the lender for each participation certificate is based on the trade price of the security, plus an amount of interest expected to accrue on the security to its anticipated delivery date, minus a present value adjustment, any related hedging costs and a holdback amount that is based on a percentage of the purchase price and is not required to be paid to the Company until the settlement of the security and its delivery to the lender. The mortgage loan participation and sale agreement is summarized below: Quarter ended, March 31, 2015 (in thousands) Period end: Mortgage loan participation and sale agreement secured by mortgage loans $ Mortgage loans pledged to secure mortgage loan participation and sale agreement $ During the period: Average balance $ Weighted average interest rate (1) % Total interest expense $ (1) Excludes the effect of amortization of commitment fees totaling $98,000 for the quarter ended March 31, 2015. Note Payable(2)Excludes the effect of amortization of commitment fees totaling $1.0 million and $819,000 for the quarters ended March 31, 2014 and 2013, respectively.2,475 918,144 71,568 992,187 2.7 2014:2015:
maturity of advances under
repurchase agreement77,916 36,407 10,670 15,519 The Company had $1.5 million on deposit with its mortgage loan repurchase agreement counterparties at March 31, 2014 and December 31, 2013. Such amounts are included in Other assets on the consolidated balance sheets.190,762 196,716 143,638 1.25 519
The note payable is summarized below:
|
|
|
|
|
|
|
| |||||||
|
| Quarter ended March 31, |
| |||||||||||
|
| March 31, |
| December 31, |
|
| 2015 |
| 2014 |
| ||||
|
| (in thousands) |
|
| (in thousands) |
| ||||||||
Period end: |
|
|
|
|
|
|
|
|
|
|
|
| ||
Note payable secured by: |
|
|
|
|
|
|
|
|
|
|
|
| ||
Mortgage servicing rights |
| $ | 134,665 |
| $ | 48,819 |
| |||||||
Servicing advances |
| $ | — |
| $ | 3,852 |
|
|
| — |
|
| — |
|
MSRs |
| 48,819 |
| 48,302 |
| |||||||||
|
| $ | 48,819 |
| $ | 52,154 |
|
| $ | 134,665 |
| $ | 48,819 |
|
Assets pledged to secure note payable: |
|
|
|
|
|
|
|
|
|
|
|
| ||
Mortgage servicing rights |
| $ | 413,582 |
| $ | 272,115 |
| |||||||
Servicing advances |
| $ | — |
| $ | 5,564 |
|
| $ | — |
| $ | — |
|
MSRs |
| $ | 272,115 |
| $ | 258,241 |
| |||||||
During the period: |
|
|
|
|
|
|
| |||||||
Average balance |
| $ | 141,280 |
| $ | 52,354 |
| |||||||
Weighted average interest rate |
|
| 2.96 | % |
| 2.91 | % | |||||||
Total interest expense |
| $ | 1,635 |
| $ | 659 |
|
The note payable matures on October 31, 2014. Interest is charged at a rate based on the lender’s overnight cost-of-funds. The note payable is secured by servicing advances and MSRs relating to certain loans in the Company’s servicing portfolio, and currently provides for advance rates ranging fromof 50% toof the carrying value of MSRs pledged and 85% of the amount of the servicing advances orpledged. Interest is charged at a rate based on the carrying valuelender’s overnight cost of the MSR pledged, up to a maximum of $17 million in the case of servicing advances and $100 million in the case of MSRs.funds.
The borrowing facilities contain various covenants, including financial covenants governing the Company’s net worth, debt to equity ratio, profitability and liquidity. Management believes that the Company was in compliance with these requirements as
36
Excess Servicing Spread Financing
In conjunction with the Company’s purchase from non-affiliates of certain MSRs on pools of Agency-backed residential mortgage loans, the Company has entered into sale and assignment agreements which are treated as financings and are carried at estimated fair value with changes in fair value recognized in current period income. Under these agreements, the Company sold to PMT the right to receive ESS cash flows relating to certain MSRs. The Company retained a fixed base servicing fee and all ancillary income associated with servicing the loans and a fixed base servicing fee.mortgage loans. The Company continues to be the servicer of the mortgage loans and provides all servicing functions, including responsibility to make servicing advances.
Following is a summary of ESS:
|
|
|
|
|
|
|
| ||||
|
| Quarter ended March 31, |
| ||||||||
|
| Quarter ended |
|
| 2015 |
| 2014 |
| |||
|
| (in thousands) |
|
| (in thousands) |
| |||||
Balance at beginning of period |
| $ | 138,723 |
|
| $ | 191,166 |
| $ | 138,723 |
|
Proceeds from issuance of ESS |
| 20,526 |
| ||||||||
ESS issued pursuant to a recapture agreement with PennyMac Mortgage Investment Trust |
| 1,113 |
| ||||||||
Accrual of interest expense |
| 2,862 |
| ||||||||
Issuances if excess servicing spread to PennyMac Mortgage Investment Trust: |
|
|
|
|
|
|
| ||||
For cash |
|
| 46,412 |
|
| 20,526 |
| ||||
Pursuant to a recapture agreement |
|
| 1,246 |
|
| 1,113 |
| ||||
Accrual of interest |
|
| 3,752 |
|
| 2,862 |
| ||||
Repayments |
| (7,413 | ) |
|
| (12,731) |
|
| (7,413) |
| |
Change in fair value |
| (4,792 | ) |
|
| (7,536) |
|
| (4,792) |
| |
Balance at end of period |
| $ | 151,019 |
|
| $ | 222,309 |
| $ | 151,019 |
|
Note 14—Liability for Losses Under Representations and Warranties
Following is a summary of activity in the Company’s liability for representations and warranties:
|
|
|
|
|
|
|
| |||||||
|
| Quarter ended March 31, |
|
| Quarter ended March 31, |
| ||||||||
|
| 2014 |
| 2013 |
|
| 2015 |
| 2014 |
| ||||
|
| (in thousands) |
|
| (in thousands) |
| ||||||||
Balance at beginning of period |
| $ | 8,123 |
| $ | 3,504 |
|
| $ | 13,259 |
| $ | 8,123 |
|
Provision for losses on loans sold |
| 851 |
| 1,244 |
|
|
| 1,495 |
|
| 851 |
| ||
Incurred losses |
| — |
| — |
|
|
| (65) |
|
| — |
| ||
Balance at end of period |
| $ | 8,974 |
| $ | 4,748 |
|
| $ | 14,689 |
| $ | 8,974 |
|
UPB of mortgage loans subject to representations and warranties at period end |
| $ | 26,304,717 |
| $ | 14,586,623 |
| |||||||
Unpaid principal balance of mortgage loans subject to representations and warranties at period end |
| $ | 39,624,553 |
| $ | 26,304,717 |
|
Following is a summary of the Company’s repurchase activity:
|
| Quarter ended March 31, |
| ||||
|
| 2014 |
| 2013 |
| ||
|
| (in thousands) |
| ||||
During the period: |
|
|
|
|
| ||
UPB of mortgage loans repurchased |
| $ | 1,890 |
| $ | — |
|
UPB of repurchased mortgage loans put to correspondent lenders |
| $ | 798 |
| $ | — |
|
Period end: |
|
|
|
|
| ||
UPB of mortgage loans subject to pending claims for repurchase |
| $ | 2,960 |
| $ | 1,038 |
|
Note 15—Stockholders’ Equity
During the quarter ended March 31, 2014, PennyMac unitholders exchanged 66,709 Class A units for PFSI Class A common stock. The effect of the exchanges reduced the percentage of the Noncontrolling interest in Private National Mortgage Acceptance Company, LLC from 72.57% at December 31, 2013 to 72.49% at March 31, 2014.
Note 16—Net Gains on Mortgage Loans Held for Sale
Net gains on mortgage loans held for sale at fair value is summarized below:
|
| Quarter ended March 31, |
| ||||
|
| 2014 |
| 2013 |
| ||
|
| (in thousands) |
| ||||
Cash gain (loss): |
|
|
|
|
| ||
Sales proceeds |
| $ | 4,481 |
| $ | (11,823 | ) |
Hedging activities |
| (10,256 | ) | 17,621 |
| ||
|
| (5,775 | ) | 5,798 |
| ||
Non-cash gain: |
|
|
|
|
| ||
Receipt of MSRs in loan sale transactions |
| 37,514 |
| 41,736 |
| ||
MSR recapture payable to PennyMac Mortgage Investment Trust |
| (1,898 | ) | (133 | ) | ||
Provision for losses relating to representations and warranties on loans sold |
| (851 | ) | (1,244 | ) | ||
Change in fair value relating to loans and hedging derivatives held at period end: |
|
|
|
|
| ||
IRLCs |
| 7,536 |
| 1,497 |
| ||
Mortgage loans |
| 7,828 |
| (2,392 | ) | ||
Hedging derivatives |
| (9,816 | ) | (5,305 | ) | ||
|
| $ | 34,538 |
| $ | 39,957 |
|
Note 17—Net Interest Expense
Net interest expense is summarized below:
|
| Quarter ended March 31, |
| ||||
|
| 2014 |
| 2013 |
| ||
|
| (in thousands) |
| ||||
Interest income: |
|
|
|
|
| ||
Short-term investment |
| $ | 201 |
| $ | 40 |
|
Mortgage loans held for sale at fair value |
| 3,909 |
| 1,702 |
| ||
|
| 4,110 |
| 1,742 |
| ||
Interest expense: |
|
|
|
|
| ||
Mortgage loans sold under agreements to repurchase |
| 2,329 |
| 2,375 |
| ||
Note payable |
| 659 |
| 737 |
| ||
Excess servicing spread financing at fair value |
| 2,862 |
| — |
| ||
Other |
| 536 |
| 218 |
| ||
|
| 6,386 |
| 3,330 |
| ||
Net interest expense |
| $ | (2,276 | ) | $ | (1,588 | ) |
Note 18—Stock-based Compensation
The Company’s 2013 Equity Incentive Plan provides for grants of stock options, time based and performance based restricted stock units (“RSUs”), stock appreciation rights, performance units and stock grants. As of March 31, 2014, the Company has 16.7 million units available for future awards. The Company estimates the cost of the stock options, time based restricted stock units and performance based restricted stock units awarded with reference to the fair value of PFSI’s underlying common stock on the date of the award. Compensation costs are fixed, except for the performance based restricted stock units, at the grant’s estimated fair value on the grant date as all grantees are employees of PennyMac and directors of the Company. Expense relating to awards is included in Compensation in the consolidated statements of income.
Following is a summary of the stock-based compensation expense by instrument awarded:
|
| Quarter ended |
| |
|
| (in thousands) |
| |
Stock options |
| $ | 1,187 |
|
Performance-based RSUs |
| 762 |
| |
Time-based RSUs |
| 436 |
| |
|
| $ | 2,385 |
|
The Company had no equity award vestings during the quarter. Following is a summary of equity award grants made during the quarter:
|
| ||||
| |||||
|
|
| |||
|
|
| |||
|
|
| |||
|
Note 19—15—Income Taxes
For the quarterquarters ended March 31, 2015 and 2014, the Company’s effective tax rate wasrates were 11.5% and 11.3%., respectively. The difference between the Company’s effective tax rate and the statutory rate is primarily due to the allocation of earnings to the noncontrolling interest unitholders. As the noncontrolling interest unitholders convert their ownership units into the Company’s shares, it expects an increase in allocated earningsthe portion of the Company’s income that will be subject to corporate federal and state statutory tax rates will increase, which will in turn increase itsPFSI’s effective income tax rate.
Note 16—Noncontrolling Interest
During the quarter ended March 31, 2015, PennyMac unitholders exchanged 44,000 Class A units for the Company’s Class A common stock. The effect of the exchanges reduced the percentage of the Noncontrolling interest in Private National Mortgage Acceptance Company, LLC from 71.6% at December 31, 2014 to 71.5% at March 31, 2015.
During the quarter ended March 31, 2014, PennyMac unitholders exchanged 66,709 Class A units for the Company’s Class A common stock. The effect of the exchanges reduced the percentage of the Noncontrolling interest in Private National Mortgage Acceptance Company, LLC from 72.6% at December 31, 2013 to 72.5% at March 31, 2014.
37
Net income attributable to the Company’s common stockholders and the effects of changes in noncontrolling ownership interest in PennyMac is summarized below:
|
|
|
|
|
|
|
|
|
| Quarter ended March 31, |
| ||||
|
| 2015 |
| 2014 |
| ||
|
| (in thousands, except share amounts) |
| ||||
Net income attributable to PennyMac Financial Services, Inc. common stockholders |
| $ | 9,028 |
| $ | 7,972 |
|
Increase in the Company's additional paid-in capital for exchanges of Class A units of Private National Mortgage Acceptance Company, LLC to Class A stock of PennyMac Financial Services, Inc. (Class A shares issued, 44,000 and 66,709 during the quarters ended March 31, 2015 and 2014, respectively) |
| $ | 792 |
| $ | 563 |
|
Note 17—Net Gains on Mortgage Loans Held for Sale
Net gains on mortgage loans held for sale at fair value is summarized below:
|
|
|
|
|
|
|
|
|
| Quarter ended March 31, |
| ||||
|
| 2015 |
| 2014 |
| ||
|
| (in thousands) |
| ||||
Cash (loss) gain: |
|
|
|
|
|
|
|
Sales proceeds |
| $ | 2,730 |
| $ | 4,481 |
|
Hedging activities |
|
| (18,329) |
|
| (10,256) |
|
|
|
| (15,599) |
|
| (5,775) |
|
Non-cash gain: |
|
|
|
|
|
|
|
Mortgage servicing rights resulting from mortgage loan sales |
|
| 69,956 |
|
| 37,514 |
|
Mortgage servicing liabilities resulting from mortgage loan sales |
|
| (2,928) |
|
| — |
|
Excess servicing spread recapture payable to PennyMac Mortgage Investment Trust |
|
| (1,289) |
|
| (1,898) |
|
Provision for losses relating to representations and warranties on loans sold |
|
| (1,495) |
|
| (851) |
|
Change in fair value relating to loans and hedging derivatives held at period end: |
|
|
|
|
|
|
|
Interest rate lock commitments |
|
| 21,991 |
|
| 7,536 |
|
Mortgage loans |
|
| 12,201 |
|
| 7,828 |
|
Hedging derivatives |
|
| (7,459) |
|
| (9,816) |
|
|
| $ | 75,378 |
| $ | 34,538 |
|
Note 18—Net Interest Expense
Net interest expense is summarized below:
|
|
|
|
|
|
|
|
|
| Quarter ended March 31, |
| ||||
|
| 2015 |
| 2014 |
| ||
|
| (in thousands) |
| ||||
Interest income: |
|
|
|
|
|
|
|
Short-term investments |
| $ | 512 |
| $ | 201 |
|
Mortgage loans held for sale at fair value |
|
| 8,421 |
|
| 3,909 |
|
|
|
| 8,933 |
|
| 4,110 |
|
Interest expense: |
|
|
|
|
|
|
|
Mortgage loans sold under agreements to repurchase |
|
| 3,809 |
|
| 2,329 |
|
Mortgage loan participation and sale agreement |
|
| 519 |
|
| — |
|
Note payable |
|
| 1,635 |
|
| 659 |
|
Excess servicing spread financing at fair value |
|
| 3,752 |
|
| 2,862 |
|
Interest shortfall on repayments of mortgage loans serviced for Agency securitizations |
|
| 1,524 |
|
| 218 |
|
Interest on mortgage loan impound deposits |
|
| 590 |
|
| 318 |
|
|
|
| 11,829 |
|
| 6,386 |
|
|
| $ | (2,896) |
| $ | (2,276) |
|
38
Note 19—Stock-based Compensation
The Company’s 2013 Equity Incentive Plan provides for grants of stock options, time-based and performance-based restricted stock units (“RSUs”), stock appreciation rights, performance units and stock grants. As of March 31, 2015, the Company has 1.9 million units available for future awards. The Company estimates the cost of the stock options, time-based RSUs and performance-based RSUs awarded with reference to the fair value of the Company’s Class A common stock on the date of the grants. Compensation costs are fixed, except for the performance-based RSUs, at the grant’s estimated fair value on the grant date as all grantees are employees of PennyMac or directors of the Company. Expense relating to grants is included in Compensation in the consolidated statements of income.
Following is a summary of the stock-based compensation expense by instrument awarded:
|
|
|
|
|
|
|
|
|
| Quarter ended March 31, |
| ||||
|
| 2015 |
| 2014 |
| ||
|
| (in thousands) |
| ||||
Stock options |
| $ | 1,480 |
| $ | 1,187 |
|
Performance-based RSUs |
|
| 1,871 |
|
| 762 |
|
Time-based RSUs |
|
| 535 |
|
| 436 |
|
|
| $ | 3,886 |
| $ | 2,385 |
|
Following is a summary of equity awards:
|
|
|
|
|
|
|
|
|
|
|
|
| Quarter ended March 31, 2015 |
| |||||||
|
| Stock options |
| Performance-based RSUs |
| Time-based RSUs |
| |||
|
| (in thousands) |
| |||||||
December 31, 2014 |
|
| 1,167 |
|
| 1,257 |
|
| 202 |
|
Granted |
|
| 715 |
|
| 1,143 |
|
| 118 |
|
Vested |
|
| — |
|
| — |
|
| (31) |
|
Exercised |
|
| — |
|
| — |
|
| — |
|
Forfeited or canceled |
|
| (1) |
|
| (2) |
|
| — |
|
March 31, 2015 |
|
| 1,881 |
|
| 2,398 |
|
| 289 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Quarter ended March 31, 2014 |
| |||||||
|
| Stock options |
| Performance-based RSUs |
| Time-based RSUs |
| |||
|
| (in thousands) |
| |||||||
December 31, 2013 |
|
| 419 |
|
| 491 |
|
| 100 |
|
Granted |
|
| 747 |
|
| 609 |
|
| 97 |
|
Vested |
|
| — |
|
| — |
|
| — |
|
Exercised |
|
| — |
|
| — |
|
| — |
|
Forfeited or canceled |
|
| (5) |
|
| (6) |
|
| (1) |
|
March 31, 2014 |
|
| 1,161 |
|
| 1,094 |
|
| 196 |
|
39
Note 20—Supplemental Cash Flow Information
|
|
|
|
|
| |||||||||
|
| Quarter ended March 31, |
|
| Quarter ended March 31, |
| ||||||||
|
| 2014 |
| 2013 |
|
| 2015 |
| 2014 |
| ||||
|
| (in thousands) |
|
| (in thousands) |
| ||||||||
Cash paid for interest |
| $ | 6,223 |
| $ | 3,693 |
|
| $ | 11,606 |
| $ | 6,223 |
|
Cash paid for income taxes |
| $ | 3 |
| $ | — |
|
| $ | 1,902 |
| $ | 3 |
|
Non-cash investing activity: |
|
|
|
|
|
|
|
|
|
| ||||
Receipt of MSRs created in loan sales activities |
| $ | 37,514 |
| $ | 41,736 |
| |||||||
Mortgage servicing rights resulting from mortgage loan sales |
| $ | 69,956 |
| $ | 37,514 |
| |||||||
Mortgage servicing liabilities resulting from mortgage loan sales |
| $ | 2,928 |
| $ | — |
| |||||||
Non-cash financing activity: |
|
|
|
|
|
|
|
|
|
| ||||
Settlement of stock subscription through partnership distribution |
| $ | — |
| $ | 4,113 |
| |||||||
Transfer of ESS pursuant to recapture agreement with PMT |
| $ | 1,113 |
| $ | — |
| |||||||
Transfer of excess servicing spread pursuant to recapture agreement with PennyMac Mortgage Investment Trust |
| $ | 1,246 |
| $ | 1,113 |
| |||||||
Issuance of common stock in settlement of director fees |
| $ | 74 |
| $ | — |
|
Note 21—Regulatory Net Worth and Agency Capital Requirements
The Company, through PLS and PennyMac, is required to maintain specified levels of equity to remain a seller/servicer in good standing with the Agencies. Such equity requirements generally are tied to the size of the Company’s loan servicing portfolio or loan origination volume.
The Agencies’ capital requirements, the calculations of which are specified by each Agency, are summarized below:
|
| March 31, 2014 |
| December 31, 2013 |
| ||||||||
Requirement—company subject to requirement |
| Net worth (1) |
| Required |
| Net worth (1) |
| Required |
| ||||
|
| (in thousands) |
| ||||||||||
Fannie Mae—PLS |
| $ | 446,795 |
| $ | 84,829 |
| $ | 409,552 |
| $ | 83,148 |
|
Freddie Mac—PLS |
| $ | 447,059 |
| $ | 3,092 |
| $ | 409,860 |
| $ | 3,001 |
|
Ginnie Mae: |
|
|
|
|
|
|
|
|
| ||||
Issuer—PLS |
| $ | 417,578 |
| $ | 100,358 |
| $ | 388,125 |
| $ | 102,619 |
|
Issuer’s parent—PennyMac |
| $ | 642,332 |
| $ | 110,394 |
| $ | 598,198 |
| $ | 112,881 |
|
HUD—PLS |
| $ | 417,578 |
| $ | 2,500 |
| $ | 388,125 |
| $ | 2,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Agency capital |
| ||||||||||
|
| March 31, 2015 |
| December 31, 2014 |
| ||||||||
Agency–company subject to requirement |
| Balance (1) |
| Requirement |
| Balance (1) |
| Requirement |
| ||||
|
| (in thousands) |
| ||||||||||
Fannie Mae–PLS |
| $ | 628,604 |
| $ | 35,267 |
| $ | 583,686 |
| $ | 35,507 |
|
Freddie Mac–PLS |
| $ | 628,693 |
| $ | 4,015 |
| $ | 583,819 |
| $ | 3,721 |
|
Ginnie Mae–PLS |
| $ | 581,518 |
| $ | 130,803 |
| $ | 536,009 |
| $ | 111,457 |
|
Ginnie Mae–PennyMac |
| $ | 815,745 |
| $ | 156,963 |
| $ | 763,907 |
| $ | 133,748 |
|
HUD–PLS |
| $ | 581,518 |
| $ | 2,500 |
| $ | 539,844 |
| $ | 2,500 |
|
(1) | Calculated in compliance with the respective Agency’s requirements. |
(1)Calculated in compliance with the respective Agency’s requirements.
Noncompliance with the respective agencies’Agencies’ capital requirements can result in the respective Agency taking various remedial actions up to and including removing PennyMac’s ability to sell loans to and service loans on behalf of the respective Agency. PennyMac and PLS had Agency capital in excess of the respective Agencies’ requirements at March 31, 2014.2015.
Note 22—Commitments and Contingencies
Litigation
The business of the Company involves the collection of numerous accounts, as well as the validation of liens and compliance with various state and federal lending and servicing laws. Accordingly, the Company may be involved in proceedings, claims, and legal actions arising in the ordinary course of business. As of March 31, 2014,2015, the Company was not involved in any legal proceedings, claims, or actions that in management’s view would be reasonably likely to have a material adverse effect on the Company.
40
Commitments to Fund and Sell Mortgage Loans
|
| March 31, 2014 |
| |
|
| (in thousands) |
| |
Commitments to purchase mortgage loans from PennyMac Mortgage Investment Trust |
| $ | 836,786 |
|
Commitments to fund mortgage loans |
| 365,340 |
| |
|
| $ | 1,202,126 |
|
Commitments to sell mortgage loans |
| $ | 2,829,176 |
|
March 31, 2015 | ||||
(in thousands) | ||||
Commitments to purchase mortgage loans from PennyMac Mortgage Investment Trust | $ | 2,141,582 | ||
Commitments to fund mortgage loans | 982,063 | |||
$ | 3,123,645 | |||
Commitments to sell mortgage loans | $ | 7,464,527 |
Note 23—Segments and Related Information
Since the date of the Company’s IPO, theThe Company has continued its development of internal management reporting. Such development has resultedoperates in changes in the information that is provided to the Company’s chief operating decision maker. Accordingly, during the quarter ended March 31, 2014, management re-evaluated this new information in relation to its definition of its operating segments.
As a result of the new reporting provided to the chief operating decision maker, management has concluded that its mortgage banking operations should be disclosed as two segments: loan production and loan servicing. Accordingly, the following segment disclosure includes three segments: loan production, loan servicing and investment management. Prior period segment disclosures have been restated to conform segment disclosures for the quarter ended March 31, 2013 to those for the quarter ended March 31, 2014.
Two of the segments are in the mortgage banking business: loan production and loan servicing. The loan production segment performs origination, acquisition and sale activities. The loan servicing segment performs servicing of newly originated mortgage loans, execution and management of early buyout loans and servicing of mortgage loans sourced and managed by the investment management segment, including executing the loan resolution strategy identified by the investment management segment relating to distressed mortgage loans.
The investment management segment represents the activities of the Company’s investment manager, which include sourcing, performing diligence, bidding and closing investment asset acquisitions, managing correspondent lending activities for PMT and managing the acquired assets for the Advised Entities.
Financial highlights by segment are as follows:
|
| Quarter ended March 31, 2014 |
| |||||||||||||
|
| Mortgage banking |
| Investment |
|
|
| |||||||||
|
| Production |
| Servicing |
| Total |
| management |
| Total |
| |||||
|
| (in thousands) |
| |||||||||||||
Revenue |
|
|
|
|
|
|
|
|
|
|
| |||||
Net gains on mortgage loans held for sale at fair value |
| $ | 34,538 |
| $ | — |
| $ | 34,538 |
| $ | — |
| $ | 34,538 |
|
Loan origination fees |
| 6,880 |
| — |
| 6,880 |
| — |
| 6,880 |
| |||||
Fulfillment fees from PennyMac Mortgage Investment Trust |
| 8,902 |
| — |
| 8,902 |
| — |
| 8,902 |
| |||||
Net servicing fees |
| — |
| 43,764 |
| 43,764 |
| — |
| 43,764 |
| |||||
Management fees |
| — |
| — |
| — |
| 10,109 |
| 10,109 |
| |||||
Carried Interest from Investment Funds |
| — |
| — |
| — |
| 2,157 |
| 2,157 |
| |||||
Net interest income (expense): |
|
|
|
|
|
|
|
|
|
|
| |||||
Interest income |
| 4,106 |
| — |
| 4,106 |
| 4 |
| 4,110 |
| |||||
Interest expense |
| 2,329 |
| 4,057 |
| 6,386 |
| — |
| 6,386 |
| |||||
|
| 1,777 |
| (4,057 | ) | (2,280 | ) | 4 |
| (2,276 | ) | |||||
Other |
| 643 |
| 519 |
| 1,162 |
| 256 |
| 1,418 |
| |||||
Total net revenue |
| 52,740 |
| 40,226 |
| 92,966 |
| 12,526 |
| 105,492 |
| |||||
Expenses |
| 26,786 |
| 23,113 |
| 49,899 |
| 6,532 |
| 56,431 |
| |||||
Income before provision for income taxes |
| $ | 25,954 |
| $ | 17,113 |
| $ | 43,067 |
| $ | 5,994 |
| $ | 49,061 |
|
Segment assets at period end (1) |
| $ | 790,733 |
| $ | 807,252 |
| 1,597,985 |
| $ | 103,698 |
| $ | 1,701,683 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Quarter ended March 31, 2015 |
| |||||||||||||
|
| Mortgage Banking |
| Investment |
|
|
|
| ||||||||
|
| Production |
| Servicing |
| Total |
| Management |
| Total |
| |||||
|
| (in thousands) |
| |||||||||||||
Revenues (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net gains on mortgage loans held for sale at fair value |
| $ | 76,979 |
| $ | (1,601) |
| $ | 75,378 |
| $ | — |
| $ | 75,378 |
|
Loan origination fees |
|
| 16,682 |
|
| — |
|
| 16,682 |
|
| — |
|
| 16,682 |
|
Fulfillment fees from PennyMac Mortgage Investment Trust |
|
| 12,866 |
|
| — |
|
| 12,866 |
|
| — |
|
| 12,866 |
|
Net servicing fees |
|
| — |
|
| 26,776 |
|
| 26,776 |
|
| — |
|
| 26,776 |
|
Management fees |
|
| — |
|
| — |
|
| — |
|
| 8,489 |
|
| 8,489 |
|
Carried Interest from Investment Funds |
|
| — |
|
| — |
|
| — |
|
| 1,233 |
|
| 1,233 |
|
Net interest income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
| 7,016 |
|
| 1,917 |
|
| 8,933 |
|
| — |
|
| 8,933 |
|
Interest expense |
|
| 3,641 |
|
| 8,188 |
|
| 11,829 |
|
| — |
|
| 11,829 |
|
|
|
| 3,375 |
|
| (6,271) |
|
| (2,896) |
|
| — |
|
| (2,896) |
|
Other |
|
| 913 |
|
| 618 |
|
| 1,531 |
|
| 255 |
|
| 1,786 |
|
Total net revenue |
|
| 110,815 |
|
| 19,522 |
|
| 130,337 |
|
| 9,977 |
|
| 140,314 |
|
Expenses |
|
| 40,132 |
|
| 38,067 |
|
| 78,199 |
|
| 8,877 |
|
| 87,076 |
|
Income before provision for income taxes |
| $ | 70,683 |
| $ | (18,545) |
| $ | 52,138 |
| $ | 1,100 |
| $ | 53,238 |
|
Segment assets at period end (2) |
| $ | 1,399,817 |
| $ | 1,322,301 |
| $ | 2,722,118 |
| $ | 92,093 |
| $ | 2,814,211 |
|
(1) | All revenues are from external customers. |
(2) | Excludes parent Company assets, which consist primarily of deferred tax asset of $42.1 million. |
41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Quarter ended March 31, 2014 |
| |||||||||||||
|
| Mortgage Banking |
| Investment |
|
|
|
| ||||||||
|
| Production |
| Servicing |
| Total |
| Management |
| Total |
| |||||
|
| (in thousands) |
| |||||||||||||
Revenues (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net gains on mortgage loans held for sale at fair value |
| $ | 34,538 |
| $ | — |
| $ | 34,538 |
| $ | — |
| $ | 34,538 |
|
Loan origination fees |
|
| 6,880 |
|
| — |
|
| 6,880 |
|
| — |
|
| 6,880 |
|
Fulfillment fees from PennyMac Mortgage Investment Trust |
|
| 8,902 |
|
| — |
|
| 8,902 |
|
| — |
|
| 8,902 |
|
Net servicing fees |
|
| — |
|
| 43,764 |
|
| 43,764 |
|
| — |
|
| 43,764 |
|
Management fees |
|
| — |
|
| — |
|
| — |
|
| 10,109 |
|
| 10,109 |
|
Carried Interest from Investment Funds |
|
| — |
|
| — |
|
| — |
|
| 2,157 |
|
| 2,157 |
|
Net interest income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
| 4,106 |
|
| — |
|
| 4,106 |
|
| 4 |
|
| 4,110 |
|
Interest expense |
|
| 2,329 |
|
| 4,057 |
|
| 6,386 |
|
| — |
|
| 6,386 |
|
|
|
| 1,777 |
|
| (4,057) |
|
| (2,280) |
|
| 4 |
|
| (2,276) |
|
Other |
|
| 643 |
|
| 519 |
|
| 1,162 |
|
| 256 |
|
| 1,418 |
|
Total net revenue |
|
| 52,740 |
|
| 40,226 |
|
| 92,966 |
|
| 12,526 |
|
| 105,492 |
|
Expenses |
|
| 26,786 |
|
| 23,113 |
|
| 49,899 |
|
| 6,532 |
|
| 56,431 |
|
Income before provision for income taxes |
| $ | 25,954 |
| $ | 17,113 |
| $ | 43,067 |
| $ | 5,994 |
| $ | 49,061 |
|
Segment assets at period end (2) |
| $ | 790,733 |
| $ | 807,252 |
| $ | 1,597,985 |
| $ | 103,698 |
| $ | 1,701,683 |
|
(1) Amount excludesAll revenues are from external customers.
(2)Excludes parent Company assets, which consist primarily of deferred tax assets.
|
| Quarter ended March 31, 2013 |
| |||||||||||||
|
| Mortgage banking |
| Investment |
|
|
| |||||||||
|
| Production |
| Servicing |
| Total |
| management |
| Total |
| |||||
|
| (in thousands) |
| |||||||||||||
Revenue |
|
|
|
|
|
|
|
|
|
|
| |||||
Net gains on mortgage loans held for sale at fair value |
| $ | 39,957 |
| $ | — |
| $ | 39,957 |
| $ | — |
| $ | 39,957 |
|
Loan origination fees |
| 5,668 |
| — |
| 5,668 |
| — |
| 5,668 |
| |||||
Fulfillment fees from PennyMac Mortgage Investment Trust |
| 28,244 |
| — |
| 28,244 |
| — |
| 28,244 |
| |||||
Net servicing fees |
| — |
| 16,042 |
| 16,042 |
| — |
| 16,042 |
| |||||
Management fees |
| — |
| — |
| — |
| 8,406 |
| 8,406 |
| |||||
Carried Interest from Investment Funds |
| — |
| — |
| — |
| 4,737 |
| 4,737 |
| |||||
Net interest (expense) income: |
|
|
|
|
|
|
|
|
|
|
| |||||
Interest income |
| 1,737 |
| — |
| 1,737 |
| 5 |
| 1,742 |
| |||||
Interest expense |
| 3,330 |
| — |
| 3,330 |
| — |
| 3,330 |
| |||||
|
| (1,593 | ) | — |
| (1,593 | ) | 5 |
| (1,588 | ) | |||||
Other |
| 326 |
| 81 |
| 407 |
| 495 |
| 902 |
| |||||
Total net revenue |
| 72,602 |
| 16,123 |
| 88,725 |
| 13,643 |
| 102,368 |
| |||||
Expenses |
| 28,992 |
| 13,743 |
| 42,735 |
| 4,340 |
| 47,075 |
| |||||
Income before provision for income taxes |
| $ | 43,610 |
| $ | 2,380 |
| $ | 45,990 |
| $ | 9,303 |
| $ | 55,293 |
|
Segment assets at period end |
| $ | 280,594 |
| $ | 288,304 |
| $ | 568,898 |
| $ | 124,029 |
| $ | 692,927 |
|
Tableassets of Contents$58.2 million.
Note 24—Recently Issued Accounting Pronouncements
In April of 2015, the FASB issued Accounting Standards Update (“ASU”) No. 2015-03, Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs. The amendments in this ASU require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this ASU.ASU 2015-03 should be applied on a retrospective basis and is effective for the Company for financial statements issued for fiscal years and interim periods within those fiscal years beginning after December 15, 2015. The adoption of ASU 2015-03 is not expected to have a material effect on the Company’s consolidated financial statements
Note 25—Subsequent Events
Management has evaluated all events and transactions through the date the Company issued these consolidated financial statements. During this period:
· | On April 28, 2015, the Company entered into a letter of intent with a third party to purchase a $9.3 billion unpaid principal balance portfolio of Agency MSRs. The Company intends to sell to PennyMac Holdings, LLC (“PMH”), a subsidiary of PMT, approximately $74 million of ESS from this MSR portfolio. |
·On April 29, 2014, the Company entered into a letter of intent with a third party to purchase a $3.5 billion unpaid principal balance portfolio of Ginnie Mae MSRs. PMT intends to purchase from the Company approximately $26.0 million of ESS from this MSR portfolio.
The MSR acquisition by the Company and PMT’s purchaseits sale of ESS to PMH are subject to the negotiation and execution of definitive documentation, continuing due diligence and customary closing conditions, andincluding 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.
· On April 30, 2015, the Company, through PLS and PennyMac, entered into an amendment to its Third Amended and Restated Loan and Security Agreement, dated as of March 27, 2015, pursuant to which PLS may finance certain of its MSRs and servicing advance receivables with Credit Suisse First Boston Mortgage 42 Capital LLC (“CSFB”) (the “Loan and Security Agreement”). The Loan and Security Agreement is guaranteed in full by PennyMac. Under the terms of the amendment, the maximum ·On April 30, 2014, the Company, through PLS, entered into an amendment to its amended and restated master repurchase agreement,aggregate purchase price provided for inloan amount under the RepurchaseLoan and Security Agreement was increased from $300$257 million to $800$407 million. The $150 million increase was implemented for the purpose of facilitating the financing government loans servicedof ESS by PMT through one of its subsidiaries, PMH. The ESS is pledged by PMH under an underlying loan and security agreement (as described hereafter) by and between PMH and PLS and then re-pledged to CSFB by PLS that are either re-performing or severely delinquentunder the Loan and in either case, purchasedSecurity Agreement. The aggregate loan amount outstanding under the Loan and Security Agreement and relating to re-pledged ESS by PLS out of Ginnie Mae securities (the “GNMA Loans”). The re-performing GNMA Loans are heldis guaranteed in full by PLS pending re-securitization while the severely delinquent GNMA Loans are held by PLS pending liquidation or an alternative resolution. Of the $800 million maximum aggregate purchase price, the maximum purchase price with respect to the GNMA Loans is $500 million.
· | On April 30, 2015, in connection with the amendment to the Loan and Security Agreement, PLS and PMH entered into an underlying loan and security agreement, pursuant to which PMH may borrow up to $150 million from PLS for the purpose of financing ESS. PLS then re-pledges the ESS to CSFB under the Loan and Security Agreement. |
· | On April 30, 2015, the Company, through PLS, entered into an Amended and Restated Master Spread Acquisition and MSR Servicing Agreement (“Spread Acquisition Agreement”) with PMH. The Spread Acquisition Agreement amends and restates that certain spread acquisition and MSR servicing agreement originally entered into by and between PLS and PMH on December 30, 2013. The primary purpose of the amendment and restatement was to evidence the ownership of the ESS under participation certificates and to otherwise incorporate the terms of previously executed amendments. |
· | On May 1, 2015, the Company completed its sale to PMH of $136 million in ESS relating to the Company’s acquisition of a $15 billion unpaid principal balance portfolio of Agency MSRs. |
·Subsequent to March 31, 2014, the Company agreed in principle to sell to a third-party private label MSRs backed by distressed mortgage loans with UPBs of approximately $0.9 billion. The transaction is subject to customary closing conditions and approvals. There can be no assurance that the committed amount will ultimately be sold or that the transaction will be completed at all.
43
·All agreements to repurchase assets that matured between March 31, 2014 and the date of this Report were extended or renewed.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsOperations
Cautionary Statement Regarding Forward-Looking Statements
The following discussion and analysis of financial condition and results of operations should be read in conjunction with the consolidated financial statements and the related notes of PennyMac Financial Services, Inc. (“PFSI”) included within this Quarterly Report on Form 10-Q.
Statements contained in this Quarterly Report on Form 10-Q may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements involve known and unknown risks, uncertainties and other factors, which may cause actual results to be materially different from those expressed or implied in such statements. You can identify these forward-looking statements by words such as “may,” “will,” “should,” “expect,” “anticipate,” “believe,” “estimate,” “intend,” “plan” and other similar expressions. You should consider our forward-looking statements in light of the risks discussed under the heading “Risk Factors,” as well as our consolidated financial statements, related notes, and the other financial information appearing elsewhere in this Quarterly Report on Form 10-Q and our other filings with the United States Securities and Exchange Commission (“SEC”). The forward-looking statements contained in this Quarterly Report on Form 10-Q are made as of the date hereof and we assume no obligation to update or supplement any forward-looking statements.
Overview
The following discussion and analysis provides information that we believe is relevant to an assessment and understanding of our consolidated results of operations and financial condition. Unless the context indicates otherwise, references in this Quarterly Report on Form 10-Q to the words “we,” “us,” “our” and the “Company” refer to PennyMac Financial Services, Inc. (“PFSI”).PFSI.
Initial Public Offering and Recapitalization
On May 14, 2013, we completed an initial public offering (“IPO”) in which we sold approximately 12.8 million shares of Class A Common Stock par value $0.0001 per share (“Class A Common Stock”) for cash consideration of $16.875 per share (net of underwriting discounts). With the net proceeds from the IPO, we bought approximately 12.8 million Class A units of Private National Mortgage Acceptance Company, LLC (“PennyMac”) and became its sole managing member. We operate and control all of the business and affairs and consolidate the financial results of PennyMac.
Before the completion of the IPO, the limited liability company agreement of PennyMac was amended and restated to, among other things, change its capital structure by converting the different classes of interests held by its existing unitholders into Class A units. PennyMac and its existing unitholders also entered into an exchange agreement under which (subject to the terms of the exchange agreement) they have the right to exchange their Class A units for shares of our Class A Common Stock on a one for one basis, subject to customary conversion rate adjustments for stock splits, stock dividends, reclassifications and certain other transactions.
Before 2013, PennyMac made an election pursuant to Section 754 of the Internal Revenue Code which remains in effect. As a result of this election, an exchange pursuant to the exchange agreement results in a special adjustment for PFSI that may increase PFSI’s tax basis in certain assets of PennyMac that otherwise would not have been available. These increases in tax basis may reduce the amount of tax that PFSI would otherwise be required to pay in the future and result in increases in investment in PennyMac deferred tax assets net of investment in PennyMac deferred tax liabilities.
As part of the IPO, we entered into a tax receivable agreement with the then existing unitholders of PennyMac that provides for payment to such owners of 85% of the tax benefits, if any, that we are deemed to realize under certain circumstances as a result of (i) increases in tax basis resulting from exchanges of Class A units and (ii) certain other tax benefits related to our tax receivable agreement, including tax benefits attributable to payments under the tax receivable agreement.
Our Company
We are a specialty financial services firm with a comprehensive mortgage platform and integrated business primarily focused on the production and servicing of U.S. residential mortgage loans (activities which we refer to as mortgage banking) and the management of investments related to the U.S. residential mortgage market. We believe that our operating capabilities, specialized expertise, access to long termlong-term investment capital, and our management’s experience across all aspects of the mortgage business will allow us to profitably grow these activities and capitalize on other related opportunities as they arise in the future.
We operate and control all of the business and affairs of Private National Mortgage Acceptance Company, LLC (“PennyMac”) and are its sole managing member. PennyMac was founded in 2008 by members of itsour executive leadership team and two strategic partners, BlackRock Mortgage Ventures, LLC together with its affiliates, and HC Partners, LLC, formerly known as Highfields Capital Investments, LLC, together with its affiliates.
We conduct our business in three segments: loan production, loan servicing (together, these two activities comprise our mortgage banking activities) and investment management. Our principal mortgage banking subsidiary, PennyMac Loan Services, LLC (“PLS”), is a non-bank producer and servicer of mortgage loans in the United States. Our principal investment management subsidiary, PNMAC Capital Management, LLC (“PCM”), is an SEC registered investment adviser. PCM manages PennyMac Mortgage Investment Trust (“PMT”), a mortgage real estate investment trust, listed on the New York Stock Exchange under the ticker symbol PMT. PCM also manages PNMAC Mortgage Opportunity Fund, LLC and PNMAC Mortgage Opportunity Fund, LP,L.P., both registered under the Investment Company Act of 1940 (“Investment Company Act”), as amended, an affiliate of these funds and PNMAC Mortgage Opportunity Fund Investors, LLC. We refer to these funds collectively as our “Investment Funds” and, together with PMT, as our “Advised Entities.”
Mortgage Banking
Loan Production
OurMortgage loans produced through our loan production segment is comprised ofare sourced through two primary businesses:channels: correspondent lendingproduction and retailconsumer direct lending.
44
In our correspondent lendingproduction channel, we manage, on behalf of PMT and for our own account, the acquisition of newly originated, prime credit quality, first lienfirst-lien residential mortgage loans that have been underwritten to investor guidelines. PMT acquires, from approved correspondent sellers, newly originated loans, primarily “conventional”including both conventional and government-insured or guaranteed residential mortgage loans that qualify for inclusion in securitizations that are guaranteed by the Agencies.Federal National Mortgage Association (“Fannie Mae”) and the Federal Home Loan Mortgage Corporation (“Freddie Mac”) and the Government National Mortgage Association (“Ginnie Mae”). We refer to each of Fannie Mae, Freddie Mac and Ginnie Mae as an “Agency” and collectively as the “Agencies”. For conventional mortgage loans, we perform fulfillment activities for PMT and earn a fulfillment fee for each mortgage loan purchased by PMT. In the case of government insuredgovernment-insured or guaranteed mortgage loans, we purchase them from PMT at PMT’s cost plus a sourcing fee and fulfill them for our own account.
In retailThrough our consumer direct lending channel, we originate new prime credit quality, first lienfirst-lien residential conventional and government-insured or guaranteed mortgage loans on a national basis to allow customers to purchase or refinance their homes. We conduct this business through aOur consumer direct model which relies on the Internet and call center basedcenter-based staff to acquire and interact with customers across the country. We do not have a “brick and mortar” branch network and have been developing our consumer direct operations with call centers strategically positioned across the United States.
During the quarter ended March 31, 2014, we managed PMT’s acquisition of newly originated, prime credit quality, first lien residentialFor mortgage loans with fair values totaling $5.0 billion. During the quarter ended March 31, 2014,originated through our consumer direct lending channel, we purchased, forconduct our own account, approximately $3.1 billionfulfillment, earn interest income and gains or losses during the holding period and upon the sale or securitization of government-insured loans at fair value from PMT and originated $318.3 million of residentialthese mortgage loans, at fair value through our retail channel.and retain the associated mortgage servicing rights (“MSRs”) (subject to sharing with PMT a portion of such MSRs or cash with respect to certain consumer direct originated mortgage loans that refinance mortgage loans for which the related MSRs or excess servicing spread (“ESS”) was held by PMT).
During the quarter ended March 31, 2013, we managed PMT’s acquisition of newly originated, prime credit quality, first lien residential mortgage loans with fair values totaling $8.8 billion. We purchased, for our own account, approximately $3.5 billion of government-insured loans at fair value from PMT during the quarter ended March 31, 2013. We also originated $268.1 million of residential mortgage loans at fair value through our retail channel during the quarter ended March 31, 2013.Our loan production activity is summarized below:
|
|
|
|
|
|
|
|
|
| Quarter ended March 31, |
| ||||
|
| 2015 |
| 2014 |
| ||
|
| (in thousands) |
| ||||
Unpaid principal balance of mortgage loans purchased and originated for sale: |
|
|
|
|
|
|
|
Government-insured or guaranteed loans acquired from PennyMac Mortgage Investment Trust |
| $ | 4,735,374 |
| $ | 2,974,077 |
|
Consumer direct |
|
| 896,998 |
|
| 313,788 |
|
|
| $ | 5,632,372 |
| $ | 3,287,865 |
|
Unpaid principal balance of mortgage loans fulfilled for PennyMac Mortgage Investment Trust |
| $ | 2,890,132 |
| $ | 1,919,578 |
|
Loan Servicing.
Our loan servicing segment performs loan administration, collection, and default management activities, including the collection and remittance of mortgage loan payments; response to customer inquiries; accounting for principal and interest; holding custodial (impound)(impounded) funds for the payment of property taxes and insurance premiums; counseling delinquent mortgagors; and supervising foreclosures and property dispositions. We service a diverse portfolio of mortgage loans both as the owner of MSRs and on behalf of other MSR or mortgage owners. We provide prime servicing for conventional and government insuredgovernment-insured or guaranteed loans (“prime servicing”), as well as special servicing for distressed loans that have been acquired as investments by our Advised Entities and loans in “private label” MBS, which are securities issued by institutions that are not affiliated with any Agency.
During the quarter ended(“special servicing”). As of March 31, 2014, we increased our2015, the portfolio of mortgage loans that we serviced or subserviced fromtotaled approximately $78.2$115.2 billion in UPB at December 31, 2013 to approximately $83.8 billion in UPB at March 31, 2014.unpaid principal balance (“UPB”).
During the quarter ended March 31, 2013, we increased our portfolio of loans that we serviced or subserviced from approximately $28.2 billion in UPB at December 31, 2012 to approximately $36.2 billion in UPB at March 31, 2013.
Investment Management
We are an investment manager through an indirectour subsidiary, PCM. PCM currently manages PMT and the Investment Funds. PMT and the Investment Funds had combined net assets of approximately $2.1$2.0 billion as of March 31, 2014.2015. For these activities, we earn management fees as a percentage of net assets and incentive compensation based on investment performance.
45
Observations on Current Market Conditions
Our business is affected by macroeconomic conditions in the United States, including economic growth, unemployment rates, the residential housing market and interest rate levels and expectations. The U.S. economy continues to grow as reflected in recent economic data. During the first quarter of 2014,2015, real U.S. gross domestic product expanded at an annual rate of 0.1%0.2% compared to revised 1.1% and 2.6% annual ratesa 2.1% decrease for the first quarter of 2014 and a 2.2% increase for the fourth quartersquarter of 2013, respectively.2014. The national unemployment rate was 6.7%5.5% at March 31, 2015 compared to 5.6% at December 31, 2014 and compares to a revised seasonally adjusted rate of 7.5%6.6% at March 31, 2013 and 6.7% at December 31, 2013. While delinquency2014. Delinquency rates on residential real estate loans continue to decrease, they remain elevated compared to historical rates.rates, but have been steadily declining. As reported by the Federal Reserve Bank, during the fourth quarter of 2013,2014, the delinquency rate on residential real estate loans held by commercial banks was 8.2%6.6%, a reduction from 10.0%8.2% during the fourth quarter of 2012.2013.
In addition to economic trends, residentialResidential real estate activity was impacted by severe winter weather in many parts of the country during the first quarter of 2014.appears to be improving. The seasonally adjusted annual rate of existing home sales for March 20142015 was 7.5% lower10.4% higher than for March 20132014, and the national median existing home price for all housing types was $198,500,$212,100, a 7.9%7.8% increase from March 2013.2014. On a national level, foreclosure filings during the first quarter of 2014 decreased2015 increased by 23%4% as compared to the first quarter of 2013.2014. Foreclosure activity across the country decreased throughout 2013;in 2014; however, it is expected to remain above historical average levels through 20142015 and beyond.
Changes in fixed-rate residential mortgage loan interest rates generally follow changes in long-term U.S. Treasury yields. Thirty-year fixed mortgage interest rates ranged from a low of 4.30%3.59% to a high of 4.43%3.86% during the first quarter of 2015 while during the first quarter of 2014, compared tothirty-year fixed mortgage interest rates ranged from a low of 3.41% and4.23% to a high of 3.57% during the first quarter of 20134.53% (Source: the Federal Home Loan Mortgage Corporation’s Weekly Primary Mortgage Market Survey).
Changes in fixed rate residential mortgage loan interest rates generally follow changes in long term U.S. Treasury yields. Toward the end of the second quarter of 2013, an increase in these Treasury yields led to an increase in mortgage loan interest rates. As a result of this increase in mortgage loan interest rates, market volumes for mortgage originations have decreased led by a reduction in refinance activity.
Mortgage lenders originated an estimated $235$370 billion of home loans during the first quarter ended March 31, 2014, down 58.0% percentof 2015, up 60% from the first quarter ended March 31, 2013.of 2014. Although the low interest rate environment in the first quarter of 2015 led to an increase in the volume of borrowers seeking to refinance, we expect purchase-money loans to constitute a greater proportion of mortgage originations in the future. Mortgage originations are forecast to continue to decline,remain relatively flat, with current industry estimates for 20142015 totaling $1.2$1.3 trillion compared to $1.9 trillion for 2013 (Source: Averageaverage of Fannie Mae, Freddie Mac and Mortgage Bankers Association forecasts). We expect efforts to expand GSE product offerings (including 97% loan-to-value loans) and a recent reduction in FHA mortgage insurance premiums to make mortgage credit more affordable. In our correspondent production business, we continue to see increased competition from new and existing market participants.
In our capacity as an investment manager, we continue to see substantial volumes ofa robust market for distressed residential mortgage loan salesloans (sales of loan pools that consist of either nonperformingnon-performing loans, troubled but performing loans or a combination thereof) offered for sale by a limited numbersale. During 2014, the pool of sellers.sellers expanded to include new programmatic sellers, such as HUD and Freddie Mac. During the first quarter of 2014,2015, we reviewed 3730 mortgage loan pools with UPB totaling approximately $9.2 billion.$9.8 billion in UPB. This compares to our review of 2725 mortgage loan pools with unpaid principal balances totaling approximately $5.7$7.8 billion in UPB during the first quarter of 2013.2014. We acquired for PMT distressed loans with fair values totaling $242 million and $261 million during the quarter ended March 31, 2015 and 2014, respectively. While we expect to see a continued supply of distressed whole loans, we believe the pricing for recent transactions has been less attractive.attractive for buyers. We remain patient and selective for PMT in making new investments in distressed whole loans and we continue to monitor the market to assess best execution opportunities for existing distressed portfolio investments held by the Advised Entities.
In recent periods, we have seen increased competition from new and existing market participants for loan production, as well as reductions in the overall level of refinancing activity. We believe that this change in supply and demand within the marketplace has been driving lower production margins in recent periods, which is reflected in our results of operations in our gains on mortgage loans acquired for sale. During the first several months of 2013, gains on mortgage loans acquired for sale benefited from wider secondary spreads (the difference between interest rates charged to borrowers and yields on mortgage-backed securities in the secondary market); however, secondary spreads narrowed in subsequent months and we expect them to continue to normalize toward their long-term averages in 2014.
46
During the quarter ended March 31, 2014, we completed acquisitions of MSRs with UPB totaling $2.4 billion, which were partially financed through sale of excess servicing spread to PMT. We continue to see opportunities to acquire MSRs on a bulk and flow basis from banks and independent mortgage lenders. However, recent scrutiny by the Agencies and regulators of similar transactions and the related servicing transfers may reduce the willingness of banks and other lenders to pursue MSR sales and, as a result, reduce the volume of MSRs available for us to acquire.
Results of Operations
Our results of operations are summarized below:
|
| Quarter ended March 31, |
|
|
|
|
|
|
| |||||
|
| 2014 |
| 2013 |
|
| Quarter ended March 31, |
| ||||||
|
| (in thousands) |
|
| 2015 |
| 2014 |
| ||||||
Revenue |
|
|
|
|
| |||||||||
|
| (in thousands) |
| |||||||||||
Revenues |
|
|
|
|
|
| ||||||||
Net gains on mortgage loans held for sale at fair value |
| $ | 34,538 |
| $ | 39,957 |
|
| $ | 75,378 |
| $ | 34,538 |
|
Loan origination fees |
| 6,880 |
| 5,668 |
|
|
| 16,682 |
|
| 6,880 |
| ||
Fulfillment fees from PennyMac Mortgage Investment Trust |
| 8,902 |
| 28,244 |
|
|
| 12,866 |
|
| 8,902 |
| ||
Net loan servicing fees |
| 43,764 |
| 16,042 |
|
|
| 26,776 |
|
| 43,764 |
| ||
Management fees |
| 10,109 |
| 8,406 |
|
|
| 8,489 |
|
| 10,109 |
| ||
Carried Interest from Investment Funds |
| 2,157 |
| 4,737 |
|
|
| 1,233 |
|
| 2,157 |
| ||
Net interest expense |
| (2,276 | ) | (1,588 | ) |
|
| (2,896) |
|
| (2,276) |
| ||
Change in fair value of investment in and dividends received from PennyMac Mortgage Investment Trust |
| 115 |
| 88 |
|
|
| 107 |
|
| 115 |
| ||
Other |
| 1,303 |
| 814 |
|
|
| 1,679 |
|
| 1,303 |
| ||
Total net revenue |
| 105,492 |
| 102,368 |
|
|
| 140,314 |
|
| 105,492 |
| ||
Total expenses |
| 56,431 |
| 47,075 |
|
|
| 87,076 |
|
| 56,431 |
| ||
Provision for income taxes |
| 5,523 |
| — |
|
|
| 6,114 |
|
| 5,523 |
| ||
Net income |
| $ | 43,538 |
| $ | 55,293 |
|
| $ | 47,124 |
| $ | 43,538 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Income before provision for income taxes by segment: |
|
|
|
|
|
|
|
|
|
|
| |||
Mortgage banking: |
|
|
|
|
|
|
|
|
|
|
|
| ||
Production |
| $ | 25,954 |
| $ | 43,610 |
|
| $ | 70,683 |
| $ | 25,954 |
|
Servicing |
| 17,113 |
| 2,380 |
|
|
| (18,545) |
|
| 17,113 |
| ||
Total mortgage banking |
| 43,067 |
| 45,990 |
|
|
| 52,138 |
|
| 43,067 |
| ||
Investment management |
| 5,994 |
| 9,303 |
|
|
| 1,100 |
|
| 5,994 |
| ||
|
| $ | 49,061 |
| $ | 55,293 |
|
| $ | 53,238 |
| $ | 49,061 |
|
During the period: |
|
|
|
|
|
|
|
|
|
|
|
| ||
Interest rate lock commitments issued |
| $ | 3,540,895 |
| $ | 3,696,564 |
|
| $ | 7,793,325 |
| $ | 3,924,593 |
|
Mortgage loans purchased and originated for sale: |
|
|
|
|
| |||||||||
Government-insured or guaranteed loans acquired from PennyMac Mortgage Investment Trust at fair value |
| $ | 3,130,530 |
| $ | 3,548,397 |
| |||||||
Retail production at fair value, net |
| 317,915 |
| 268,125 |
| |||||||||
Fair value of mortgage loans purchased and originated for sale: |
|
|
|
|
|
|
| |||||||
Government-insured or guaranteed loans acquired from PennyMac Mortgage Investment Trust |
| $ | 4,989,838 |
| $ | 3,130,530 |
| |||||||
Consumer direct |
|
| 904,213 |
|
| 317,915 |
| |||||||
|
| $ | 3,448,445 |
| $ | 3,816,522 |
|
| $ | 5,894,051 |
| $ | 3,448,445 |
|
UPB of mortgage loans fulfilled for PennyMac Mortgage Investment Trust |
| $ | 1,919,578 |
| $ | 4,786,826 |
| |||||||
Unpaid principal balance of mortgage loans fulfilled for PennyMac Mortgage Investment Trust |
| $ | 2,890,132 |
| $ | 1,919,578 |
| |||||||
At period end: |
|
|
|
|
|
|
|
|
|
|
| |||
UPB of mortgage loan servicing portfolio: |
|
|
|
|
| |||||||||
MSRs owned |
| $ | 50,109,643 |
| $ | 14,586,623 |
| |||||||
Subserviced |
| 33,073,476 |
| 21,386,113 |
| |||||||||
Unpaid principal balance of mortgage loan servicing portfolio: |
|
|
|
|
|
|
| |||||||
Owned |
|
|
|
|
|
|
| |||||||
Mortgage servicing rights |
| $ | 71,985,989 |
| $ | 50,109,643 |
| |||||||
Mortgage servicing liabilities |
|
| 421,452 |
|
| — |
| |||||||
Mortgage loans held for sale |
| 660,470 |
| 193,894 |
|
|
| 1,288,744 |
|
| 660,470 |
| ||
|
| $ | 83,843,589 |
| $ | 36,166,630 |
|
|
| 73,696,185 |
|
| 50,770,113 |
|
Net assets of Advised Entities |
|
|
|
|
| |||||||||
Subserviced |
|
| 41,542,426 |
|
| 33,073,476 |
| |||||||
|
| $ | 115,238,611 |
| $ | 83,843,589 |
| |||||||
Net assets of Advised Entities: |
|
|
|
|
|
|
| |||||||
PennyMac Mortgage Investment Trust |
| $ | 1,543,282 |
| $ | 1,222,429 |
|
| $ | 1,542,159 |
| $ | 1,543,282 |
|
Investment Funds |
| 561,638 |
| 552,520 |
|
|
| 413,155 |
|
| 561,638 |
| ||
|
| $ | 2,104,920 |
| $ | 1,774,949 |
|
| $ | 1,955,314 |
| $ | 2,104,920 |
|
47
Comparison of the quarters ended March 31, 2014 and 2013
Net income decreased by approximately 11.8 million or 21% from $55.3 million forDuring the quarter ended March 31, 2013 to $43.5 million for the quarter ended March 31, 2014. The decrease in2015, we recorded net income from the quarter ended March 31, 2013 to the quarter ended March 31, 2014 is primarily due to the effects of the contraction$47.1 million. Our net income in the mortgage loan origination market, partially offset by growth in our mortgage loan servicing portfolio. Our mortgage loan production decreased by $778.4 million or 19% for thefirst quarter ended March 31, 2014 when compared to the quarter ended March 31, 2013 while our servicing portfolio increased from $36.2 billion at March 31, 2013 to $83.8 billion at March 31, 2014.
Fulfillment fee income on mortgage loans we fulfill for PMT decreased by $19.3 million andof 2015 reflects net gains on mortgage loans held for sale decreased by $5.4 million. The decrease was primarily due to a decrease in funding volume of mortgage loans at PMT and the contraction in the mortgage loan origination market. We also recognized a provision for income taxes relating to income attributable to our common stockholders. Since we were a pass-through tax entity before our IPO, we did not recognize any provision for income taxes for the quarter ended March 31, 2013. Offsetting these declines in net income was an increase in net loan servicing fees of $27.7 million, reflecting continued growth in our MSR portfolio from our loan production activities and from MSR purchases.
Net gains on mortgage loans held for sale at fair value of $75.4 million and loan origination fees of $16.7 million, increases of $40.8 million and $9.8 million, respectively, from the first quarter in 2014 resulting from the growth in volume of mortgage loans we purchased or originated for subsequent sale during the quarter. These revenue increases were partially offset by a $17.0 million decrease in net loan servicing fees, a $1.6 million decrease in management fees, and a $30.6 million increase in expenses incurred to accommodate the growth of our mortgage banking segments.
During the quarter ended March 31, 2014, we recorded net income of $43.5 million. Our net income in the first quarter of 2014 reflects net loan servicing fees of $43.8 million, an increase of $27.7 million from the first quarter of 2013 resulting from the growth in our mortgage loan servicing portfolio. As of March 31, 2014, our loan servicing portfolio stood at $83.8 billion in UPB, an increase of approximately $5.7 billion from December 31, 2013. This growth was partially offset by a decrease in fulfillment fees of $19.3 million resulting from a contraction in the mortgage loan origination market, and an increase in expenses incurred to accommodate the growth of our servicing operations.
Net Gains on Mortgage Loans Held for Sale at Fair Value
We recognized net gains on mortgage loans held for sale at fair value totaling $34.5 million. This compares to net gains on mortgage loans held for sale at fair value totaling $40.0$75.4 million forduring the quarter ended March 31, 2013.2015, compared to $34.5 million during the quarter ended March 31, 2014.
The decreaseincrease in net gains on mortgage loans held for sale at fair value fromduring the first quarter ended March 31, 2013 to the quarter ended March 31, 2014 isof 2015 was due to the effect of increasing price competition in the mortgage loan origination market, which had a negative effect on our margins during the quarter ended March 31, 2014, and to a lesser extent, to a reductiongrowth in the volume of mortgage loan sales duringloans that we purchased and originated and subsequently sold along with improvement in production margins compared to the quarter.first quarter of 2014. The net gainsgain for the quarters ended March 31, 2015 and 2014 and 2013 included $37.5$67.0 million and $41.7$37.5 million, respectively, in fair value of MSRs received as part of proceeds on sales.sales, net of mortgage servicing liabilities incurred.
45In addition to more favorable market conditions, we have been able to improve our margins through growth in our consumer direct mortgage loan activities, which generally produce higher margins than correspondent activities. Over recent periods, the margins on correspondent government-insured or guaranteed mortgage loans have tended to be higher than those on conventional correspondent production. Government-insured or guaranteed mortgage lending is not as competitive as conventional conforming mortgage lending due to the added complexity involved in the origination and servicing of government-insured or guaranteed mortgage loans.
Our net gains on mortgage loans held for sale include both cash and non-cash elements. We receive proceeds on sale that include both cash and our estimate of the fair value of the MSRs. We also recognize a liability for our estimate of the losses we expect to incur in the future as a result of claims against us in connection with the representations and warranties that we made in the loan sales transactions.
48
Our net gains on mortgage loans held for sale are summarized below:
|
| Quarter ended March 31, |
|
|
|
|
|
|
|
| ||||
|
| 2014 |
| 2013 |
|
| Quarter ended March 31, |
| ||||||
|
| (in thousands) |
|
| 2015 |
| 2014 |
| ||||||
Cash gain (loss): |
|
|
|
|
| |||||||||
|
| (in thousands) |
| |||||||||||
Cash (loss) gain: |
|
|
|
|
|
|
| |||||||
Sales proceeds |
| $ | 4,481 |
| $ | (11,823 | ) |
| $ | 2,730 |
| $ | 4,481 |
|
Hedging activities |
| (10,256 | ) | 17,621 |
|
|
| (18,329) |
|
| (10,256) |
| ||
|
| (5,775 | ) | 5,798 |
|
|
| (15,599) |
|
| (5,775) |
| ||
Non-cash gain: |
|
|
|
|
|
|
|
|
|
|
|
| ||
Receipt of MSRs in loan sale transactions |
| 37,514 |
| 41,736 |
| |||||||||
MSR recapture payable to PennyMac Mortgage Investment Trust |
| (1,898 | ) | (133 | ) | |||||||||
Mortgage servicing rights resulting from mortgage loan sales |
|
| 69,956 |
|
| 37,514 |
| |||||||
Mortgage servicing liabilities resulting from mortgage loan sales |
|
| (2,928) |
|
| — |
| |||||||
Excess servicing spread recapture payable to PennyMac Mortgage Investment Trust |
|
| (1,289) |
|
| (1,898) |
| |||||||
Provision for losses relating to representations and warranties on loans sold |
| (851 | ) | (1,244 | ) |
|
| (1,495) |
|
| (851) |
| ||
Change in fair value relating to mortgage loans and hedging derivatives held at period end: |
|
|
|
|
| |||||||||
IRLCs |
| 7,536 |
| 1,497 |
| |||||||||
Change in fair value relating to loans and hedging derivatives held at period end: |
|
|
|
|
|
|
| |||||||
Interest rate lock commitments |
|
| 21,991 |
|
| 7,536 |
| |||||||
Mortgage loans |
| 7,828 |
| (2,392 | ) |
|
| 12,201 |
|
| 7,828 |
| ||
Hedging derivatives |
| (9,816 | ) | (5,305 | ) |
|
| (7,459) |
|
| (9,816) |
| ||
|
| $ | 34,538 |
| $ | 39,957 |
|
| $ | 75,378 |
| $ | 34,538 |
|
|
|
|
|
|
| |||||||||
Increase (decrease) in net gains on mortgage loans held for sale at fair value due to: |
|
|
|
|
| |||||||||
Net change in fair value of IRLCs |
| $ | 6,039 |
| $ | 1,314 |
| |||||||
Volume of mortgage loans sold |
| (6,552 | ) | 32,956 |
| |||||||||
Gain margin |
| (4,906 | ) | (8,250 | ) | |||||||||
Total change |
| $ | (5,419 | ) | $ | 26,020 |
| |||||||
|
|
|
|
|
| |||||||||
During the period: |
|
|
|
|
|
|
|
|
|
|
|
| ||
UPB of mortgage loans sold |
| $ | 3,143,566 |
| $ | 3,857,150 |
| |||||||
Interest rate lock commitments issued, net of cancellations: |
|
|
|
|
| |||||||||
Unpaid principal balance of mortgage loans sold |
| $ | 5,508,868 |
| $ | 3,143,566 |
| |||||||
Interest rate lock commitments issued: |
|
|
|
|
|
|
| |||||||
Conventional mortgage loans |
| $ | 65,044 |
| $ | 203,746 |
|
| $ | 6,009,558 |
| $ | 120,915 |
|
Government-insured or guaranteed loans |
| 3,475,851 |
| 3,492,818 |
|
|
| 1,783,767 |
|
| 3,803,678 |
| ||
|
| $ | 3,540,895 |
| $ | 3,696,564 |
|
| $ | 7,793,325 |
| $ | 3,924,593 |
|
Period end: |
|
|
|
|
|
|
|
|
|
|
|
| ||
Mortgage loans held for sale at fair value |
| $ | 717,476 |
| $ | 203,661 |
|
| $ | 1,353,944 |
| $ | 717,476 |
|
Commitments to fund and purchase mortgage loans |
| $ | 1,202,126 |
| $ | 1,701,082 |
|
| $ | 3,123,645 |
| $ | 1,202,126 |
|
We recognize a substantial portion of our gainProvision for Losses on mortgage loans held for sale at fair value before we fund or purchase the loan. In the course of our correspondentRepresentations and retail lending activities, we make contractual commitments to PMT and to mortgage loan applicants to purchase or fund mortgage loans at specified terms. We call these commitments interest rate lock commitments (“IRLCs”). We recognize the value of IRLCs at the time we make a commitment to PMT or the borrower.Warranties
We estimate the fair value of an IRLC based on quoted Agency MBS prices, our estimate of the fair value of the MSRs we expect to receive upon sale of the loans and the probability that the mortgage loan will fund or be purchased as a percentage of the commitment we have made (the “pull-through rate”). We update our estimates of the value of the IRLCs as the mortgage loans move through the purchase or loan process for changes in our estimate of the probability the loan will fund and for changes in market interest rates.
An active, observable market for IRLCs does not exist. Therefore, we estimate the fair value of IRLCs using methods and assumptions we believe that market participants use in pricing IRLCs. The significant unobservable inputs used in the fair value measurement of the Company’s IRLCs are the pull-through rate and the MSR component of the Company’s estimate of the value of the mortgage loans we have committed to purchase. Significant changes in the pull-through rate and the MSR component of the IRLCs, in isolation, could result in a significant change in fair value measurement. The financial effects of changes in these assumptions are generally inversely correlated as increasing interest rates have a positive effect on the fair value of the MSR component of IRLC value, but rising interest rates increase the pull-through rate for loans that have decreased in fair value.
Following is a quantitative summary of key unobservable inputs we used in the valuation of IRLCs:
|
| March 31, 2014 |
| December 31, 2013 |
|
Key inputs |
| Range |
| ||
Pull-through rate |
| 60.8% - 98.0% |
| 62.1% - 98.1% |
|
|
| (78.5%) |
| (81.7%) |
|
MSR value expressed as: |
|
|
|
|
|
Servicing fee multiple |
| 1.9 - 5.1 |
| 2.0 - 5.0 |
|
|
| (3.7) |
| (3.7) |
|
Percentage of UPB |
| 0.4% - 2.4% |
| 0.4% - 2.4% |
|
|
| (1.0%) |
| (0.9%) |
|
We receive non-cash proceeds on sale of mortgage loans in the form of MSRs. MSRs represent the value of a contract that obligates us to service mortgage loans on behalf of the purchaser of the loan in exchange for servicing fees and the right to collect certain ancillary income from the borrower. We recognize MSRs at our estimate of the fair value of the contract to service the loans.
As economic fundamentals influence the loans we sell with servicing rights retained, our estimate of the fair value of MSRs will also change. As a result, we will record changes in fair value as a component of Net loan servicing fees for the MSRs we carry at fair value, and we may recognize changes in fair value relating to our MSRs carried at the lower of amortized cost or fair value depending on the relationship of the asset’s fair value to its carrying value at the measurement date.
Following are the key inputs used in determining the fair value of MSRs at the time of initial recognition:
|
| Quarter ended March 31, |
| ||||||
|
| 2014 |
| 2013 |
| ||||
|
| Range |
| ||||||
|
| Fair |
| Amortized |
| Fair |
| Amortized |
|
|
| (Amount recognized and UPB of underlying mortgage loans in thousands) |
| ||||||
Amount recognized |
| $6,933 |
| $30,581 |
| $3 |
| $41,733 |
|
UPB of underlying mortgage loans |
| $511,467 |
| $2,623,599 |
| $324 |
| $3,856,356 |
|
Weighted-average servicing fee rate (in basis points) |
| 32 |
| 30 |
| 25 |
| 26 |
|
|
|
|
|
|
|
|
|
|
|
Pricing spread (1) |
| 8.5% - 13.8% |
| 7.3% - 14.8% |
| 8.6% - 8.9% |
| 5.4% - 12.5% |
|
|
| (11.2%) |
| (10.5%) |
| (8.7%) |
| (8.5%) |
|
Annual total prepayment speed (2) |
| 7.9% - 17.2% |
| 7.6% - 45.3% |
| 11.3% - 12.7% |
| 8.5% - 16.5% |
|
|
| (8.5%) |
| (8.1%) |
| (12.4%) |
| (8.8%) |
|
Life (in years) |
| 2.7 — 7.5 |
| 1.5 — 7.5 |
| 6.5 — 6.7 |
| 2.9 — 6.9 |
|
|
| (7.2) |
| (7.1) |
| (6.5) |
| (6.7) |
|
Per-loan annual cost of servicing |
| $68 — $100 |
| $68 — $100 |
| $68 — $68 |
| $68 — $120 |
|
|
| ($97) |
| ($100) |
| ($68) |
| ($100) |
|
(1)Pricing spread represents a margin that is applied to a reference interest rate’s forward rate curve to develop periodic discount rates. The Company applies a pricing spread to the United States Dollar LIBOR curve for purposes of discounting cash flows relating to MSRs acquired as proceeds from the sale of mortgage loans.
(2)Annual total prepayment speed is measured using Life Total Conditional Prepayment Rate (“CPR”).
We also provide for our estimate of the losses that we may be required to incur in the future as a result of our breach of representations and warranties provided to the purchasers of the loans we sold. Our agreements with the Agencies include representations and warranties related to the loans we sell to the Agencies. The representations and warranties require adherence to Agency origination and underwriting guidelines, including but not limited to the validity of the lien securing the loan, property eligibility, borrower credit, income and asset requirements, and compliance with applicable federal, state and local law.
In the event of a breach of our representations and warranties, we may be required to either repurchase the mortgage loans with the identified defects or indemnify the investor or insurer. In such cases, we bear any subsequent credit loss on the mortgage loans. Our credit loss may be reduced by any recourse we have to correspondent lenders that sold such mortgage loans and breached similar or other representations and warranties. In such event, we have the right to seek a recovery of related repurchase losses from that correspondent lender.
Following is a summary of the repurchase activity and unpaid balance of mortgage loans subject to representations and warranties:
|
| Quarter ended March 31, |
| ||||
|
| 2014 |
| 2013 |
| ||
|
| (in thousands) |
| ||||
During the period: |
|
|
|
|
| ||
UPB of mortgage loans repurchased |
| $ | 1,890 |
| $ | — |
|
UPB of repurchased mortgage loans put to correspondent lenders |
| $ | 798 |
| $ | — |
|
Period end: |
|
|
|
|
| ||
UPB of mortgage loans subject to pending claims for repurchase |
| $ | 2,960 |
| $ | 1,038 |
|
During the quarter ended March 31, 2014, we repurchased mortgage loans with unpaid balances totaling $1.9 million. As the outstanding balance of loans we purchase and sell subject to representations and warranties increases and the loans sold begin to season, we expect the level of repurchase activity to increase. As economic fundamentals change and as investor and Agency evaluation of their loss mitigation strategies, including claims under representations and warranties, change, and as the mortgage market and general economic changes affect our correspondent lenders, the level of repurchase activity and ensuing losses will change, which may be material to us.
We establish a liability at the time loans are sold and periodically update our liability estimate. We evaluate the adequacy of the balance of our recorded liability for losses under representations and warranties based on our loss experience and our assessment of future losses to be incurred relating to loans we have previously sold and which remain outstanding at the balance sheet date. The method used to estimate the liability forour losses on representations and warranties is a function of the representations and warranties given and considers a combinationour estimate of factors, including, but not limited to, estimated future defaults, andmortgage loan repurchase rates, and the potential severity of loss in the event of defaults and the probability of reimbursement by the correspondent loan seller. The level ofWe establish a liability at the time loans are sold and review our liability for representations and warranties is approved by our senior management credit committeeestimate on a quarterlyperiodic basis.
Following is a summary of our LiabilityDuring the quarters ended March 31, 2015 and 2014, we recorded provisions for losses under representations and warranties as a component of Net gains on mortgage loans held for sale at fair value totaling $1.5 million and $851,000, respectively. The increase in the consolidated balance sheets:first quarter of 2015 was primarily due to an increase in the volume of loan sales activity during the quarter.
|
| Quarter ended March 31, |
| ||||
|
| 2014 |
| 2013 |
| ||
|
| (in thousands) |
| ||||
Balance at beginning of period |
| $ | 8,123 |
| $ | 3,504 |
|
Provision for losses on loans sold |
| 851 |
| 1,244 |
| ||
Incurred losses |
| — |
| — |
| ||
Balance at end of period |
| $ | 8,974 |
| $ | 4,748 |
|
UPB of mortgage loans subject to representations and warranties at period end |
| $ | 26,304,717 |
| $ | 14,586,623 |
|
49
Following is a summary of mortgage loan repurchase activity and the UPB of mortgage loans subject to representations and warranties:
|
|
|
|
|
|
|
|
|
| Quarter ended March 31, |
| ||||
|
| 2015 |
| 2014 |
| ||
|
| (in thousands) |
| ||||
During the period: |
|
|
|
|
|
|
|
Indemnification activity |
|
|
|
|
|
|
|
Mortgage loans indemnified by PFSI at beginning of period |
| $ | 1,521 |
| $ | 80 |
|
New indemnifications |
|
| 681 |
|
| — |
|
Indemnified mortgage loans repurchased |
|
| — |
|
| — |
|
Less: Indemnified mortgage loans repaid or refinanced |
|
| — |
|
| — |
|
Mortgage loans indemnified by PFSI at end of period |
| $ | 2,202 |
| $ | 80 |
|
Repurchase activity |
|
|
|
|
|
|
|
Total mortgage loans repurchased by PFSI |
| $ | 4,490 |
| $ | 1,890 |
|
Less: Mortgage loans repurchased by correspondent lenders |
|
| 520 |
|
| 798 |
|
Less: Mortgage loans repaid by borrowers |
|
| 373 |
|
| — |
|
Mortgage loans repurchased by PFSI with losses chargeable to liability for representations and warranties |
| $ | 3,597 |
| $ | 1,092 |
|
Losses charged to liability for representations and warranties |
| $ | 65 |
| $ | — |
|
Period end: |
|
|
|
|
|
|
|
Unpaid principal balance of mortgage loans subject to representations and warranties |
| $ | 39,624,553 |
| $ | 26,304,717 |
|
Liability for representations and warranties |
| $ | 14,689 |
| $ | 8,974 |
|
During the quarter ended March 31, 2015, we repurchased mortgage loans totaling $4.5 million in UPB. After recovery of repurchase losses from the selling correspondent lenders, we recorded losses of $65,000 as a result of these repurchases. As the outstanding balance of mortgage loans we purchase and sell subject to representations and warranties increases and the loans sold continue to season, we expect the level of repurchase activity to increase.
The level of the liability for losses under representations and warranties is difficult to estimate and requires considerable management judgment. The level of mortgage loan repurchase losses is dependent on economic factors, investor demandloss mitigation strategies, correspondent lender repurchase performance and other external conditions that may change over the lives of the underlying mortgage loans. Our estimate of the liability for representations and warranties is prepared initially by our credit administration staff. The liability estimate is reviewed and approved by our senior management credit committee which includes PFSI’s chief executive, operating, credit and enterprise risk, mortgage fulfillment, institutional mortgage banking and shared services officers. We did not record any adjustments to previously recorded liabilities for representations and warranties during any of the periods presented.
Our representations and warranties are generally not subject to stated limits of exposure. However, we believe that the current UPB of loans sold by us to date represents the maximum exposure to repurchases related to representations and warranties. We believe the amount and range of reasonably possible losses in relation to the recorded liability is not material to our financial condition or results of operations.
Our hedging activities relating to correspondent and retail lending primarily involve forward sales of our inventory and IRLCs as well as purchases of options to sell and options to purchase MBS.
The following table summarizes the notional activity for derivative contracts used to hedge the Company’s IRLCs and inventory of mortgage loans held for sale at fair value:
Period/Instrument |
| Balance |
| Additions |
| Dispositions/ |
| Balance |
|
|
| (in thousands) |
| ||||||
Quarter ended March 31, 2014 |
|
|
|
|
|
|
|
|
|
Forward purchase contracts |
| 1,418,527 |
| 7,234,388 |
| (6,941,248 | ) | 1,711,667 |
|
Forward sales contracts |
| 2,659,000 |
| 11,450,119 |
| (10,779,943 | ) | 3,329,176 |
|
MBS put options |
| 185,000 |
| 385,000 |
| (395,000 | ) | 175,000 |
|
MBS call options |
| 105,000 |
| 85,000 |
| (190,000 | ) | — |
|
Period/Instrument |
| Balance |
| Additions |
| Dispositions/ |
| Balance |
|
|
| (in thousands) |
| ||||||
Quarter ended March 31, 2013 |
|
|
|
|
|
|
|
|
|
Forward purchase contracts |
| 1,021,981 |
| 10,195,550 |
| (9,868,231 | ) | 1,349,300 |
|
Forward sales contracts |
| 2,621,948 |
| 14,677,256 |
| (14,276,494 | ) | 3,022,710 |
|
MBS put options |
| 500,000 |
| 965,000 |
| (1,140,000 | ) | 325,000 |
|
MBS call options |
| — |
| 850,000 |
| (550,000 | ) | 300,000 |
|
Other loan production-related revenuesLoan Production-Related Revenues
Loan origination fees increased $1.2$9.8 million induring the first quarter ended March 31, 2014of 2015 compared to the same periodfirst quarter in 2013. The increase was2014 primarily due to growth in the volume of retail loanconsumer direct originations supplemented byand increases in certain fees we charge in our correspondent lendingloan production activities.
Loan fulfillment
50
Fulfillment fees from PMT, which represent fees we collect for services we perform on behalf of PMT in connection with its acquisition, packaging and sale of mortgage loans. The loan fulfillment feesloans, are calculated as a percentage of the UPB of the mortgage loans we fulfill for PMT. Fulfillment fees increased $4.0 million in the first quarter of 2015 compared to the first quarter in 2014, primarily due to growth in the volume of Agency-eligible mortgage loans we fulfilled on behalf of PMT. Summarized below are our fulfillment fees:
|
|
|
|
|
|
|
| |||||||
|
| Quarter ended March 31, |
|
| Quarter ended March 31, |
| ||||||||
|
| 2014 |
| 2013 |
|
| 2015 |
| 2014 |
| ||||
|
| (in thousands) |
|
| (in thousands) |
| ||||||||
Fulfillment fee revenue |
| $ | 8,902 |
| $ | 28,244 |
|
| $ | 12,866 |
| $ | 8,902 |
|
UPB of loans fulfilled |
| $ | 1,919,578 |
| $ | 4,786,826 |
| |||||||
Unpaid principal balance of loans fulfilled |
| $ | 2,890,132 |
| $ | 1,919,578 |
| |||||||
Average fulfillment fee rate (in basis points) |
|
| 45 |
|
| 46 |
|
Fulfillment fees decreased $19.3 million in the quarter ended March 31, 2014 compared to the same period in 2013. The decrease is due to decreases in the volume of Agency-eligible and jumbo mortgage loans we fulfilled on behalf of PMT.
Net loan servicing fees
Our net loan servicing fees are summarized below.below:
|
| Quarter ended March 31, |
|
|
|
|
|
|
|
| ||||
|
| 2014 |
| 2013 |
|
| Quarter ended March 31, |
| ||||||
|
| (in thousands) |
|
| 2015 |
| 2014 |
| ||||||
Net servicing fees: |
|
|
|
|
| |||||||||
|
| (in thousands) |
| |||||||||||
Net loan servicing fees: |
|
|
|
|
|
|
| |||||||
Loan servicing fees |
|
|
|
|
|
|
|
|
|
|
|
| ||
From non-affiliates |
| $ | 36,100 |
| $ | 9,057 |
|
| $ | 50,101 |
| $ | 36,100 |
|
From PennyMac Mortgage Investment Trust |
| 14,591 |
| 7,726 |
|
|
| 10,670 |
|
| 14,591 |
| ||
From Investment Funds |
| 1,477 |
| 2,008 |
|
|
| 968 |
|
| 1,477 |
| ||
Ancillary and other fees |
| 5,151 |
| 2,261 |
|
|
| 11,185 |
|
| 5,151 |
| ||
|
| 57,319 |
| 21,052 |
|
|
| 72,924 |
|
| 57,319 |
| ||
Amortization, impairment and change in estimated fair value of mortgage servicing rights |
| (13,555 | ) | (5,010 | ) | |||||||||
Net servicing fees |
| $ | 43,764 |
| $ | 16,042 |
| |||||||
Amortization, impairment and change in fair value of mortgage servicing rights |
|
| (46,148) |
|
| (13,555) |
| |||||||
Net loan servicing fees |
| $ | 26,776 |
| $ | 43,764 |
| |||||||
Average servicing portfolio |
| $ | 109,882,352 |
| $ | 80,446,228 |
|
Following is a summary of our mortgage loan servicing portfolio:
|
| March 31, 2014 |
| December 31, 2013 |
|
|
|
|
|
|
|
| ||
|
| (in thousands) |
|
|
|
|
|
|
|
| ||||
Loans serviced at period end: |
|
|
|
|
| |||||||||
|
| March 31, 2015 |
| December 31, 2014 |
| |||||||||
|
| (in thousands) |
| |||||||||||
Mortgage loans serviced at period end: |
|
|
|
|
|
|
| |||||||
Prime servicing: |
|
|
|
|
|
|
|
|
|
|
|
| ||
Owned |
|
|
|
|
|
|
| |||||||
Mortgage servicing rights |
|
|
|
|
|
|
| |||||||
Originated |
| $ | 39,203,101 |
| $ | 36,564,434 |
| |||||||
Acquired |
|
| 32,782,888 |
|
| 28,126,179 |
| |||||||
|
|
| 71,985,989 |
|
| 64,690,613 |
| |||||||
Mortgage servicing liabilities |
|
| 421,452 |
|
| 478,581 |
| |||||||
Mortgage loans held for sale |
|
| 1,288,744 |
|
| 1,100,910 |
| |||||||
|
|
| 73,696,185 |
|
| 66,270,104 |
| |||||||
Subserviced for Advised Entities |
| $ | 28,200,665 |
| $ | 26,788,479 |
|
|
| 37,138,595 |
|
| 35,416,466 |
|
Owned MSRs—Originated |
| 26,289,208 |
| 22,499,847 |
| |||||||||
Owned MSRs—Acquisitions |
| 22,912,454 |
| 22,469,179 |
| |||||||||
Mortgage loans held for sale |
| 660,470 |
| 506,540 |
| |||||||||
Total prime servicing |
| 78,062,797 |
| 72,264,045 |
|
|
| 110,834,780 |
|
| 101,686,570 |
| ||
Special servicing: |
|
|
|
|
|
|
|
|
|
|
|
| ||
Subserviced for Advised Entities |
| 4,871,875 |
| 4,844,239 |
|
|
| 4,403,831 |
|
| 4,293,479 |
| ||
Owned MSRs—Acquisitions |
| 907,981 |
| 969,794 |
| |||||||||
Subserviced for non-affiliates |
| 936 |
| 89,361 |
| |||||||||
Total special servicing |
| 5,780,792 |
| 5,903,394 |
|
|
| 4,403,831 |
|
| 4,293,479 |
| ||
Total loans serviced |
| $ | 83,843,589 |
| $ | 78,167,439 |
| |||||||
Total mortgage loans serviced |
| $ | 115,238,611 |
| $ | 105,980,049 |
|
Total
51
During the first quarter of 2015, loan servicing fees increased $36.3$15.6 million during the quarter ended March 31, 2014 compared to the same period in 2013.2014. The increase induring the quarter ended March 31, 2014 was primarily due to ana $14.0 million increase of $27.0 million in loan servicing fees from non-affiliates due toresulting from growth in our mortgage loan servicing portfolio of loans serviced as a result of ourdue to purchases of MSRs, andsupplemented with the ongoing sales of mortgage loans with servicing rights retained; anretained, and partially offset by the sale of MSRs relating to a portfolio backed by distressed mortgage loans. The increase of $6.9in loan servicing fees during the first quarter was partially offset by a $4.4 million decrease in loan servicing fees from PMTour Advised Entities due to growth in the volumeactivity fees relating to a sale of loans we service and subservice for PMT; and an increase of $2.9 million in ancillary fees due to growth in the portfolios ofreperforming mortgage loans serviced, partially offset by a decrease in loan servicing fees netPMT during the first quarter of mortgage servicing rebate from2014 that did not recur during the Investment Fundsfirst quarter of $531,000. This decrease was due to the decrease in the principal balance in the Investment Funds’ mortgage loan portfolios as these portfolios liquidate following the end of the Investment Funds’ investment commitment periods on December 31, 2011.
Table of Contents2015.
Amortization, impairment and change in estimated fair value of mortgage servicing rights are summarized below:
|
| Quarter ended March 31, |
| ||||
|
| 2014 |
| 2013 |
| ||
|
| (in thousands) |
| ||||
Effect of MSRs: |
|
|
|
|
| ||
Amortization and realization of cash flows |
| $ | (14,539 | ) | $ | (4,184 | ) |
Change in fair value and (provision for) reversal of impairment of MSRs carried at lower of amortized cost or fair value |
| (3,377 | ) | 465 |
| ||
Change in fair value of excess servicing spread financing |
| 4,792 |
| — |
| ||
Hedging losses |
| (431 | ) | (1,291 | ) | ||
Total amortization, impairment and change in estimated fair value of MSRs |
| $ | (13,555 | ) | $ | (5,010 | ) |
Ending MSRs: |
|
|
|
|
| ||
At lower of amortized cost or fair value |
| $ | 282,144 |
| $ | 128,370 |
|
At fair value |
| 246,984 |
| 18,622 |
| ||
|
| $ | 529,128 |
| $ | 146,992 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Quarter ended March 31, |
| ||||
|
| 2015 |
| 2014 |
| ||
|
| (in thousands) |
| ||||
Amortization and realization of cash flows |
| $ | (24,104) |
| $ | (14,539) |
|
Change in fair value and provision for impairment of mortgage servicing rights carried at lower of amortized cost or fair value |
|
| (46,701) |
|
| (3,377) |
|
|
|
| (70,805) |
|
| (17,916) |
|
Change in fair value of excess servicing spread |
|
| 7,536 |
|
| 4,792 |
|
Hedging gains (losses) |
|
| 17,121 |
|
| (431) |
|
Total amortization, impairment and change in fair value of mortgage servicing rights |
| $ | (46,148) |
| $ | (13,555) |
|
Mortgage servicing rights at period end: |
|
|
|
|
|
|
|
At lower of amortized cost or fair value |
| $ | 428,998 |
| $ | 282,144 |
|
At fair value |
| $ | 361,413 |
|
| 246,984 |
|
|
| $ | 790,411 |
| $ | 529,128 |
|
Amortization, impairment and change in estimated fair value of mortgage servicing rights increased $8.6$32.6 million from $5.0 million forduring the first quarter ended March 31, 2013of 2015 compared to $13.6 million for the first quarter ended March 31,of 2014. TheThis increase in Amortization,was primarily due to impairment, reflecting lower interest rates throughout most of the first quarter of 2015 and change in estimated fair valuea reduction by the FHA of the mortgage servicing rightsinsurance premium relating to mortgage loans it insures. These factors combined to increase both actual prepayments during the quarter ended March 31, 20142015 as compared to the quarter ended March 31, 2013 was due to growth in our investment in MSRs, which caused an increase in amortization of the asset and impairment, andwell as expectations for higher prepayment speeds as a result of lower interest rates at quarter end;period end. The resulting impairment and fair value change charges were partially offset with the positive changeby an increase in fair value of the excess servicing spread financing.ESS financing and by hedging gains.
Impairment and changes in fair value of MSRs have a significant effect on net servicing fees, driven primarily by our monthly re-estimation of the fair value of MSRs. As our investment in MSRs grows, we expect that the effect of impairment and changes in fair value will have an increasing influence on our net income. The fair value of MSRs is difficult to determine because MSRs are not actively traded in observable markets. Considerable judgment is required to estimate the fair values of these assets and the exercise of such judgment can significantly affect our income.
Our MSR valuation process combines the use of a discounted cash flow model and analysis of current market data to arrive at an estimate of fair value at each balance sheet date. The cash flow and prepayment assumptions used in our discounted cash flow model are based on market factors and include the historical performance of our MSRs, which we believe are consistent with assumptions and data used by market participants valuing similar MSRs.
The key assumptions used in the valuation of MSRs include mortgage prepayment and default rates of the underlying loans, the applicable discount rate, and cost to service loans. These variables can, and generally do, change from period to period as market conditions change. Therefore our estimate of the fair value of MSRs changes from period to period. Our senior management valuation committee reviews and approves the fair value estimates of our MSRs.
We account for MSRs at either our estimate of the asset’s estimated fair value with changes in fair value recorded in current period income or using the amortization method with the MSRs carried at the lower of amortized cost or estimated fair value based on how we finance certain of our MSR purchases and whether we believe the underlying mortgages are sensitive to prepayments resulting from changing market interest rates. We have identified an initial mortgage interest rate of 4.5% for MSRs originated through our lending activities as the threshold for whether such mortgage loans are sensitive to changes in interest rates:
·Our risk management efforts in connection with MSRs relating to mortgage loans originated through our lending activities with initial interest rates of more than 4.5% are aimed at moderating the effects of changes in interest rates on the assets’ values.
·For MSRs relating to mortgage loans with initial interest rates of less than or equal to 4.5% that were acquired as a result of our lending activities, we have concluded that such assets present different risks than MSRs relating to mortgage loans with initial interest rates of more than 4.5% and therefore require a different risk management approach. Our risk management efforts relating to these assets are aimed at moderating the effects of non-interest rate risks on fair value, such as the effect of changes in home prices on the assets’ values. We have identified these assets for accounting using the amortization method.
·MSRs purchased for which a financing in the form of ESS cash flows has been recorded are accounted for at fair value. The ESS financing at fair value is accounted for at fair value to align the accounting for the MSR with the related liability.
Our MSRs are summarized by the basis on which we account for the assets below:
Basis of accounting |
| March 31, |
| December 31, |
| ||
|
| (in thousands) |
| ||||
Fair value |
| $ | 246,984 |
| $ | 224,913 |
|
Lower of amortized cost or fair value: |
|
|
|
|
| ||
Amortized cost |
| $ | 287,187 |
| $ | 263,372 |
|
Valuation allowance |
| (5,043 | ) | (4,621 | ) | ||
Carrying value |
| $ | 282,144 |
| $ | 258,751 |
|
Fair value |
| $ | 291,535 |
| $ | 269,422 |
|
|
|
|
|
|
| ||
Total MSR: |
|
|
|
|
| ||
Carrying value |
| $ | 529,128 |
| $ | 483,664 |
|
Fair value |
| $ | 538,519 |
| $ | 494,335 |
|
UPB of mortgage loans underlying MSRs |
| $ | 50,128,289 |
| $ | 45,938,820 |
|
Key assumptions used in determining the fair value of MSR are as follows:
Purchased MSRs backed by distressed mortgage loans
|
| March 31, 2014 |
| December 31, 2013 |
| ||||
|
| Range |
| ||||||
|
| Fair |
| Amortized |
| Fair |
| Amortized |
|
|
| (Carrying value, UPB of underlying mortgage loans and effect on value amounts in thousands) |
| ||||||
Carrying value |
| $10,896 |
| — |
| $10,129 |
| — |
|
UPB of underlying mortgage loans |
| $907,981 |
| — |
| $969,794 |
| — |
|
Weighted-average note interest rate |
| 5.79% |
| — |
| 5.80% |
| — |
|
Weighted-average servicing fee rate (in basis points) |
| 50 |
| — |
| 50 |
| — |
|
|
|
|
|
|
|
|
|
|
|
Discount rate |
| 12.1% — 12.1% |
| — |
| 15.3% — 15.3% |
| — |
|
|
| (12.1%) |
| — |
| (15.3%) |
| — |
|
|
|
|
|
|
|
|
|
|
|
Average life (in years) |
| 5.1 - 5.1 |
| — |
| 5.0 - 5.0 |
| — |
|
|
| (5.1) |
|
|
| (5.0) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepayment speed (1) |
| 11.3% — 11.3% |
| — |
| 11.4% — 11.4% |
| — |
|
|
| (11.3%) |
| — |
| (11.4%) |
| — |
|
|
|
|
|
|
|
|
|
|
|
Per-loan cost of servicing |
| $211 — $211 |
| — |
| $218 — $218 |
| — |
|
|
| ($211) |
| — |
| ($218) |
| — |
|
(1)Prepayment speed is measured using Life Voluntary CPR.
All other MSRs
|
| March 31, 2014 |
| December 31, 2013 |
| ||||
|
| Range |
| ||||||
|
| Fair |
| Amortized |
| Fair |
| Amortized |
|
|
| (Carrying value, UPB of underlying mortgage loans and effect on value amounts in thousands) |
| ||||||
Carrying value |
| $236,088 |
| $282,144 |
| $214,784 |
| $258,751 |
|
UPB of underlying mortgage loans |
| $24,536,177 |
| $24,665,485 |
| $22,469,179 |
| $22,499,847 |
|
Weighted-average note interest rate |
| 4.44% |
| 3.70% |
| 4.48% |
| 3.65% |
|
Weighted-average servicing fee rate (in basis points) |
| 32 |
| 29 |
| 32 |
| 29 |
|
Pricing spread (1) |
| 2.9% — 19.6% |
| 6.3% — 14.8% |
| 2.9% — 18.0% |
| 6.3% — 14.5% |
|
|
| (8.2%) |
| (9.0%) |
| (7.5%) |
| (8.7%) |
|
Average life (in years) |
| 0.1 — 14.3 |
| 1.6 — 7.3 |
| 0.1 — 14.4 |
| 1.5 — 7.3 |
|
|
| (5.8) |
| (6.9) |
| (6.2) |
| (7.0) |
|
Prepayment speed (2) |
| 7.7% — 54.6% |
| 7.6% — 43.9% |
| 7.8% — 50.8% |
| 7.6% — 42.5% |
|
|
| (10.4%) |
| (8.1%) |
| (9.7%) |
| (8.0%) |
|
Per-loan cost of servicing |
| $68 — $115 |
| $68 — $100 |
| $68 — $115 |
| $68 — $100 |
|
|
| ($88) |
| ($99) |
| ($87) |
| ($99) |
|
(1)Pricing spread represents a margin that is applied to a reference interest rate’s forward curve to develop periodic discount rates. The Company applies a pricing spread to the United States Dollar LIBOR curve for purposes of discounting cash flows relating to MSRs acquired as proceeds from the sale of loans and purchased MSRs not backed by pools of distressed mortgage loans.
(2)Prepayment speed is measured using Life Total CPR.
Management fees and Carried Interest
Management fees and Carried Interest are summarized below:
|
| Quarter ended March 31, |
| ||||
|
| 2014 |
| 2013 |
| ||
|
| (in thousands) |
| ||||
Management fees: |
|
|
|
|
| ||
PennyMac Mortgage Investment Trust: |
|
|
|
|
| ||
Base management fee |
| $ | 5,521 |
| $ | 4,364 |
|
Performance incentive fee |
| 2,553 |
| 2,128 |
| ||
|
| 8,074 |
| 6,492 |
| ||
Investment Funds |
| 2,035 |
| 1,914 |
| ||
|
| $ | 10,109 |
| $ | 8,406 |
|
Carried Interest |
| $ | 2,157 |
| $ | 4,737 |
|
Total management fees and Carried Interest |
| $ | 12,266 |
| $ | 13,143 |
|
|
|
|
|
|
| ||
Net assets of Advised Entities: |
|
|
|
|
| ||
PennyMac Mortgage Investment Trust |
| $ | 1,543,282 |
| $ | 1,222,429 |
|
Investment Funds |
| 561,638 |
| 552,520 |
| ||
|
| $ | 2,104,920 |
| $ | 1,774,949 |
|
|
|
|
|
|
|
|
|
|
| Quarter ended March 31, |
| ||||
|
| 2015 |
| 2014 |
| ||
|
| (in thousands) |
| ||||
Management fees: |
|
|
|
|
|
|
|
PennyMac Mortgage Investment Trust: |
|
|
|
|
|
|
|
Base management fee |
| $ | 5,730 |
| $ | 5,521 |
|
Performance incentive fee |
|
| 1,273 |
|
| 2,553 |
|
|
|
| 7,003 |
|
| 8,074 |
|
Investment Funds |
|
| 1,486 |
|
| 2,035 |
|
Total management fees |
|
| 8,489 |
|
| 10,109 |
|
Carried Interest |
|
| 1,233 |
|
| 2,157 |
|
Total management fees and Carried Interest |
| $ | 9,722 |
| $ | 12,266 |
|
|
|
|
|
|
|
|
|
Net assets of Advised Entities at period end: |
|
|
|
|
|
|
|
PennyMac Mortgage Investment Trust |
| $ | 1,542,159 |
| $ | 1,543,282 |
|
Investment Funds |
|
| 413,155 |
|
| 561,638 |
|
|
| $ | 1,955,314 |
| $ | 2,104,920 |
|
52
Management fees from PMT increased $1.6decreased $1.1 million induring the first quarter ended March 31, 2014of 2015 compared to the same periodfirst quarter of 2014 resulting from a decrease in 2013. The increase wasperformance incentive fees of $1.3 million due primarily to:to a decrease in PMT’s net income.
·Base management fees increased due to an increase in PMT’s shareholders’ equity upon which its managementOur incentive fee is based on how much PMT’s return on shareholders’ equity exceeds certain thresholds. Therefore, the decrease in profitability reduced PMT’s return on equity and by $320.9 million or 26% from March 31, 2013 through March 31, 2014.
·Performanceextension the performance incentive fees increased $425,000fee we earned in the first quarter ended March 31, 2014of 2015 as compared to the same period in 2013. We began to recognize performance incentive fees as a resultfirst quarter of the amendment to our management agreement with PMT effective February 1, 2013, which changed the basis on which profitability is measured for incentive fee purposes. Under the amended agreement, profitability is primarily based on net income determined in compliance with U.S. GAAP. Previously, the agreement based profitability on U.S. GAAP net income generally excluding non-cash gains and losses.2014.
Management fees from the Investment Funds increased $121,000 from March 31, 2013decreased $549,000 during the first quarter of 2015 compared to March 31,the first quarter of 2014. The increasedecrease was due to an increasea reduction in the Investment Funds’ net asset values as a result of continued distributions to the Investment Funds’ investors following the end of the Investment Funds’ commitment periods at December 31, 2011, which increasedreduced the investment base on which the management fees are computed.
Carried Interest from Investment Funds decreased $2.5 million from $4.7 million for$924,000 during the first quarter ended March 31, 2013of 2015 compared to $2.2 million for the first quarter ended March 31, 2014. Observed market demand for distressed loans, changesof 2014 primarily due to decreases in the valueInvestment Funds’ returns during the first quarter of 2015 compared to the loans as they proceed through the resolution process and continuing increases in collateral valuations for the properties underlying the Funds’ loans in thefirst quarter ended March 31, 2013 resulted in valuation gains. This was not repeated in the same magnitude in the quarter ended March 31,of 2014.
Other revenues
Net interest expense increased $688,000 from $1.6 million for the quarter ended March 31, 2013 to $2.3 million for the quarter ended March 31, 2014 due to growth in our investments in non-interest earning assets — primarily MSRs which are financed in part with ESS financing. Income from MSRs is included in Net loan servicing fees.
The results of our holdings of common shares of PMT, which is included in Changes in fair value of investment in and dividends received from PMT are summarized below:
|
|
|
|
|
|
|
| |||||||
|
| Quarter ended March 31, |
|
| Quarter ended March 31, |
| ||||||||
|
| 2014 |
| 2013 |
|
| 2015 |
| 2014 |
| ||||
|
| (in thousands) |
|
| (in thousands) |
| ||||||||
Dividends |
| $ | 44 |
| $ | 43 |
|
| $ | 92 |
| $ | 44 |
|
Change in fair value |
| 71 |
| 45 |
|
|
| 15 |
|
| 71 |
| ||
|
| $ | 115 |
| $ | 88 |
|
| $ | 107 |
| $ | 115 |
|
|
|
|
|
|
| |||||||||
Fair value of PennyMac Mortgage Investment Trust shares at period end |
| $ | 1,793 |
| $ | 1,942 |
|
| $ | 1,597 |
| $ | 1,793 |
|
Change in fair value of investment in and dividends received from PMT increased $26,000 indecreased $8,000 during the first quarter ended March 31, 2014of 2015 compared to the same period in 2013. The increase was primarily due to anfirst quarter of 2014 as the increase in dividend income was not sufficient to offset a decrease in the fair value ofgain on our investment in common shares of PMT as of March 31, 2014 as compared to the appreciation in value of our investment inPMT. We held 75,000 common shares of PMT during 2013. Duringeach of the quarters ended March 31, 20142015 and 2013, we held 75,000 common shares of PMT.2014.
Expenses
Our compensation expense is summarized below:
|
|
|
|
|
|
|
| |||||||
|
| Quarter ended March 31, |
|
| Quarter ended March 31, |
| ||||||||
|
| 2014 |
| 2013 |
|
| 2015 |
| 2014 |
| ||||
|
| (in thousands) |
|
| (in thousands) |
| ||||||||
Salaries and wages |
| $ | 26,359 |
| $ | 22,773 |
|
| $ | 35,442 |
| $ | 26,359 |
|
Incentive compensation |
| 7,954 |
| 7,990 |
|
|
| 10,350 |
|
| 7,954 |
| ||
Taxes and benefits |
| 4,797 |
| 3,928 |
|
|
| 6,725 |
|
| 4,797 |
| ||
Stock and unit-based compensation |
| 3,776 |
| 990 |
|
|
| 5,627 |
|
| 3,776 |
| ||
|
| $ | 42,886 |
| $ | 35,681 |
|
| $ | 58,144 |
| $ | 42,886 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Average headcount |
| 1,429 |
| 1,145 |
|
|
| 1,907 |
|
| 1,429 |
| ||
Period end headcount |
| 1,451 |
| 1,205 |
|
|
| 2,047 |
|
| 1,451 |
|
Compensation expense increased $7.2$15.3 million from $35.7 million forduring the first quarter ended March 31, 2013 to $42.9 million for the quarter ended March 31, 2014. The increase in compensation expense was dueof 2015 compared to the developmentfirst quarter of and growth in our loan servicing segment as well as stock-based compensation reflecting the amortization of equity awards that we granted to our directors and certain employees of PennyMac.
Loan origination expense decreased $1.1 million from $2.5 million for the quarter ended March 31, 2013 to $1.4 million for the quarter ended March 31, 2014. The decrease was due to decreased loan production in 2014 compared to 2013.
Technology expense increased $1.2 million from $1.6 million for the quarter ended March 31, 2013 to $2.8 million for the quarter ended March 31, 2014. The increase wasprimarily due to growth in loan servicing operations and continued investment in loan production infrastructure.our workforce to support the growth of our mortgage banking operations.
Servicing expense increased $1.6$6.6 million from $1.5 million forduring the first quarter ended March 31, 2013of 2015 compared to $3.1 million for the first quarter ended March 31, 2014. The increase wasof 2014 primarily due to growth in our purchased mortgage loan servicing portfolio.portfolio, which includes large purchases of seasoned government-insured or guaranteed mortgage loans that are subject to nonreimbursable servicing advance losses, and the continuation of our early buyout (“EBO”) program to purchase defaulted loans out of legacy Ginnie Mae pools.
53
Expenses Allocated to PMT
PMT reimburses us for other expenses, including common overhead expenses incurred on its behalf by us, in accordance with the terms of our management agreement with PMT. The expense amounts presented in our income statement are net of these allocations. The amount of total expenses that we allocated to PMT during the first quarter of 2015 remained generally consistent compared to the same period in 2014.
Expense amounts allocated to PMT during the quarters ended March 31, 20142015 and 20132014 are summarized below:
|
|
|
|
|
|
|
| |||||||
|
| Quarter ended March 31, |
|
| Quarter ended March 31, |
| ||||||||
|
| 2014 |
| 2013 |
|
| 2015 |
| 2014 |
| ||||
|
| (in thousands) |
|
| (in thousands) |
| ||||||||
Technology |
| $ | 1,052 |
| $ | 772 |
|
| $ | 1,138 |
| $ | 1,053 |
|
Occupancy |
| 488 |
| 467 |
|
|
| 479 |
|
| 488 |
| ||
Depreciation and amortization |
| 489 |
| 286 |
|
|
| 572 |
|
| 489 |
| ||
Other |
| 548 |
| 766 |
|
|
| 540 |
|
| 548 |
| ||
Total expenses |
| $ | 2,577 |
| $ | 2,291 |
|
| $ | 2,729 |
| $ | 2,578 |
|
The amount of total expenses that we allocated to PMT increased $286,000 from $2.3 million for the quarter ended March 31, 2013 to $2.6 million for the quarter ended March 31, 2014. The increase was due to growth in our overhead expenses as well as growth in PMT’s balance sheet, resulting in an increase in the proportion of our overhead expenses being allocated to PMT.
Provision for Income Taxes
For the quarterquarters ended March 31, 2015 and 2014, our effective tax rate wasrates were 11.5% and 11.3%., respectively. The difference between our effective tax rate and the statutory rate is primarily due to the allocation of earnings to the noncontrolling interest unitholders. As the noncontrolling interest unitholders convert their ownership units into our shares, we expect an increase in allocated earnings that will be subject to corporate federal and state statutory tax rates, which will in turn increase our effective income tax rate.
Balance Sheet Analysis
Following is a summary of key balance sheet items as of the dates presented:
|
|
|
|
|
|
|
| |||||||
|
| March 31, |
| December 31, |
| |||||||||
|
| March 31, |
| December 31, |
|
| 2015 |
| 2014 |
| ||||
|
| (in thousands) |
|
| (in thousands) |
| ||||||||
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
| ||
Cash and short-term investments |
| $ | 78,333 |
| $ | 173,221 |
|
| $ | 112,307 |
| $ | 97,943 |
|
Mortgage loans held for sale at fair value |
| 717,476 |
| 531,004 |
|
|
| 1,353,944 |
|
| 1,147,884 |
| ||
Servicing advances |
| 171,395 |
| 154,328 |
| |||||||||
Servicing advances, net |
|
| 242,397 |
|
| 228,630 |
| |||||||
Receivable from affiliates |
| 23,874 |
| 21,551 |
|
|
| 21,207 |
|
| 26,162 |
| ||
Carried Interest due from Investment Funds |
| 63,299 |
| 61,142 |
|
|
| 68,531 |
|
| 67,298 |
| ||
Mortgage servicing rights |
| 529,128 |
| 483,664 |
|
|
| 790,411 |
|
| 730,828 |
| ||
Other assets |
| 177,040 |
| 159,565 |
|
|
| 269,204 |
|
| 208,380 |
| ||
Total assets |
| $ | 1,760,545 |
| $ | 1,584,475 |
|
| $ | 2,858,001 |
| $ | 2,507,125 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|
|
|
| |||||||||
LIABILITIES AND STOCKHOLDERS' EQUITY |
|
|
|
|
|
|
| |||||||
Borrowings |
| $ | 616,556 |
| $ | 523,746 |
|
| $ | 1,317,614 |
| $ | 1,113,114 |
|
Payable to affiliates |
| 273,831 |
| 256,834 |
|
|
| 385,190 |
|
| 350,389 |
| ||
Other liabilities |
| 195,080 |
| 174,691 |
|
|
| 302,361 |
|
| 236,356 |
| ||
Total liabilities |
| 1,085,467 |
| 955,271 |
|
|
| 2,005,165 |
|
| 1,699,859 |
| ||
Total stockholders’ equity |
| 675,078 |
| 629,204 |
| |||||||||
Total liabilities and stockholders’ equity |
| $ | 1,760,545 |
| $ | 1,584,475 |
| |||||||
Total stockholders' equity |
|
| 852,836 |
|
| 807,266 |
| |||||||
Total liabilities and stockholders' equity |
| $ | 2,858,001 |
| $ | 2,507,125 |
|
Total assets increased $176.1$350.9 million from $1.6$2.5 billion at December 31, 20132014 to $1.8$2.9 billion at March 31, 2014.2015. The increase was primarily due to an increase of $186.5$206.1 million in mortgage loans held for sale at fair value and an increase of $45.5$59.6 million in MSRs, resulting from growth in our mortgage banking operations and growth in our investment in MSRs, partially offset by a decrease in cash and short-term investmentspurchases of $94.9 million as we deployed proceeds from sales of ESS to fund balance sheet growth.MSRs.
54
Total liabilities increased by $130.2$305.3 million from $955.3 million$1.7 billion as of December 31, 20132014 to $1.1$2.0 billion as of March 31, 2014.2015. The increase was primarily attributable to an increase of $169.6 million in mortgage loans sold under agreements to repurchase of $96.1 million and an increase of $47.1 million in sales of mortgage loan participation certificates, all to fund growth in our inventory of mortgage loans held for sale at fair value, and an increase of $31.1 million in liabilities relating to the sale of ESS to PMT of $12.3 million.PMT.
Cash Flows
Comparison ofOur cash flows for the quarters ended March 31, 2015 and 2014 and 2013are summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
| Quarter ended March 31, |
|
|
|
| ||||
|
| 2015 |
| 2014 |
| Change |
| |||
|
| (in thousands) |
| |||||||
Cash flow activities: |
|
|
|
|
|
|
|
|
|
|
Operating |
| $ | (168,494) |
| $ | (170,355) |
| $ | 1,861 |
|
Investing |
|
| (58,386) |
|
| 71,178 |
|
| (129,564) |
|
Financing |
|
| 232,656 |
|
| 105,914 |
|
| 126,742 |
|
Net cash flows |
| $ | 5,776 |
| $ | 6,737 |
| $ | (961) |
|
Our cash flows resulted in a net increase in cash of $6.7$5.8 million during the quarter ended March 31, 2014. 2015. The increase was due to cash provided by our financing activities exceeding cash used in our operating and investing activities.
Operating activities
Cash used in operating activities totaled $168.5 million and $170.4 million during the quarters ended March 31, 2015 and 2014, respectively, primarily due to the growth of our inventory of mortgage loans held for sale at fair value.
Investing activities
Net cash used in investing activities during the quarter ended March 31, 2014. The cash used in operating activities were2015 totaled $58.4 million primarily due to growth of our mortgage loans held for sale portfolio as origination and purchases of loans exceeded loan sales.
MSRs during the period. Net cash provided by investing activities was $71.2 million during the quarter ended March 31, 2014. The net cash provided reflects a2014 totaled $71.2 million primarily due to the decrease in our short-term investment as we deployed the proceeds to fund balance sheet growth. The short-term investment proceeds were from sales of ESS in 2013.investments.
Financing activities
Net cash provided by financing activities wastotaled $232.7 million and $105.9 million during the quarterquarters ended March 31, 2014. Cash provided by financing activities was2015 and 2014, respectively, primarily due to increased sales of loans under agreements to repurchase.repurchase and a mortgage loan participation agreement used to finance the growth in our inventory of mortgage loans held for sale. Cash provided by financing activities also reflects the proceeds received from sales of ESS of $46.4 million and $20.5 million during the quarters ended March 31, 2015 and 2014, respectively, used to finance purchases of government MSRs.
Liquidity and Capital Resources
Our liquidity reflects our ability to meet our current obligations (including our operating expenses and, when applicable, the retirement of, and margin calls relating to, our debt, and margin calls relating to hedges on our commitments to purchase or originate mortgage loans), fund new originations and purchases, and make investments as we identify them. We expect our primary sources of liquidity to be through cash flows from business activities, earnings on our investments and proceeds from bank borrowings, proceeds from and issuance of ESS financing and/or additional equity offerings. We believe that our liquidity is sufficient to meet our current liquidity needs.
Our current leverage strategy is to finance our assets where we believe such borrowing is prudent, appropriate and available. Our borrowing activities are in the form of sales of mortgage loans under agreements to repurchase, sales of mortgage loan participation certificates, ESS financing and a note payable secured by mortgageMSRs and loan servicing rightsadvances. All of our borrowings other than ESS have short-term maturities and servicing advances.provide for terms of approximately one year.
55
Our repurchase agreements represent the sales of mortgage loans together with agreements for us to buy back the mortgage loans at a later date. During the quarter ended March 31, 2014, the average balance outstanding underOur repurchase agreements to repurchase mortgage loans totaled $291.1 million, and the maximum daily amount outstanding under such agreements totaled $567.7 million. During the quarter ended March 31, 2013, the average balance outstanding under agreements to repurchase mortgage loans totaled $275.1 million, and the maximum daily amount outstanding under such agreements totaled $479.9 million.are summarized below:
|
|
|
|
|
|
|
|
|
| Quarter ended March 31, |
| ||||
|
| 2015 |
| 2014 |
| ||
|
| (in thousands) |
| ||||
Repurchase agreements outstanding: |
|
|
|
|
|
|
|
Average balance |
| $ | 616,896 |
| $ | 291,093 |
|
Maximum daily balance |
| $ | 992,187 |
| $ | 567,737 |
|
The difference between the maximum and average daily amounts outstanding wasis due to increasesthe effect of variations in the sizestiming and utilizationlevels of our existing facilities, all in support of the growth in ourproduction and sales on mortgage loan production, investments and correspondent lending activities.
All of our borrowings discussed above have short-term maturities. The transactions relating to mortgage loans under agreements to repurchase mature between July 1, 2014 and January 30, 2015 and provide forinventories during the repurchase from major financial institution counterparties based on the estimated fair value of the mortgage loans sold. Our note payable secured by mortgage servicing rights and loan servicing advances at fair value has a maturity date of October 31, 2014.period.
PLS’s debt financing agreements require it to comply with various financial covenants. The most significant financial covenants currently include the following:
| · | positive net income during each calendar quarter; |
· | a minimum in unrestricted cash and cash equivalents of $20 million; |
· | a minimum tangible net worth of $200 million; |
· | a maximum ratio of total liabilities to tangible net worth of 10:1; and |
· | at least one other warehouse or repurchase facility that finances amounts and assets similar to those being financed under our existing debt financing agreements. |
Although these financial covenants limit the amount of indebtedness that we may incur and affect our liquidity through minimum cash reserve requirements, we believe that these covenants currently provide us with sufficient flexibility to successfully operate our business and obtain the financing necessary to achieve that purpose.
With respect to servicing that we performperformed for PMT, we arePLS is also subject to certain covenants under itsPMT’s debt agreements. TheseSuch covenants in PMT’s debt agreements are similar to those above, withequally or less restrictive than the additional covenant that we must maintain a minimum servicing portfolio of $5 billion in UPB.covenants described above.
Our debt financing agreements also contain margin call provisions that, upon notice from the applicable lender at its option, require us to transfer cash or, in some instances, additional assets in an amount sufficient to eliminate any margin deficit. A margin deficit will generally result from any decline in the market value (as determined by the applicable lender) of the assets subject to the related financing agreement. Upon notice from the applicable lender, we will generally be required to satisfy the margin call on the day of such notice or within one business day thereafter, depending on the timing of the notice.
We have purchased portfolios of MSRs and have financed them in part through the sale to PMT of the right to receive ESS. The repayment of the ESS financing is based on amounts received on the underlying mortgage loans.
We continue to explore a variety of additional means of financing our continued growth, including debt financing through bank warehouse lines of credit, financing MSR purchases through bank lines of credit, additional repurchase agreements and corporate debt. However, there can be no assurance as to how much additional financing capacity such efforts will produce, what form the financing will take or whether such efforts will be successful.
Off-Balance Sheet Arrangements and Aggregate Contractual Obligations
Off-Balance Sheet Arrangements and Guarantees
As of March 31, 2014,2015, we have not entered into any off-balance sheet arrangements or guarantees.
56
Contractual Obligations
As of March 31, 2014,2015, we had on-balance sheet contractual obligations of $567.7$992.2 million to finance assets under agreements to repurchase and $190.8 million to finance assets under facilities with maturities between July 1, 2014our mortgage loan participation and January 30, 2015.sale agreement. We also had a contractual obligation of $48.8$134.7 million relating to a note payable secured by mortgage servicing rights and loan servicing advances at fair value and with a maturity date of October 31, 2014.MSRs. We also lease our primary office facilities under an agreement that expires on February 28, 2017 and we license certain software to support our loan servicing operations.
Payment obligations under these agreements are summarized below:
|
| Payments due by period |
| |||||||||||||
Contractual obligations |
| Total |
| Less than |
| 1 - 3 |
| 3 - 5 |
| More than |
| |||||
|
| (in thousands) |
| |||||||||||||
Commitments to purchase mortgage loans from PennyMac Mortgage Investment Trust (1) |
| $ | 836,786 |
| $ | 836,786 |
| $ | — |
| $ | — |
| $ | — |
|
Commitments to fund mortgage loans (1) |
| 365,340 |
| 365,340 |
| — |
| — |
| — |
| |||||
Commitments to sell mortgage loans (1) |
| 2,829,176 |
| 2,829,176 |
| — |
| — |
| — |
| |||||
Loans sold under agreements to repurchase |
| 567,737 |
| 567,737 |
| — |
| — |
| — |
| |||||
Note payable |
| 48,819 |
| 48,819 |
| — |
| — |
| — |
| |||||
Software licenses (2) |
| 11,624 |
| 5,812 |
| 5,812 |
| — |
| — |
| |||||
Office leases |
| 15,132 |
| 4,157 |
| 8,571 |
| 2,167 |
| 237 |
| |||||
Total |
| $ | 4,674,614 |
| $ | 4,657,827 |
| $ | 14,383 |
| $ | 2,167 |
| $ | 237 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Payments due by period |
| |||||||||||||
|
|
|
| Less than |
| 1-3 |
| 3-5 |
| More than |
| |||||
Contractual obligations |
| Total |
| 1 year |
| years |
| years |
| 5 years |
| |||||
|
| (in thousands) |
| |||||||||||||
Mortgage loans sold under agreements to repurchase |
| $ | 992,187 |
| $ | 992,187 |
| $ | — |
| $ | — |
| $ | — |
|
Mortgage loan participation and sale agreement |
|
| 190,762 |
|
| 190,762 |
|
| — |
|
| — |
|
| — |
|
Note payable |
|
| 134,665 |
|
| 134,665 |
|
| — |
|
| — |
|
| — |
|
Excess servicing spread financing at fair value payable to PennyMac Mortgage Investment Trust (1) |
|
| 222,309 |
|
| — |
|
| — |
|
| — |
|
| 222,309 |
|
Software licenses (2) |
|
| 19,634 |
|
| 9,817 |
|
| 9,817 |
|
| — |
|
| — |
|
Office leases |
|
| 17,242 |
|
| 5,630 |
|
| 6,396 |
|
| 3,012 |
|
| 2,204 |
|
Total |
| $ | 1,576,799 |
| $ | 1,333,061 |
| $ | 16,213 |
| $ | 3,012 |
| $ | 224,513 |
|
(1) | The ESS payable to PMT does not have a stated contractual maturity. However, its cash flows are not expected to extend beyond the contractual maturities of the mortgage loans underlying these agreements. Such maturities extend beyond five years. |
| (2) | Software licenses include both volume and activity based fees that are dependent on the number of loans serviced during each period and include a base fee of approximately $490,000 per year. Estimated payments for software licenses above are based on the number of loans currently serviced by us, which totaled approximately 567,000 at March 31, 2015. Future amounts due may significantly fluctuate based on changes in the number of loans serviced by us. For the quarter ended March 31, 2015, software license fees totaled $5.1 million. All figures contained in this footnote are in actual amounts and not in thousands (in contrast to the table above). |
The amount at risk (the fair value of the assets pledged plus the related margin deposit, less the amount advanced by the counterparty and accrued interest) relating to our assets sold under agreements to repurchase is summarized by counterparty below as of March 31, 2014:2015:
Counterparty |
| Amount at risk |
| Weighted-average |
| Facility Maturity |
| |
|
| (in thousands) |
|
|
|
|
| |
Credit Suisse First Boston Mortgage Capital LLC |
| $ | 63,790 |
| June 20, 2014 |
| October 31, 2014 |
|
Bank of America, N.A. |
| $ | 54,550 |
| June 19, 2014 |
| January 30, 2015 |
|
Morgan Stanley |
| $ | 9,020 |
| May 18, 2014 |
| July 1, 2014 |
|
Citibank, N.A. |
| $ | 24 |
| March 8, 2014 |
| July 24, 2014 |
|
Weighted average | ||||||||
maturity of advances | ||||||||
under repurchase | ||||||||
Counterparty | Amount at risk | agreement | Facility maturity | |||||
(in thousands) | ||||||||
Credit Suisse First Boston Mortgage Capital LLC | $ | 77,916 | July 8, 2015 | October 30, 2015 | ||||
Bank of America, N.A. | $ | 36,407 | June 17, 2015 | January 30, 2016 | ||||
Morgan Stanley Bank, N.A. | $ | 10,670 | May 17, 2015 | June 29, 2015 | ||||
Citibank, N.A. | $ | 15,519 | May 6, 2015 | September 7, 2015 |
Management Agreements
PMT Management Agreement
We externally manage and advise PMT pursuant to a management agreement. Our management agreement with PMT requires us to oversee PMT’s business affairs in conformity with the investment policies that are approved and monitored by its board of trustees. We are responsible for PMT’s day-to-day management and perform such services and activities related to PMT’s assets and operations as may be appropriate. Pursuant to our management agreement, we collect a base management fee and may collect a performance incentive fee.
57
The management agreement provides that:
· | The base management fee is calculated quarterly and is equal to the sum of (i) 1.5% per year of PMT’s shareholders’ equity up to $2 billion, (ii) 1.375% per year of shareholders’ equity in excess of $2 billion and up to $5 billion, and (iii) 1.25% per year of PMT’s shareholders’ equity in excess of $5 billion. |
· | The performance incentive fee is calculated at a defined annualized percentage of the amount by which PMT’s “net income,” on a rolling four‑quarter basis and before deducting the incentive fee, exceeds certain levels of return on “equity.” |
The performance incentive fee is calculated quarterly and is equal to the sum of: (a) 10% of the amount by which PMT’s net income for the quarter exceeds (i) an 8% return on equity plus the “high watermark,” up to (ii) a 12% return on PMT’s equity; plus (b) 15% of the amount by which PMT’s net income for the quarter exceeds (i) a 12% return on PMT’s equity plus the “high watermark,” up to (ii) a 16% return on PMT’s equity; plus (c) 20% of the amount by which PMT’s net income for the quarter exceeds a 16% return on equity plus the “high watermark.”
For the purpose of determining the amount of the performance incentive fee:
“Net income” is defined as net income or loss computed in accordance with U.S. GAAP and certain other non‑cash charges determined after discussions between us and PMT’s independent trustees and approval by a majority of PMT’s independent trustees.
“Equity” is the weighted average of the issue price per common share of all of PMT’s public offerings, multiplied by the weighted average number of common shares outstanding (including restricted share units) in the four‑quarter period.
The “high watermark” starts at zero and is adjusted quarterly. The quarterly adjustment reflects the amount by which the net income (stated as a percentage of return on equity) in that quarter exceeds or falls short of the lesser of 8% and the average Fannie Mae 30‑year MBS yield (the “target yield”) for the four quarters then ended. If the net income is lower than the target yield, the high watermark is increased by the difference. If the net income is higher than the target yield, the high watermark is reduced by the difference. Each time a performance incentive fee is earned, the high watermark returns to zero. As a result, the threshold amounts required for us to earn a performance incentive fee are adjusted cumulatively based on the performance of PMT’s net income over (or under) the target yield, until the net income in excess of the target yield exceeds the then‑current cumulative high watermark amount, and a performance incentive fee is earned.
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 in PMT’s common shares (subject to a limit of no more than 50% paid in common shares), at PMT’s option.
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 by PMT, we 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 us, in each case during the 24-month period before termination.
Investment Funds Management Agreements
We have investment management agreements with the Investment Funds pursuant to which we receive management fees consisting of base management fees and carried interest. The Investment Funds will continue in existence through December 31, 2016, subject to three one-year extensions by PCM at its discretion, in accordance with the terms of the limited liability company and limited partnership agreements that govern the Investment Funds.
58
Loan Servicing Agreements
PMT Loan Servicing Agreement
We have a loan servicing agreement with PMT, pursuant to which we provide loan servicing for its portfolio of residential mortgage loans. The servicing agreement provides for servicing fees payable to us based on the delinquency, bankruptcy and/or foreclosure status of the serviced loan or the REO.
· | The base servicing fee rates for distressed whole mortgage loans are charged based on a monthly per‑loan dollar amount, with the actual dollar amount for each loan based on the delinquency, bankruptcy and/or foreclosure status of such loan or the related underlying real estate. Presently, the base servicing fee rates for distressed whole mortgage loans range from $30 per month for current loans up to $125 per month for mortgage loans that are in foreclosure. |
· | The base servicing fee rates for non‑distressed mortgage loans subserviced by us on PMT’s behalf are also calculated through a monthly per‑loan dollar amount, with the actual dollar amount for each mortgage loan based on whether the mortgage loan is a fixed‑rate or adjustable‑rate loan. The base servicing fee rates for mortgage loans subserviced on PMT’s behalf are $7.50 per month for fixed‑rate mortgage loans and $8.50 per month for adjustable rate mortgage loans. To the extent that these mortgage loans become delinquent, we are entitled to an additional servicing fee per mortgage loan falling within a range of $10 to $75 per month based on the delinquency, bankruptcy and foreclosure status of the mortgage loan or the related underlying real estate. |
· | We are required to provide a range of services and activities significantly greater in scope than the services provided in connection with a customary servicing arrangement because PMT does not have any employees or infrastructure. For these services, we receive a supplemental fee of $25 per month for each distressed whole mortgage loan and $3.25 per month for each non‑distressed subserviced mortgage loan. With respect to non‑distressed subserviced mortgage loans, the supplemental fee is subject to a cap of $700,000 per quarter. We are also entitled to reimbursement for all customary, good faith reasonable and necessary out‑of‑pocket expenses incurred in performance of its servicing obligations. |
· | We, on behalf of PMT, currently participate in the Home Affordable Modification Program (“HAMP”) of the U.S. Department of the Treasury and U.S. Department of Housing and Urban Development (“HUD”) (and other similar mortgage loan modification programs). HAMP establishes standard loan modification guidelines for “at risk” homeowners and provides incentive payments to certain participants, including mortgage loan servicers, for achieving modifications and successfully remaining in the program. The mortgage loan servicing agreement entitles us to retain any incentive payments made to it and to which it is entitled under HAMP; provided, however, that with respect to any such incentive payments paid to us under HAMP in connection with a mortgage loan modification for which PMT previously paid us a modification fee, we shall reimburse PMT an amount equal to the incentive payments. |
We also remain entitled to market‑based fees and charges including boarding and deboarding fees, liquidation and disposition fees, assumption, modification and origination fees and late charges relating to loans it services for PMT.
Investment Funds Loan Servicing Agreements
We have also entered into loan servicing agreements with the Investment Funds. Our servicing agreements with the Investment Funds generally provide for fee revenue, which varies depending on the type and quality of the loans being serviced. We are also entitled to certain customary market-based fees and charges. This arrangement was modified, effective January 1, 2012, with respect to one of the Investment Funds. At that time, we settled our accrued servicing fee rebate and amended our servicing agreement with such fund to charge scheduled servicing fees in place of the previous “at cost” servicing arrangement.
59
Mortgage Banking and Warehouse Services Agreement
We have also entered into a mortgage banking and warehouse services agreement (the “MBWS agreement”), pursuant to which we provide PMT with certain mortgage banking services, including fulfillment and disposition-related services, with respect to loans acquired by PMT from correspondent lenders, and certain warehouse lending services, including fulfillment and administrative services, with respect to loans financed by PMT for its warehouse lending clients.
The MBWS agreement provides for a fulfillment fee paid to us based on the type of mortgage loan that PMT acquires. The fulfillment fee is equal to a percentage of the UPB of mortgage loans purchased by PMT, with the addition of potential fee rate discounts applicable to PMT’s monthly purchase volume in excess of designated thresholds. We have also agreed to provide such services exclusively for PMT’s benefit, and we and our affiliates are prohibited from providing such services for any other third party.
Presently, the applicable fulfillment fee percentages are (i) 0.50% for conventional mortgage loans, (ii) 0.88% for loans saleable in accordance with the Ginnie Mae Mortgage‑Backed Securities Guide, (iii) 0.80% for the U.S. Department of the Treasury and HUD’s Home Affordable Refinance Program (“HARP”) mortgage loans with a loan‑to‑value ratio of 105% or less, (iv) 1.20% for HARP mortgage loans with a loan‑to‑value ratio of more than 105%, and (v) 0.50% for all other mortgage loans not contemplated above; provided, however, that we may, in our sole discretion, reduce the amount of the applicable fulfillment fee and credit the amount of such reduction to the reimbursement otherwise due as described below. This reduction may only be credited to the reimbursement applicable to the month in which the related mortgage loan was funded.
In the event that PMT purchases mortgage loans with an UPB in any month totaling more than $2.5 billion and less than $5 billion, we have agreed to discount the amount of such fulfillment fees by reimbursing PMT an amount equal to the product of (i) 0.025%, (ii) the amount of UPB in excess of $2.5 billion and (iii) the percentage of the total UPB relating to mortgage loans for which we collected fulfillment fees in such month. In the event PMT purchases mortgage loans with an total UPB in any month greater than $5 billion, we have agreed to further discount the amount of fulfillment fees by reimbursing PMT an amount equal to the product of (i) 0.05%, (ii) the amount of UPB in excess of $5 billion and (iii) the percentage of the total UPB relating to mortgage loans for which we collected fulfillment fees in such month.
PMT does not hold the Ginnie Mae approval required to issue Ginnie Mae MBS and act as a servicer. Accordingly, under the MBWS agreement, we currently purchase loans saleable in accordance with the Ginnie Mae Mortgage‑Backed Securities Guide “as is” and without recourse of any kind to PMT at its cost less fees collected by PMT from the seller, plus accrued interest and a sourcing fee of three basis points.
In consideration for the mortgage banking services provided by us with respect to PMT’s acquisition of mortgage loans under PLS’s early purchase program, we are entitled to fees (i) accruing at a rate equal to $25,000 per year per early purchase facility administered by us, and (ii) in the amount of $50 for each mortgage loan PMT acquires. In consideration for the warehouse services provided by us with respect to mortgage loans that PMT finances for its warehouse lending clients, with respect to each facility, we are entitled to fees (i) accruing at a rate equal to $25,000 per year, and (ii) in the amount of $50 for each mortgage loan that PMT finances thereunder. Where PMT has entered into both an early purchase agreement and a warehouse lending agreement with the same client, we shall only be entitled to one $25,000 per year fee and, with respect to any mortgage loan that becomes subject to both such agreements, only one $50 per mortgage loan fee.
The term of the MBWS agreement expires on February 1, 2017, subject to automatic renewal for additional 18‑month periods, unless terminated earlier in accordance with the terms of the agreement.
MSR Recapture Agreement
Pursuant to the terms of a MSR recapture agreement, as amended, if we refinance through our consumer direct business mortgage loans for which PMT previously held the MSRs, we are generally required to transfer and convey to one of PMT’s wholly‑owned subsidiaries, without cost to PMT, the MSRs with respect to new mortgage loans originated in those refinancings (or, under certain circumstances, other mortgage loans) that have a total UPB that is not less than 30% of the total UPB of all the mortgage loans so originated.
60
Where the fair value of the aggregate MSRs to be transferred for the applicable month is less than $200,000, we may, at our option, pay cash to PMT in an amount equal to such fair market value instead of transferring such MSRs. The MSR recapture agreement expires, unless terminated earlier in accordance with the agreement, on February 1, 2017, subject to automatic renewal for additional 18‑month periods.
Spread Acquisition and MSR Servicing Agreements
Effective February 1, 2013, we entered into a master spread acquisition and MSR servicing agreement (the “2/1/13 Spread Acquisition Agreement”), pursuant to which we may sell to PMT or one of its wholly owned subsidiaries the rights to receive certain ESS from MSRs acquired by us from banks and other third party financial institutions. We are generally required to service or subservice the related mortgage loans for the applicable agency or investor. The terms of each transaction under the 2/1/13 Spread Acquisition Agreement are subject to the terms thereof, as modified and supplemented by the terms of a confirmation executed in connection with such transaction.
To the extent we refinance any of the mortgage loans relating to the ESS sold to PMT, the 2/1/13 Spread Acquisition Agreement contains recapture provisions requiring that we transfer to PMT, at no cost, the ESS relating to a certain percentage of the UPB of the newly originated mortgage loans. To the extent the fair value of the aggregate ESS to be transferred for the applicable month is less than $200,000, we may, at our option, pay cash to PMT in an amount equal to such fair value instead of transferring such ESS.
On December 30, 2013, we entered into a second master spread acquisition and MSR servicing agreement with PMT (the “12/30/13 Spread Acquisition Agreement”). The terms of the 12/30/13 Spread Acquisition Agreement are substantially similar to the terms of the 2/1/13 Spread Acquisition Agreement, except that we only intend to sell ESS relating to Ginnie Mae MSRs under the 12/30/13 Spread Acquisition Agreement.
To the extent we refinance any of the mortgage loans relating to the ESS it sells to PMT, the 12/30/13 Spread Acquisition Agreement also contains recapture provisions requiring that we transfer to PMT, at no cost, the ESS relating to a certain percentage of the UPB of the newly originated mortgage loans. However, under the 12/30/13 Spread Acquisition Agreement, in any month where the transferred ESS relating to newly originated Ginnie Mae mortgage loans is not equivalent to at least 90% of the product of the excess servicing fee rate and the UPB of the refinanced mortgage loans, we are also required to transfer additional ESS or cash in the amount of such shortfall. Similarly, in any month where the transferred ESS relating to modified Ginnie Mae mortgage loans is not equivalent to at least 90% of the product of the excess servicing fee rate and the UPB of the modified mortgage loans, the 12/30/13 Spread Acquisition Agreement contains provisions that require us to transfer additional ESS or cash in the amount of such shortfall. To the extent the fair value of the aggregate ESS to be transferred for the applicable month is less than $200,000, we may, at our option, pay cash to PMT in an amount equal to such fair value instead of transferring such ESS.
In connection with our entry into the 12/30/13 Spread Acquisition Agreement, we were also required to amend the terms of our loan and security agreement (the “LSA”) with Credit Suisse First Boston Mortgage Capital LLC (“CSFB”), pursuant to which we pledged to CSFB all of its rights and interests in the Ginnie Mae MSRs we own or acquire, and a separate acknowledgement agreement with respect thereto, by and among Ginnie Mae, CSFB and us. Separately, as a condition to permitting us to transfer to PMT the ESS relating to a portion of our pledged Ginnie Mae MSRs, CSFB required PMT to enter into a Security and Subordination Agreement (the “Security Agreement”), pursuant to which PMT pledged to CSFB its rights under the 12/30/13 Spread Acquisition Agreement and its interest in any ESS purchased thereunder. CSFB’s lien on the ESS remains subordinate to the rights and interests of Ginnie Mae pursuant to the provisions of the 12/30/13 Spread Acquisition Agreement and the terms of the acknowledgement agreement.
The Security Agreement permits CSFB to liquidate PMT’s ESS along with the related MSRs to the extent there exists an event of default under the LSA, and it contains certain trigger events, including breaches of representations, warranties or covenants and defaults under other of PMT’s credit facilities, that would require us to either (i) repay in full the outstanding loan amount under the LSA or (ii) repurchase the ESS from PMT at fair value. To the extent we are unable to repay the loan under the LSA or repurchase the ESS, an event of default would exist under the LSA, thereby entitling CSFB to liquidate the ESS and the related MSRs. In the event the ESS is liquidated as a result of certain actions or inactions by us, PMT generally would be entitled to seek indemnity from us under the 12/30/13 Spread Acquisition Agreement.
61
On December 19, 2014, we entered into a third master spread acquisition and MSR servicing agreement with PMT (the “12/19/14 Spread Acquisition Agreement”). The terms of the 12/19/14 Spread Acquisition Agreement are substantially similar to the terms of the 2/1/13 Spread Acquisition Agreement, except that we only intend to sell ESS relating to Freddie Mac MSRs under the 12/19/14 Spread Acquisition Agreement.
To the extent we refinance any of the mortgage loans relating to the ESS we sell to PMT, the 12/19/14 Spread Acquisition Agreement also contains recapture provisions requiring that we transfer to PMT, at no cost, the ESS relating to a certain percentage of the UPB of the newly originated mortgage loans. To the extent the fair market value of the aggregate ESS to be transferred for the applicable month is less than $200,000, we may, at our option, pay cash to PMT in an amount equal to such fair market value in lieu of transferring such ESS.
Reimbursement Agreement
In connection with the IPO of PMT’s common shares on August 4, 2009, we entered into an agreement with PMT pursuant to which PMT agreed to reimburse us for the $2.9 million payment that it made to the underwriters in such offering (the “Conditional Reimbursement”) if PMT satisfied certain performance measures over a specified period of time. Effective February 1, 2013, the parties amended the terms of the reimbursement agreement to provide for the reimbursement to us of the Conditional Reimbursement if PMT is required to pay us performance incentive fees under the management agreement at a rate of $10 in reimbursement for every $100 of performance incentive fees earned. The reimbursement of the Conditional Reimbursement is subject to a maximum reimbursement in any particular 12 month period of $1.0 million and the maximum amount that may be reimbursed under the agreement is $2.9 million.
In the event the termination fee is payable to us under the management agreement and we have not received the full amount of the reimbursements and payments under the reimbursement agreement, such amount will be paid in full. The term of the reimbursement agreement expires on February 1, 2019.
Debt Obligations
As described further above in “Liquidity and Capital Resources,” we currently finance certain of our assets through borrowings with major financial institution counterparties in the form of sales of mortgage loans under agreements to repurchase, a mortgage loan participation and sale agreement and a note payable secured by mortgage servicing rightsMSRs and loan servicing advances. The borrower under each of these facilities is PLS, and all obligations thereunder are guaranteed by Private National Mortgage Acceptance Company, LLC.
Under the terms of these agreements, PLS is required to comply with certain financial covenants, as described further above in “Liquidity and Capital Resources,” and various non-financial covenants customary for transactions of this nature. As of March 31, 2014,2015, we were in compliance in all material respects with these covenants.
The agreements also contain margin call provisions that, upon notice from the applicable lender, require us to transfer cash or, in some instances, additional assets in an amount sufficient to eliminate any margin deficit. Upon notice from the applicable lender, we will generally be required to satisfy the margin call on the day of such notice or within one business day thereafter, depending on the timing of the notice.
In addition, the agreements contain events of default (subject to certain materiality thresholds and grace periods), including payment defaults, breaches of covenants and/or certain representations and warranties, cross-defaults, guarantor defaults, servicer termination events and defaults, material adverse changes, bankruptcy or insolvency proceedings and other events of default customary for these types of transactions. The remedies for such events of default are also customary for these types of transactions and include the acceleration of the principal amount outstanding under the agreements and the liquidation by our lenders of the mortgage loans or other collateral then subject to the agreements.
62
All of PLS’s borrowings discussed above have short-term maturities that expire as follows:
Counterparty (1) |
| Outstanding |
| Committed |
| Maturity Date |
| ||
|
| (in thousands) |
|
|
| ||||
Bank of America, N.A. |
| $ | 211,791 |
| $ | 225,000 |
| January 30, 2015 |
|
Credit Suisse First Boston Mortgage Capital LLC |
| $ | 246,998 |
| $ | 300,000 |
| October 31, 2014 |
|
Credit Suisse First Boston Mortgage Capital LLC |
| $ | 48,778 |
| $ | 117,000 |
| October 31, 2014 |
|
Morgan Stanley |
| $ | 108,676 |
| $ | 125,000 |
| July 1, 2014 |
|
Citibank, N.A. |
| $ | 272 |
| $ | 50,000 |
| July 24, 2014 |
|
(1)The borrowings with Bank of America, N.A., Citibank, N.A. and Credit Suisse First Boston Mortgage Capital LLC (with a committed amount of $300 million) are in the form of sales of mortgage loans under agreements to repurchase. The borrowing with Credit Suisse First Boston Mortgage Capital LLC (with a committed amount of $117 million) is in the form of a note payable secured by certain mortgage servicing rights and servicing advances.
(2)Represents outstanding indebtedness reduced by cash collateralfollows as of March 31, 2014.2015:
|
|
|
|
|
|
|
|
|
|
|
| Outstanding |
| Committed |
|
|
| ||
Counterparty (1) |
| Indebtedness (2) |
| Facility |
| Maturity Date (3) |
| ||
|
| (in thousands) |
|
|
| ||||
Bank of America, N.A. |
| $ | 271,868 |
| $ | 225,000 |
| January 30, 2016 |
|
Bank of America, N.A. |
| $ | 190,762 |
| $ | 250,000 |
| January 30, 2016 |
|
Credit Suisse First Boston Mortgage Capital LLC |
| $ | 498,333 |
| $ | 700,000 |
| October 30, 2015 |
|
Credit Suisse First Boston Mortgage Capital LLC |
| $ | 134,665 |
| $ | 257,000 |
| October 30, 2015 |
|
Morgan Stanley Bank, N.A. |
| $ | 121,986 |
| $ | 125,000 |
| June 29, 2015 |
|
Citibank, N.A. |
| $ | 100,000 |
| $ | 50,000 |
| September 7, 2015 |
|
(1) | The borrowings with Bank of America, N.A. (with a committed amount of $225 million), Citibank, N.A. and Credit Suisse First Boston Mortgage Capital LLC (with a committed amount of $700 million) are in the form of sales of mortgage loans under agreements to repurchase. The borrowing with Bank of America, N.A. (with a committed amount of $250 million) is in the form of a mortgage loan participation and sale agreement. The borrowing with Credit Suisse First Boston Mortgage Capital LLC (with a committed amount of $257 million) is in the form of a note payable secured by certain MSRs and loan servicing advances. |
(2) | Represents outstanding indebtedness reduced by cash collateral as of March 31, 2015. |
(3) | Represents maturity date as of March 31, 2015. |
Quantitative and Qualitative Disclosures aboutAbout Market Risk
Market risk is the exposure to loss resulting from changes in interest rates, foreign currency exchange rates, commodity prices, equity prices, real estate values and other market-basedmarket based risks. The primary market risks that we are exposed to are credit risk, interest rate risk, prepayment risk, inflation risk and market value risk.
The following sensitivity analyses are limited in that they were (i) performed at a particular point in time, (ii)time; only contemplate certainthe movements in interest rates, (iii)the indicated variables; do not incorporate changes in interest rate volatility or changes in the relationship of one interest rate index to another, (iv)other variables; are subject to the accuracy of various models and assumptions used, including prepayment forecastsused; and discount rates, and (v) do not incorporate other factors that would affect our overall financial performance in such scenarios, including operational adjustments made by management to account for changing circumstances. For these reasons, the following estimates should not be viewed as an earnings forecast.forecasts.
Mortgage Servicing Rights
The following tables summarize the estimated change in fair value of MSRs accounted for using the amortization method as of March 31, 2014,2015, given several shifts in pricing spreads, prepayment speed and annual per-loan cost of servicing:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
Pricing spread shift in % |
| -20% |
| -10% |
| -5% |
| +5% |
| +10% |
| +20% |
|
| -20% |
| -10% |
| -5% |
| +5% |
| +10% |
| +20% |
| ||||||||||||
|
| (dollar amounts in thousands) |
|
| (dollar amounts in thousands) |
| ||||||||||||||||||||||||||||||||
Fair value |
| $ | 320,239 |
| $ | 305,269 |
| $ | 298,257 |
| $ | 285,087 |
| $ | 278,897 |
| $ | 267,236 |
|
| $ | 476,157 |
| $ | 456,227 |
| $ | 446,845 |
| $ | 429,144 |
| $ | 420,787 |
| $ | 404,976 |
|
Change in fair value: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
$ |
| $ | 28,704 |
| $ | 13,735 |
| $ | 6,722 |
| $ | (6,448 | ) | $ | (12,638 | ) | $ | (24,298 | ) |
| $ | 38,333 |
| $ | 18,403 |
| $ | 9,021 |
| $ | (8,680) |
| $ | (17,037) |
| $ | (32,848) |
|
% |
| 9.85 | % | 4.71 | % | 2.31 | % | -2.21 | % | -4.33 | % | -8.33 | % |
|
| 8.76 | % |
| 4.20 | % |
| 2.06 | % |
| (1.98) | % |
| (3.89) | % |
| (7.50) | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
Prepayment speed shift in % |
| -20% |
| -10% |
| -5% |
| +5% |
| +10% |
| +20% |
|
| -20% |
| -10% |
| -5% |
| +5% |
| +10% |
| +20% |
| ||||||||||||
|
| (dollar amounts in thousands) |
|
| (dollar amounts in thousands) |
| ||||||||||||||||||||||||||||||||
Fair value |
| $ | 312,851 |
| $ | 301,872 |
| $ | 296,626 |
| $ | 286,590 |
| $ | 281,787 |
| $ | 272,582 |
|
| $ | 475,592 |
| $ | 456,030 |
| $ | 446,766 |
| $ | 429,189 |
| $ | 420,847 |
| $ | 404,987 |
|
Change in fair value: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
$ |
| $ | 21,316 |
| $ | 10,337 |
| $ | 5,092 |
| $ | (4,944 | ) | $ | (9,747 | ) | $ | (18,952 | ) |
| $ | 37,768 |
| $ | 18,206 |
| $ | 8,942 |
| $ | (8,635) |
| $ | (16,977) |
| $ | (32,837) |
|
% |
| 7.31 | % | 3.55 | % | 1.75 | % | -1.70 | % | -3.34 | % | -6.50 | % |
|
| 8.63 | % |
| 4.16 | % |
| 2.04 | % |
| (1.97) | % |
| (3.88) | % |
| (7.50) | % |
Per-loan servicing cost shift in % |
| -20% |
| -10% |
| -5% |
| +5% |
| +10% |
| +20% |
| ||||||
|
| (dollar amounts in thousands) |
| ||||||||||||||||
Fair value |
| $ | 302,957 |
| $ | 297,246 |
| $ | 294,390 |
| $ | 288,679 |
| $ | 285,824 |
| $ | 280,113 |
|
Change in fair value: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
$ |
| $ | 11,422 |
| $ | 5,711 |
| $ | 2,855 |
| $ | (2,855 | ) | $ | (5,711 | ) | $ | (11,422 | ) |
% |
| 3.92 | % | 1.96 | % | 0.98 | % | -0.98 | % | -1.96 | % | -3.92 | % |
63
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per-loan servicing cost shift in % |
| -20% |
| -10% |
| -5% |
| +5% |
| +10% |
| +20% |
| ||||||
|
| (dollar amounts in thousands) |
| ||||||||||||||||
Fair value |
| $ | 450,627 |
| $ | 444,226 |
| $ | 441,025 |
| $ | 434,623 |
| $ | 431,422 |
| $ | 425,021 |
|
Change in fair value: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
| $ | 12,803 |
| $ | 6,402 |
| $ | 3,201 |
| $ | (3,201) |
| $ | (6,402) |
| $ | (12,803) |
|
% |
|
| 2.92 | % |
| 1.46 | % |
| 0.73 |
|
| (0.73) | % |
| (1.46) | % |
| (2.92) | % |
The following tables summarize the estimated change in fair value of MSRs accounted for using the fair value method as of March 31, 2014,2015, given several shifts in pricing spreads, prepayment speed and annual per-loanper loan cost of servicing:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
Pricing spread shift in % |
| -20% |
| -10% |
| -5% |
| +5% |
| +10% |
| +20% |
|
| -20% |
| -10% |
| -5% |
| +5% |
| +10% |
| +20% |
| ||||||||||||
|
| (dollar amounts in thousands) |
|
| (dollar amounts in thousands) |
| ||||||||||||||||||||||||||||||||
Fair value |
| $ | 252,855 |
| $ | 244,179 |
| $ | 240,065 |
| $ | 232,245 |
| $ | 228,526 |
| $ | 221,442 |
|
| $ | 388,455 |
| $ | 374,433 |
| $ | 367,805 |
| $ | 355,246 |
| $ | 349,293 |
| $ | 337,984 |
|
Change in fair value: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
$ |
| $ | 16,766 |
| $ | 8,090 |
| $ | 3,976 |
| $ | (3,844 | ) | $ | (7,562 | ) | $ | (14,647 | ) |
| $ | 27,042 |
| $ | 13,020 |
| $ | 6,392 |
| $ | (6,167) |
| $ | (12,120) |
| $ | (23,429) |
|
% |
| 7.10 | % | 3.43 | % | 1.68 | % | -1.63 | % | -3.20 | % | -6.20 | % |
|
| 7.48 | % |
| 3.60 | % |
| 1.77 | % |
| (1.71) | % |
| (3.35) | % |
| (6.48) | % |
Prepayment speed shift in % |
| -20% |
| -10% |
| -5% |
| +5% |
| +10% |
| +20% |
| ||||||
|
| (dollar amounts in thousands) |
| ||||||||||||||||
Fair value |
| $ | 257,482 |
| $ | 246,370 |
| $ | 241,131 |
| $ | 231,232 |
| $ | 226,551 |
| $ | 217,680 |
|
Change in fair value: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
$ |
| $ | 21,393 |
| $ | 10,281 |
| $ | 5,042 |
| $ | (4,857 | ) | $ | (9,538 | ) | $ | (18,409 | ) |
% |
| 9.06 | % | 4.35 | % | 2.14 | % | -2.06 | % | -4.04 | % | -7.80 | % |
Per-loan servicing cost shift in % |
| -20% |
| -10% |
| -5% |
| +5% |
| +10% |
| +20% |
| |||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
Prepayment speed shift in % |
| -20% |
| -10% |
| -5% |
| +5% |
| +10% |
| +20% |
| |||||||||||||||||||||||||
|
| (dollar amounts in thousands) |
|
| (dollar amounts in thousands) |
| ||||||||||||||||||||||||||||||||
Fair value |
| $ | 247,790 |
| $ | 241,939 |
| $ | 239,014 |
| $ | 233,164 |
| $ | 230,238 |
| $ | 224,388 |
|
| $ | 397,461 |
| $ | 378,654 |
| $ | 369,851 |
| $ | 353,319 |
| $ | 345,547 |
| $ | 330,894 |
|
Change in fair value: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
$ |
| $ | 11,701 |
| $ | 5,850 |
| $ | 2,925 |
| $ | (2,925 | ) | $ | (5,850 | ) | $ | (11,701 | ) |
| $ | 36,048 |
| $ | 17,241 |
| $ | 8,438 |
| $ | (8,094) |
| $ | (15,866) |
| $ | (30,519) |
|
% |
| 4.96 | % | 2.48 | % | 1.24 | % | -1.24 | % | -2.48 | % | -4.96 | % |
|
| 9.97 | % |
| 4.77 | % |
| 2.33 | % |
| (2.24) | % |
| (4.39) | % |
| (8.44) | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per-loan servicing cost shift in % |
| -20% |
| -10% |
| -5% |
| +5% |
| +10% |
| +20% |
| ||||||
|
| (dollar amounts in thousands) |
| ||||||||||||||||
Fair value |
| $ | 374,790 |
| $ | 368,102 |
| $ | 364,757 |
| $ | 358,069 |
| $ | 354,725 |
| $ | 348,036 |
|
Change in fair value: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
| $ | 13,377 |
| $ | 6,688 |
| $ | 3,344 |
| $ | (3,344) |
| $ | (6,688) |
| $ | (13,377) |
|
% |
|
| 3.70 | % |
| 1.85 | % |
| 0.93 | % |
| (0.93) | % |
| (1.85) | % |
| (3.70) | % |
The following tables summarize the estimated change in fair value of purchased MSRs backed by distressed mortgage loans accounted for using the fair value method as of March 31, 2014, given several shifts in pricing spreads, prepayment speed and annual per-loan cost of servicing:
Pricing spread shift in % |
| -20% |
| -10% |
| -5% |
| +5% |
| +10% |
| +20% |
| ||||||
|
| (dollar amounts in thousands) |
| ||||||||||||||||
Fair value |
| $ | 11,911 |
| $ | 11,382 |
| $ | 11,134 |
| $ | 10,667 |
| $ | 10,447 |
| $ | 10,032 |
|
Change in fair value: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
$ |
| $ | 1,015 |
| $ | 486 |
| $ | 238 |
| $ | (229 | ) | $ | (449 | ) | $ | (864 | ) |
% |
| 9.32 | % | 4.46 | % | 2.19 | % | -2.10 | % | -4.12 | % | -7.93 | % |
Prepayment speed shift in % |
| -20% |
| -10% |
| -5% |
| +5% |
| +10% |
| +20% |
| ||||||
|
| (dollar amounts in thousands) |
| ||||||||||||||||
Fair value |
| $ | 12,025 |
| $ | 11,446 |
| $ | 11,166 |
| $ | 10,638 |
| $ | 10,384 |
| $ | 9,896 |
|
Change in fair value: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
$ |
| $ | 1,129 |
| $ | 550 |
| $ | 271 |
| $ | (258 | ) | $ | (511 | ) | $ | (1,000 | ) |
% |
| 10.36 | % | 5.05 | % | 2.48 | % | -2.37 | % | -4.69 | % | -9.17 | % |
Per-loan servicing cost shift in % |
| -20% |
| -10% |
| -5% |
| +5% |
| +10% |
| +20% |
| ||||||
|
| (dollar amounts in thousands) |
| ||||||||||||||||
Fair value |
| $ | 11,738 |
| $ | 11,317 |
| $ | 11,106 |
| $ | 10,685 |
| $ | 10,475 |
| $ | 10,053 |
|
Change in fair value: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
$ |
| $ | 842 |
| $ | 421 |
| $ | 211 |
| $ | (211 | ) | $ | (421 | ) | $ | (842 | ) |
% |
| 7.73 | % | 3.87 | % | 1.93 | % | -1.93 | % | -3.87 | % | -7.73 | % |
Excess Servicing Spread Financing
The following tables summarize the estimated change in fair value of our ESSexcess servicing spread financing accounted for using the fair value method as of March 31, 2014,2015, given several shifts in pricing spreads and prepayment speed:
Pricing spread shift in % |
| -20% |
| -10% |
| -5% |
| +5% |
| +10% |
| +20% |
| ||||||
|
| (dollar amounts in thousands) |
| ||||||||||||||||
Fair value |
| $ | 157,790 |
| $ | 154,328 |
| $ | 152,655 |
| $ | 149,418 |
| $ | 147,851 |
| $ | 144,816 |
|
Change in fair value: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
$ |
| $ | 6,771 |
| $ | 3,310 |
| $ | 1,637 |
| $ | (1,601 | ) | $ | (3,168 | ) | $ | (6,203 | ) |
% |
| 4.48 | % | 2.19 | % | 1.08 | % | -1.06 | % | -2.10 | % | -4.11 | % |
Prepayment speed shift in % |
| -20% |
| -10% |
| -5% |
| +5% |
| +10% |
| +20% |
| ||||||
|
| (dollar amounts in thousands) |
| ||||||||||||||||
Fair value |
| $ | 166,185 |
| $ | 158,292 |
| $ | 154,582 |
| $ | 147,594 |
| $ | 144,300 |
| $ | 138,079 |
|
Change in fair value: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
$ |
| $ | 15,166 |
| $ | 7,273 |
| $ | 3,563 |
| $ | (3,425 | ) | $ | (6,718 | ) | $ | (12,940 | ) |
% |
| 10.04 | % | 4.82 | % | 2.36 | % | -2.27 | % | -4.45 | % | -8.57 | % |
Factors That May Affect Our Future Resultsspeed (decrease in the liabilities’ values increases net income):
This 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pricing spread shift in % |
| -20% |
| -10% |
| -5% |
| +5% |
| +10% |
| +20% |
| ||||||
|
| (dollar amounts in thousands) |
| ||||||||||||||||
Fair value |
| $ | 233,489 |
| $ | 227,762 |
| $ | 225,003 |
| $ | 219,680 |
| $ | 217,113 |
| $ | 212,156 |
|
Change in fair value: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
| $ | 11,180 |
| $ | 5,453 |
| $ | 2,693 |
| $ | (2,629) |
| $ | (5,196) |
| $ | (10,153) |
|
% |
|
| 5.03 | % |
| 2.45 | % |
| 1.21 | % |
| (1.18) | % |
| (2.34) | % |
| (4.57) | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepayment speed shift in % |
| -20% |
| -10% |
| -5% |
| +5% |
| +10% |
| +20% |
| ||||||
|
| (dollar amounts in thousands) |
| ||||||||||||||||
Fair value |
| $ | 246,010 |
| $ | 233,630 |
| $ | 227,846 |
| $ | 217,006 |
| $ | 211,922 |
| $ | 202,363 |
|
Change in fair value: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
| $ | 23,700 |
| $ | 11,320 |
| $ | 5,536 |
| $ | (5,303) |
| $ | (10,387) |
| $ | (19,947) |
|
% |
|
| 10.66 | % |
| 5.09 | % |
| 2.49 | % |
| (2.39) | % |
| (4.67) | % |
| (8.97) | % |
·Projections of our revenues, income, earnings per share, capital structure or other financial items;
64
·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 as set forth in Item IA. of Part II hereof and the section entitled “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2013, filed with the SEC on March 14, 2014 .
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 creation of the Consumer Financial Protection Bureau (“CFPB”), its recently effective and future rules and the enforcement thereof by the CFPB;
·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 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 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 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 our Advised Entities;
·The potential damage to our reputation and adverse impact to our business resulting from the ongoing negative publicity focused on Countrywide Financial Corporation, given the former association of certain of our officers with that entity; and
·Our recent rapid growth.
Item 3. Quantitative and Qualitative Disclosures About Market RiskRisk
In response to this Item 3, the information set forth on pages 5963 to 6164 of this Report is incorporated herein by reference.
Item 4. Controls and ProceduresProcedures
Disclosure Controls and Procedures
Under the supervision and with the participation of management, we evaluated the effectiveness of the design and operation of ourWe maintain disclosure controls and procedures asthat are designed to ensure that information required by Rules 13a-15 and 15d-15to be disclosed in our reports filed under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures. However, no matter how well a control system is designed and operated, it can provide only reasonable, not absolute, assurance that it will detect or uncover failures within the Company to disclose material information otherwise required to be set forth in our periodic reports.
Our management has conducted an evaluation, with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures as of March 31, 2014.the end of the period covered by this Report as required by paragraph (b) of Rule 13a-15 under the Exchange Act. Based uponon our evaluation, theour Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective, as of March 31, 2014,the end of the period covered by this Report, to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the applicable rules and forms, and that it is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. No matter how well a control system is designed and operated, it can provide only reasonable, not absolute, assurance that it will detect or uncover control issues and instances of fraud, if any, within the Company to disclose material information otherwise required to be set forth
Internal Control over Financial Reporting
There has been no change in our periodic reports.internal control over financial reporting during the quarter ended March 31, 2015 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
65
From time to time, we may be involved in various legal proceedings, claims and actions arising in the ordinary course of business. As of March 31, 2014,2015, we were not involved in any such legal proceedings, claims or actions that management believes would be reasonably likely to have a material adverse effect on us.
There are no material changes from the risk factors set forth under Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2013,2014, filed with the SEC on March 14, 2014.13, 2015.
Item 2. Unregistered Sales of Equity Securities and Use of ProceedsProceeds
None.
Item 3. Defaults Upon Senior SecuritiesSecurities
None.
Item 4. Mine Safety DisclosuresDisclosures
Not applicable.
Item 5. Other InformationInformation
None.
66
| ||
Exhibit | Exhibit Description | |
3.1 |
| Amended and Restated Certificate of Incorporation of PennyMac Financial Services, Inc. (incorporated by reference to Exhibit 3.1 of the Registrant’s Current Report on Form 8-K as filed with the SEC on May 14, 2013). |
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3.2 |
| Amended and Restated Bylaws of PennyMac Financial Services, Inc. (incorporated by reference to Exhibit 3.1 of the Registrant’s Current Report on Form 8-K as filed with the SEC on August 19, 2013). |
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4.1 |
| Specimen Class A Common Stock Certificate (incorporated by reference to Exhibit 4.1 of the Registrant’s Amendment No. 4 to Form S-1 Registration Statement as filed with the SEC on April 29, 2013). |
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10.1 |
| Fourth Amended and Restated Limited Liability Company Agreement of Private National Mortgage Acceptance Company, LLC, dated as of May 8, 2013 (incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K as filed with the SEC on May 14, 2013). |
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10.2 |
| Exchange Agreement, dated as of May 8, 2013, between PennyMac Financial Services, Inc. and Private National Mortgage Acceptance Company, LLC and the Company Unitholders (incorporated by reference to Exhibit 10.2 of the Registrant’s Current Report on Form 8-K as filed with the SEC on May 14, 2013). |
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10.3 |
| Tax Receivable Agreement, dated as of May 8, 2013, between PennyMac Financial Services, Inc. Private National Mortgage Acceptance Company, LLC and each of the Members (incorporated by reference to Exhibit 10.3 of the Registrant’s Current Report on Form 8-K as filed with the SEC on May 14, 2013). |
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10.4 |
| Registration Rights Agreement, dated as of May 8, 2013, between PennyMac Financial Services, Inc. and the Holders (incorporated by reference to Exhibit 10.4 of the Registrant’s Current Report on Form 8-K as filed with the SEC on May 14, 2013). |
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10.5 |
| Stockholder Agreement, dated as of May 8, 2013, between PennyMac Financial Services, Inc. and BlackRock Mortgage Ventures, LLC (incorporated by reference to Exhibit 10.5 of the Registrant’s Current Report on Form 8-K as filed with the SEC on May 14, 2013). |
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10.6 |
| Stockholder Agreement, dated as of May 8, 2013, between PennyMac Financial Services, Inc. and HC Partners LLC (incorporated by reference to Exhibit 10.6 of the Registrant’s Current Report on Form 8-K as filed with the SEC on May 14, 2013). |
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10.7† |
| PennyMac Financial Services, Inc. 2013 Equity Incentive Plan (incorporated by reference to Exhibit 99.1 of the Registrant’s Current Report on Form 8-K as filed with the SEC on May 14, 2013). |
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|
10.8† |
| PennyMac Financial Services, Inc. 2013 Equity Incentive Plan Form of Restricted Stock Unit Award Agreement for Non-Employee Directors (incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K as filed with the SEC on May 16, 2013). |
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|
10.9† |
| PennyMac Financial Services, Inc. 2013 Equity Incentive Plan Form of Restricted Stock Unit Award Agreement for Executive |
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|
10.10† |
| PennyMac Financial Services, Inc. 2013 Equity Incentive Plan Form of Restricted Stock Unit Award Agreement for Other Eligible |
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|
10.11† | [Reserved] | |
67
10.12† |
| PennyMac Financial Services, Inc. 2013 Equity Incentive Plan Form of Stock Option Award Agreement (incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K as filed with the SEC on June 17, 2013). |
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| Form of PennyMac Financial Services, Inc. Indemnification Agreement (incorporated by reference to Exhibit 10.8 of the Registrant’s Amendment No. 2 to Form S-1 Registration Statement as filed with the SEC on April 5, 2013). |
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| Employment Agreement, dated as of April 20, 2013, by and among Private National Mortgage Acceptance Company, LLC, PennyMac Financial Services, Inc. and Stanford L. Kurland (incorporated by reference to Exhibit 10.34 of the Registrant’s Amendment No. 3 to Form S-1 Registration Statement as filed with the SEC on April 22, 2013). |
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|
| Employment Agreement, dated as of April 20, 2013, by and among Private National Mortgage Acceptance Company, LLC, PennyMac Financial Services, Inc. and David A. Spector (incorporated by reference to Exhibit 10.35 of the Registrant’s |
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| |
Amendment No. 3 to Form S-1 Registration Statement as filed with the SEC on April 22, 2013). | ||
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| Mortgage Banking and Warehouse Services Agreement, effective as of February 1, 2013, by and between PennyMac Loan Services, LLC and PennyMac Corp. (incorporated by reference to Exhibit 10.9 of the Registrant’s Form S-1 Registration Statement as filed with the SEC on February 7, 2013). |
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| Amendment No. 1 to Mortgage Banking and Warehouse Services Agreement, dated as of March 1, 2013, by and between PennyMac Loan Services LLC and PennyMac Corp. (incorporated by reference to Exhibit 10.31 of the Registrant’s Amendment No. 1 to Form S-1 Registration Statement as filed with the SEC on March 26, 2013). |
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| Amendment No. 2 to Mortgage Banking and Warehouse Services Agreement, dated as of August 14, 2013, by and between PennyMac Loan Services, LLC and PennyMac Corp. (incorporated by reference to Exhibit 1.1 of the Registrant’s Current Report on Form 8-K as filed with the SEC on August 19, |
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10.19 |
| Second Amended and Restated Flow Servicing Agreement, dated as of March 1, 2013, by and between PennyMac Operating Partnership, L.P. and PennyMac Loan Services, LLC (incorporated by reference to Exhibit 10.30 of the Registrant’s Amendment No. 1 to Form S-1 Registration Statement as filed with the SEC on March 26, 2013). |
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10.20 |
| Amendment No. 1 to Second Amended and Restated Flow Servicing Agreement, dated as of November 14, 2013, by and between PennyMac Operating Partnership, L.P. and PennyMac Loan Services, LLC (incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K as filed with the SEC on November 20, 2013). |
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10.21 |
| Amendment No. 2 to Second Amended and Restated Flow Servicing Agreement, dated as of June 1, 2014, by and between PennyMac Operating Partnership, L.P. and PennyMac Loan Services, LLC (incorporated by reference to Exhibit 10.21 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2014). |
10.22 | Amendment No. 3 to Second Amended and Restated Flow Servicing Agreement, dated as of December 11, 2014, by and between PennyMac Operating Partnership, L.P. and PennyMac Loan Services, LLC (incorporated by reference to Exhibit 10.22 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2014). | |
68
10.23 | Amendment No. 4 to Second Amended and Restated Flow Servicing Agreement, dated as of March 31, 2015, by and between PennyMac Operating Partnership, L.P. and PennyMac Loan Services, LLC. | |
10.24 | MSR Recapture Agreement, effective as of February 1, 2013, by and between PennyMac Loan Services, LLC and PennyMac Corp. (incorporated by reference to Exhibit 10.11 of the Registrant’s Form S-1 Registration Statement as filed with the SEC on February 7, 2013). | |
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| Amendment No. 1 to MSR Recapture Agreement, dated as of August 1, 2013, by and between PennyMac Loan Services, LLC and PennyMac Corp. (incorporated by reference to Exhibit 10.21 of the Registrant’s Form S-1 Registration Statement as filed with the SEC on October 1, 2013). |
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| Amended and Restated Management Agreement, dated as of February 1, 2013, by and among PennyMac Mortgage Investment Trust, PennyMac Operating Partnership, L.P. and PNMAC Capital Management, LLC (incorporated by reference to Exhibit 10.12 of the Registrant’s Form S-1 Registration Statement as filed with the SEC on February 7, 2013). |
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| Amended and Restated Underwriting Fee Reimbursement Agreement, dated as of February 1, 2013, by and among PennyMac Mortgage Investment Trust, PennyMac Operating Partnership, L.P. and PNMAC Capital Management, LLC (incorporated by reference to Exhibit 10.13 of the Registrant’s Form S-1 Registration Statement as filed with the SEC on February 7, 2013). |
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| Master Spread Acquisition and MSR Servicing Agreement, by and between PennyMac Loan Services, LLC and PennyMac Operating Partnership, L.P., dated as of February 1, 2013 (incorporated by reference to Exhibit 10.26 of the Registrant’s Form S-1 Registration Statement as filed with the SEC on February 7, 2013). |
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| Amendment No. 1 to Master Spread Acquisition and MSR Servicing Agreement, by and between PennyMac Loan Services, LLC and PennyMac Operating Partnership, L.P., dated as of September 30, 2013 (incorporated by reference to Exhibit 10.25 of the Registrant’s Form S-1/A Registration Statement as filed with the SEC on October 23, 2013). |
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| Amendment No. 2 to Master Spread Acquisition and MSR Servicing Agreement, dated as of November 14, 2013, by and between PennyMac Loan Services, LLC and PennyMac Operating Partnership, L.P. (incorporated by reference to Exhibit 10.27 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2013). |
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| Amendment No. 3 to Master Spread Acquisition and MSR Servicing Agreement, dated as of March 19, 2014, by and between PennyMac Loan Services, LLC and PennyMac Operating Partnership, L.P. (incorporated by reference to Exhibit 10.28 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2014). |
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| Amendment No. 4 to Master Spread Acquisition and MSR Servicing Agreement, dated as of March 3, 2015, by and between PennyMac Loan Services, LLC and PennyMac Operating Partnership, L.P. | |
10.33 |
| Master Spread Acquisition and MSR Servicing Agreement, by and between PennyMac Loan Services, LLC and PennyMac Holdings, LLC dated as of December 30, 2013 (incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K/A as filed with the SEC on March 21, 2014). |
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69
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10.35 | Amendment No. 2 to Master Spread Acquisition and MSR Servicing Agreement, dated as | |
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| Amended and Restated Master Spread Acquisition and MSR Servicing Agreement, dated as of April 30, 2015, by and between PennyMac Loan Services, LLC and PennyMac Holdings, LLC (incorporated by reference to Exhibit 10.2 of the Registrant’s Current Report on Form 8-K as filed with the SEC on May 6, 2015). | |
10.37 | Master Spread Acquisition and MSR Servicing Agreement, dated as of December 19, 2014, among PennyMac Loan Services, LLC, PennyMac Operating Partnership, L.P., and PennyMac Holdings, LLC (incorporated by reference to Exhibit 1.01 of the Registrant’s Current Report on Form 8-K as filed with the SEC on December 24, 2014). | |
10.38 | Amendment No. 1 to Master Spread Acquisition and MSR Servicing Agreement, dated as of March 3, 2015, among PennyMac Loan Services, LLC, PennyMac Operating Partnership, L.P., and PennyMac Holdings, LLC. | |
10.39 |
| Amended and Restated Confidentiality Agreement, dated as of March 1, 2013, by and between PennyMac Mortgage Investment Trust and Private National Mortgage Acceptance Company, LLC (incorporated by reference to Exhibit 10.29 of the Registrant’s Amendment No. 1 to Form S-1 Registration Statement as filed with the SEC on March 26, 2013). |
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| Amended and Restated Flow Servicing Agreement, by and between PNMAC Mortgage Co., LLC and PennyMac Loan Services, LLC, dated August 1, 2010 (incorporated by reference to Exhibit 10.14 of the Registrant’s Amendment No. 1 to Form S-1 Registration Statement as filed with the SEC on March 26, 2013). |
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| Second Amended and Restated Flow Servicing Agreement, dated as of August 1, 2008, as amended effective as of January 1, 2012, by and between PNMAC Mortgage Opportunity Fund Investors, LLC and PennyMac Loan Services, LLC (incorporated by reference to Exhibit 10.15 of the Registrant’s Form S-1 Registration Statement as filed with the SEC on February 7, 2013). |
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| Amended and Restated Flow Servicing Agreement, dated as of August 1, 2010, by and between PNMAC Mortgage Opportunity Fund, LP and PennyMac Loan Services, LLC (incorporated by reference to Exhibit 10.27 of the Registrant’s Amendment No. 1 to Form S-1 Registration Statement as filed with the SEC on March 26, 2013). |
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| Investment Management Agreement, as amended and restated May 26, 2011, by and between PNMAC Mortgage Opportunity Fund, L.P. and PNMAC Capital Management, LLC (incorporated by reference to Exhibit 10.16 of the Registrant’s Form S-1 Registration Statement as filed with the SEC on February 7, 2013). |
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| Investment Management Agreement, dated as of August 1, 2008, between PNMAC Mortgage Opportunity Fund Investors, LLC and PNMAC Capital Management, LLC (incorporated by reference to Exhibit 10.17 of the Registrant’s Form S-1 Registration Statement as filed with the SEC on February 7, 2013). |
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| Master Repurchase Agreement, dated as of March 17, 2011, by and among Bank of America, N.A., PennyMac Loan Services, LLC and Private National Mortgage Acceptance Company, LLC (incorporated by reference to Exhibit 10.18 of the Registrant’s Form S-1 Registration Statement as filed with the SEC on February 7, 2013). |
70
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| Amendment No. 1 to Master Repurchase Agreement, dated as of July 21, 2011, by and among Bank of America, N.A., PennyMac Loan Services, LLC and Private National Mortgage Acceptance Company, LLC (incorporated by reference to Exhibits 10.19 of the Registrant’s Amendment No. 3 to Form S-1 Registration Statement as filed with the SEC on April 22, 2013). |
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| Amendment No. 2 to Master Repurchase Agreement, dated as of March 23, 2012, by and among Bank of America, N.A., PennyMac Loan Services, LLC and Private National Mortgage Acceptance Company, LLC (incorporated by reference to Exhibits 10.19 of the Registrant’s Amendment No. 3 to Form S-1 Registration Statement as filed with the SEC on April 22, 2013). |
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| Amendment No. 3 to Master Repurchase Agreement, dated as of August 28, 2012, by and among Bank of America, N.A., PennyMac Loan Services, LLC and Private National Mortgage Acceptance Company, LLC (incorporated by reference to Exhibits 10.19 of the Registrant’s Amendment No. 3 to Form S-1 Registration Statement as filed with the SEC on April 22, 2013). |
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| Amendment No. 4 to Master Repurchase Agreement, dated as of January 3, 2013, by and among Bank of America, N.A., PennyMac Loan Services, LLC and Private National Mortgage Acceptance Company, LLC (incorporated by reference to Exhibits 10.19 of the Registrant’s Amendment No. 3 to Form S-1 Registration Statement as filed with the SEC on April 22, 2013). |
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| Amendment No. 5 to Master Repurchase Agreement, dated as of March 28, 2013, by and among Bank of America, N.A., PennyMac Loan Services, LLC and Private National Mortgage Acceptance Company, LLC (incorporated by reference to Exhibits 10.19 of the Registrant’s Amendment No. 3 to Form S-1 Registration Statement as filed with the SEC on April 22, 2013). |
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| Amendment No. 6 to Master Repurchase Agreement, dated as of January 31, 2014, by and among Bank of America, N.A., PennyMac Loan Services, LLC and Private National Mortgage Acceptance Company, LLC (incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K as filed with the SEC on February 6, 2014). |
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| Amendment No. 7 to Master Repurchase Agreement, dated as of March 27, 2014, by and among Bank of America, N.A., PennyMac Loan Services, LLC and Private National Mortgage Acceptance Company, |
10.53 | Amendment No. 8 to Master Repurchase Agreement, dated as of August 13, 2014, by and among Bank of America, N.A., PennyMac Loan Services, LLC and Private National Mortgage Acceptance Company, LLC (incorporated by reference to Exhibit 10.48 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2014). | |
10.54 | Amendment No. 9 to Master Repurchase Agreement, dated as of January 30, 2015, by and among Bank of America, N.A., PennyMac Loan Services, LLC and Private National Mortgage Acceptance Company, LLC (incorporated by reference to Exhibit 10.49 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2014). | |
10.55 | Guaranty, dated as of March 17, 2011, by Private National Mortgage Company, LLC in favor of Bank of America, N.A (incorporated by reference to Exhibit 10.50 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2014). | |
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| Master Repurchase Agreement, dated as of June 26, 2012, by and between PennyMac Loan Services, LLC and Citibank, N.A. (incorporated by reference to Exhibit 10.20 of the Registrant’s Form S-1 Registration Statement as filed with the SEC on February 7, 2013). |
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| Amendment Number One to the Master Repurchase Agreement, dated as of December 31, 2012, by and between PennyMac Loan Services, LLC and Citibank, N.A. (incorporated by reference to Exhibit 10.21 of the Registrant’s Form S-1 Registration Statement as filed with the SEC on February 7, 2013). |
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| Amendment Number Two to the Master Repurchase Agreement, dated April 17, 2013, by and between PennyMac Loan Services, LLC and Citibank, N.A. (incorporated by reference to Exhibit 10.40 of the Registrant’s Form S-1 Registration Statement as filed with the SEC on October 1, 2013). |
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| Amendment Number Three to the Master Repurchase Agreement, dated June 25, 2013, by and between PennyMac Loan Services, LLC and Citibank, N.A. (incorporated by reference to Exhibit 10.41 of the Registrant’s Form S-1 Registration Statement as filed with the SEC on October 1, 2013). |
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| Amendment Number Four to the Master Repurchase Agreement, dated July 25, 2013, by and between PennyMac Loan Services, LLC and Citibank, N.A. (incorporated by reference to Exhibit 10.42 of the Registrant’s Form S-1 Registration Statement as filed with the SEC on October 1, 2013). |
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| Amendment Number Five to the Master Repurchase Agreement, dated February 5, 2014, by and between PennyMac Loan Services, LLC and Citibank, N.A. (incorporated by reference to Exhibit 10.50 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2014). |
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| Amendment Number Six to the Master Repurchase Agreement, dated February 25, 2014, by and between PennyMac Loan Services, LLC and Citibank, N.A. (incorporated by reference to Exhibit 10.51 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2014). |
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| Amendment Number Seven to the Master Repurchase Agreement, dated July 24, 2014, by and between PennyMac Loan Services, LLC and Citibank, N.A. (incorporated by reference to Exhibit 10.54 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2014). | |
10.64 | Amendment Number Eight to the Master Repurchase Agreement, dated August 7, 2014, by and between PennyMac Loan Services, LLC and Citibank, N.A. (incorporated by reference to Exhibit 10.55 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2014). | |
10.65 | Amendment Number Nine to the Master Repurchase Agreement, dated September 8, 2014, by and between PennyMac Loan Services, LLC and Citibank, N.A. (incorporated by reference to Exhibit 10.58 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2014). | |
10.66 | Guaranty Agreement, dated as of June 26, 2012, by Private National Mortgage Acceptance Company, LLC in favor of Citibank, N.A (incorporated by reference to Exhibit 10.61 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2014). | |
10.67 |
| Second Amended and Restated Loan and Security Agreement, dated as of March 27, 2012, among Credit Suisse First Boston Mortgage Capital LLC, PennyMac Loan Services, LLC and Private National Mortgage Acceptance Company, LLC (incorporated by reference to Exhibit 10.22 of the Registrant’s Form S-1 Registration Statement as filed with the SEC on February 7, 2013). |
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72
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| Amendment No. 1 to Second Amended and Restated Loan Security Agreement, dated as of December 12, 2012, among Credit Suisse First Boston Mortgage Capital LLC, PennyMac Loan Services, LLC and Private National Mortgage Acceptance Company, LLC (incorporated by reference to Exhibit 10.23 of the Registrant’s Amendment No. 3 to Form S-1 Registration Statement as filed with the SEC on April 22, 2013). |
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| Amendment No. 2 to Second Amended and Restated Loan Security Agreement, dated as of March 22, 2013, among Credit Suisse First Boston Mortgage Capital LLC, PennyMac Loan Services, LLC and Private National Mortgage Acceptance Company, LLC (incorporated by reference to Exhibit 10.23 of the Registrant’s Amendment No. 3 to Form S-1 Registration Statement as filed with the SEC on April 22, 2013). |
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| Amendment No. 3 to Second Amended and Restated Loan Security Agreement, dated as of December 30, 2013, among Credit Suisse First Boston Mortgage Capital LLC, PennyMac Loan Services, LLC and Private National Mortgage Acceptance Company, LLC (incorporated by reference to Exhibit 10.2 of the Registrant’s Current Report on Form 8-K as filed with the SEC on January 3, 2014). |
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| Amendment No. 4 to Second Amended and Restated Loan Security Agreement, dated as of October 31, 2014 among Credit Suisse First Boston Mortgage Capital LLC, PennyMac Loan Services, LLC and Private National Mortgage Acceptance Company, LLC (incorporated by reference to Exhibit 10.66 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2014). | |
10.72 | Third Amended and Restated Loan and Security Agreement, dated as of March 27, 2015, among Credit Suisse First Boston Mortgage Capital LLC and PennyMac Loan Services, LLC (incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K as filed with the SEC on April 2, 2015). | |
10.73 | Master Spread Participation Agreement, dated as of March 27, 2015, by and among PennyMac Loan Services, LLC and PennyMac Loan Services, LLC. | |
10.74 | Loan and Security Agreement, dated as of April 30, 2015, among PennyMac Loan Services, LLC and PennyMac Holdings, LLC (incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K as filed with the SEC on May 6, 2015). | |
10.75 | Amended and Restated Guaranty, dated as of March 27, 2012, by Private National Mortgage Acceptance Company, LLC in favor of Credit Suisse AG, New York Branch (incorporated by reference to Exhibit 10.67 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2014). | |
10.76 | Second Amended and Restated Guaranty, dated as of March 27, 2015, by Private National Mortgage Acceptance Company, LLC in favor of Credit Suisse First Boston Mortgage Capital LLC (incorporated by reference to Exhibit 10.2 of the Registrant’s Current Report on Form 8-K as filed with the SEC on April 2, 2015). | |
10.77 |
| Amended and Restated Master Repurchase Agreement, dated as of May 3, 2013, by and among Credit Suisse First Boston Mortgage Capital LLC, PennyMac Loan Services, LLC and Private National Mortgage Acceptance Company, LLC (incorporated by reference to Exhibit 10.36 of the Registrant’s Amendment No. 5 to Form S-1 Registration Statement as filed with the SEC on May 7, 2013). |
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| Amendment No. 1 to Amended and Restated Master Repurchase Agreement, dated as of September 5, 2013, by and among Credit Suisse First Boston Mortgage Capital LLC, PennyMac Loan Services, LLC and Private National Mortgage Acceptance Company, LLC (incorporated by reference to Exhibit 10.47 of the Registrant’s Form S-1 Registration Statement as filed with the SEC on October 1, 2013). |
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| Amendment No. 2 to Amended and Restated Master Repurchase Agreement, dated as of January 10, 2014, by and among Credit Suisse First Boston Mortgage Capital LLC, PennyMac Loan Services, LLC and Private National Mortgage Acceptance Company, |
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| Amendment No. 3 to Amended and Restated Master Repurchase Agreement, dated as of March 13, 2014, by and among Credit Suisse First Boston Mortgage Capital LLC, PennyMac Loan Services, LLC and Private National Mortgage Acceptance Company, |
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10.81 |
| Amendment No. 4 to Amended and Restated Master Repurchase Agreement, dated as of April 30, 2014, by and among Credit Suisse First Boston Mortgage Capital LLC, PennyMac Loan Services, LLC and Private National Mortgage Acceptance Company, LLC (incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K as filed with the SEC on May 5, 2014). |
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| Amendment No. 5 to Amended and Restated Master Repurchase Agreement, dated as of May 22, 2014, by and among Credit Suisse First Boston Mortgage Capital LLC, PennyMac Loan Services, LLC and Private National Mortgage Acceptance Company, LLC (incorporated by reference to Exhibit 10.65 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2014). | |
10.83 | Amendment No. 6 to Amended and Restated Master Repurchase Agreement, dated as of June 3, 2014, by and among Credit Suisse First Boston Mortgage Capital LLC, PennyMac Loan Services, LLC and Private National Mortgage Acceptance Company, LLC (incorporated by reference to Exhibit 10.66 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2014). | |
10.84 | Amendment No. 7 to Amended and Restated Master Repurchase Agreement, dated as of October 31, 2014, by and among Credit Suisse First Boston Mortgage Capital LLC, PennyMac Loan Services, LLC and Private National Mortgage Acceptance Company, LLC (incorporated by reference to Exhibit 10.75 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2014). | |
10.85 | Amendment No. 8 to Amended and Restated Master Repurchase Agreement, dated as of December 23, 2014, by and among Credit Suisse First Boston Mortgage Capital LLC, PennyMac Loan Services, LLC and Private National Mortgage Acceptance Company, LLC (incorporated by reference to Exhibit 10.76 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2014). | |
10.86 | Guaranty, dated as of August 14, 2009, by Private National Mortgage Acceptance Company, LLC in favor of Credit Suisse First Boston Mortgage Capital LLC (incorporated by reference to Exhibit 10.77 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2014). | |
10.87 |
| Master Repurchase Agreement, dated as of July 2, 2013, by and between PennyMac Loan Services, LLC and Morgan Stanley Bank, N.A. (incorporated by reference to Exhibit 1.1 of the Registrant’s Current Report on Form 8-K as filed with the SEC on July 8, 2013). |
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| Amendment Number One to the Master Repurchase Agreement, dated as of August 26, 2013, by and between PennyMac Loan Services, LLC and Morgan Stanley Bank, N.A. (incorporated by reference to Exhibit 10.49 of the Registrant’s Form S-1 Registration Statement as filed with the SEC on October 1, 2013). |
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| Amendment Number Two to the Master Repurchase Agreement, dated as of January 28, 2014, by and between PennyMac Loan Services, LLC and Morgan Stanley Bank, N.A. (incorporated by reference to Exhibit 10.63 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2014). |
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10.90 | Amendment Number Three to the Master Repurchase Agreement, dated as of June 30, 2014, by and between PennyMac Loan Services, LLC and Morgan Stanley Bank, N.A. (incorporated by reference to Exhibit 10.70 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2014). | |
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| Guaranty Agreement, dated as of July 2, 2013, by Private National Mortgage Acceptance Company, LLC in favor of Morgan Stanley Bank, N.A. (incorporated by reference to Exhibit 1.2 of the Registrant’s Current Report on Form 8-K as filed with the SEC on July 8, 2013). |
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10.94 | Amended and Restated Guaranty, dated as of August 13, 2014, by Private National Mortgage Acceptance Company, LLC in favor of Bank of America, N.A. (incorporated by reference to Exhibit 10.73 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, | |
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31.1 |
| Certification of Stanford L. Kurland pursuant to Rule 13a-14(a), as adopted pursuant to Section 302 of the |
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31.2 |
| Certification of Anne D. McCallion pursuant to Rule 13a-14(a), as adopted pursuant to Section 302 of the |
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32.1* |
| Certification of Stanford L. Kurland pursuant to Rule 13a-14(b) and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
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32.2* |
| Certification of Anne D. McCallion pursuant to Rule 13a-14(b) and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
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| Interactive data files pursuant to Rule 405 of Regulation S-T: (i) the Consolidated Balance Sheets as of March 31, |
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| The certifications attached hereto as Exhibits 32.1 and 32.2 are furnished to the SEC pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, nor shall | ||
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† |
| Indicates management contract or compensatory plan or arrangement. |
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Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.