UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-Q
(Mark One)
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 20172018
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.) |
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3043 Townsgate Road, Westlake Village, California |
| 91361 |
(Address of principal executive offices) |
| (Zip Code) |
(818) 224-7442
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer ☐ |
| Accelerated filer ☒ |
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Non-accelerated filer ☐ (Do not check if a smaller reporting company) |
| Smaller reporting company ☐ |
Emerging growth company ☐ |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ◻
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.
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Class |
| Outstanding at May |
Class A Common Stock, $0.0001 par value |
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Class B Common Stock, $0.0001 par value |
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PENNYMAC FINANCIAL SERVICES, INC.
FORM 10-Q
March 31, 20172018
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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, 2016,2017, filed with the Securities and Exchange Commission (“SEC”) on March 9, 2017.2018.
Factors that could cause actual results to differ materially from historical results or those anticipated include, but are not limited to:
· | the continually changing federal, state and local laws and regulations applicable to the highly regulated industry in which we operate; |
· | lawsuits or governmental actions if we do not comply with the laws and regulations applicable to our businesses; |
· | the mortgage lending and servicing-related regulations promulgated by the Consumer Financial Protection Bureau (“CFPB”) and its enforcement of these regulations; |
· | our dependence on U.S. |
· | changes to government mortgage modification programs; |
· | certain banking regulations that may limit our business activities; |
· | foreclosure delays and changes in foreclosure practices; |
· | the licensing and operational requirements of states and other jurisdictions applicable to our businesses, to which our bank competitors are not subject; |
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· | 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; |
3
· | any required additional capital and liquidity to support business growth that may not be available on acceptable terms, if at all; |
· | changes in prevailing interest rates; |
· | increases in loan delinquencies and defaults; |
· | our dependence on the success of the |
· | our reliance on PennyMac Mortgage Investment Trust (“PMT”) as a significant source of financing for, and revenue related to, our mortgage banking business; |
· | our obligation to indemnify |
· | our ability to realize the anticipated benefit of potential future acquisitions of mortgage servicing rights (“MSRs”); |
· | our obligation to indemnify PMT and |
· | decreases in the returns on the assets that we select and manage for our clients, and our resulting management and incentive fees; |
· | the extensive amount of regulation applicable to our investment management segment; |
· | conflicts of interest in allocating our services and investment opportunities among ourselves and |
· | 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; |
· | our ability to mitigate cybersecurity risks and cyber |
· | our exposure to risks of loss resulting from adverse weather conditions and man-made or natural disasters; and |
· | our organizational structure and certain requirements in our charter documents. |
Other factors that could also cause results to differ from our expectations may not be described in this Report or any other document. Each of these factors could by itself, or together with one or more other factors, adversely affect our business, results of operations and/or financial condition.
Forward-looking statements speak only as of the date they are made, and we undertake no obligation to update any forward-looking statement to reflect the impact of circumstances or events that arise after the date the forward-looking statement was made.
4
PENNYMAC FINANCIAL SERVICES, INC.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
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| March 31, |
| December 31, |
| March 31, |
| December 31, |
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| 2017 |
| 2016 |
| 2018 |
| 2017 |
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| (in thousands, except share amounts) |
| (in thousands, except share amounts) |
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ASSETS |
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Cash (includes $60,835 and $91,788 pledged to creditors) |
| $ | 72,767 |
| $ | 99,367 | |||||||
Cash (includes $116,570 and $20,765 pledged to creditors) |
| $ | 137,863 |
| $ | 37,725 |
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Short-term investments at fair value |
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| 116,334 |
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| 85,964 |
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| 105,890 |
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| 170,080 |
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Mortgage loans held for sale at fair value (includes $2,252,717 and $2,125,174 pledged to creditors) |
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| 2,277,751 |
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| 2,172,815 | |||||||
Mortgage loans held for sale at fair value (includes $2,569,189 and $3,081,987 pledged to creditors) |
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| 2,584,236 |
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| 3,099,103 |
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Derivative assets |
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| 82,001 |
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| 82,905 |
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| 89,469 |
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| 78,179 |
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Servicing advances, net (includes valuation allowance of $46,804 and $45,425; $66,130 and $81,306 pledged to creditors) |
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| 317,513 |
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| 348,306 | |||||||
Servicing advances, net (includes valuation allowance of $61,670 and $59,958; $104,685 and $114,643 pledged to creditors) |
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| 284,145 |
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| 318,066 |
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Carried Interest due from Investment Funds pledged to creditors |
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| 70,778 |
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| 70,906 |
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| 538 |
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| 8,552 |
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Investment in PennyMac Mortgage Investment Trust at fair value |
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| 1,331 |
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| 1,228 |
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| 1,352 |
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| 1,205 |
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Mortgage servicing rights (includes $506,916 and $515,925 at fair value; $1,720,117 and $1,617,671 pledged to creditors) |
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| 1,725,061 |
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| 1,627,672 | |||||||
Mortgage servicing rights (includes $2,354,489 and $638,010 at fair value; $2,178,536 and $2,098,067 pledged to creditors) |
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| 2,354,489 |
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| 2,119,588 |
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Real estate acquired in settlement of loans |
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| 1,014 |
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| 1,418 |
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| 2,338 |
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| 2,447 |
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Furniture, fixtures, equipment and building improvements, net (includes $29,665 and $25,134 pledged to creditors) |
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| 31,568 |
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| 31,321 | |||||||
Capitalized software, net (includes $1,919 and $515 pledged to creditors) |
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| 15,453 |
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| 11,205 | |||||||
Furniture, fixtures, equipment and building improvements, net (includes $22,250 and $23,915 pledged to creditors) |
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| 30,172 |
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| 29,453 |
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Capitalized software, net (includes $1,457 and $1,568 pledged to creditors) |
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| 28,919 |
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| 25,729 |
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Assets purchased from PennyMac Mortgage Investment Trust under agreements to resell pledged to creditors |
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| 150,000 |
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| 150,000 |
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| 142,938 |
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| 144,128 |
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Receivable from PennyMac Mortgage Investment Trust |
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| 20,756 |
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| 16,416 |
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| 27,356 |
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| 27,119 |
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Receivable from Investment Funds |
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| 998 |
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| 1,219 |
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| 460 |
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| 417 |
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Mortgage loans eligible for repurchase |
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| 318,378 |
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| 382,268 |
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| 1,018,488 |
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| 1,208,195 |
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Other |
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| 49,674 |
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| 50,892 |
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| 94,238 |
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| 98,107 |
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Total assets |
| $ | 5,251,377 |
| $ | 5,133,902 |
| $ | 6,902,891 |
| $ | 7,368,093 |
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LIABILITIES |
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Assets sold under agreements to repurchase |
| $ | 2,034,808 |
| $ | 1,735,114 |
| $ | 1,814,282 |
| $ | 2,381,538 |
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Mortgage loan participation and sale agreements |
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| 241,638 |
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| 671,426 | |||||||
Mortgage loan participation purchase and sale agreements |
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| 510,443 |
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| 527,395 |
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Notes payable |
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| 436,725 |
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| 150,942 |
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| 1,140,022 |
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| 891,505 |
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Obligations under capital lease |
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| 31,178 |
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| 23,424 |
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| 16,435 |
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| 20,971 |
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Excess servicing spread financing payable to PennyMac Mortgage Investment Trust at fair value |
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| 277,484 |
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| 288,669 |
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| 236,002 |
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| 236,534 |
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Derivative liabilities |
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| 15,873 |
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| 22,362 |
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| 4,476 |
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| 5,796 |
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Accounts payable and accrued expenses |
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| 108,489 |
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| 134,611 |
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| 113,046 |
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| 106,716 |
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Mortgage servicing liabilities at fair value |
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| 15,994 |
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| 15,192 |
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| 12,063 |
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| 14,120 |
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Payable to Investment Funds |
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| 18,356 |
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| 20,393 |
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| 26 |
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| 2,427 |
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Payable to PennyMac Mortgage Investment Trust |
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| 164,743 |
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| 170,036 |
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| 117,987 |
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| 136,998 |
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Payable to exchanged Private National Mortgage Acceptance Company, LLC unitholders under tax receivable agreement |
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| 78,712 |
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| 75,954 |
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| 46,037 |
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| 44,011 |
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Income taxes payable |
|
| 31,968 |
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| 25,088 |
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| 58,956 |
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| 52,160 |
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Liability for mortgage loans eligible for repurchase |
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| 318,378 |
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| 382,268 |
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| 1,018,488 |
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| 1,208,195 |
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Liability for losses under representations and warranties |
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| 19,436 |
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| 19,067 |
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| 20,429 |
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| 20,053 |
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Total liabilities |
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| 3,793,782 |
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| 3,734,546 |
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| 5,108,692 |
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| 5,648,419 |
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Commitments and contingencies |
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Commitments and contingencies – Note 14 |
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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, 22,917,545 and 22,426,779 shares, respectively |
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| 2 |
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| 2 | |||||||
Class B common stock—authorized 1,000 shares of $0.0001 par value; issued and outstanding, 49 shares |
|
| — |
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| — | |||||||
Class A common stock—authorized 200,000,000 shares of $0.0001 par value; issued and outstanding, 24,277,768 and 23,529,970 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, 45 and 46 shares, respectively |
|
| — |
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| — |
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Additional paid-in capital |
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| 191,514 |
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| 182,772 |
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| 221,495 |
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| 204,103 |
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Retained earnings |
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| 175,428 |
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| 164,549 |
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| 282,114 |
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| 265,306 |
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Total stockholders' equity attributable to PennyMac Financial Services, Inc. common stockholders |
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| 366,944 |
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| 347,323 |
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| 503,611 |
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| 469,411 |
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Noncontrolling interest in Private National Mortgage Acceptance Company, LLC |
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| 1,090,651 |
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| 1,052,033 |
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| 1,290,588 |
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| 1,250,263 |
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Total stockholders' equity |
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| 1,457,595 |
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| 1,399,356 |
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| 1,794,199 |
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| 1,719,674 |
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Total liabilities and stockholders’ equity |
| $ | 5,251,377 |
| $ | 5,133,902 |
| $ | 6,902,891 |
| $ | 7,368,093 |
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The accompanying notes are an integral part of these consolidated financial statements.
5
PENNYMAC FINANCIAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
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| Quarter ended March 31, |
| Quarter ended March 31, |
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| 2017 |
| 2016 |
| 2018 |
| 2017 |
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| (in thousands, except earnings per share) |
| (in thousands, except earnings per share) |
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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 |
| $ | 88,651 |
| $ | 93,476 |
| $ | 59,028 |
| $ | 88,651 |
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Recapture payable to PennyMac Mortgage Investment Trust |
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| (1,695) |
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| (1,952) | |||||||
From PennyMac Mortgage Investment Trust |
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| 12,386 |
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| (1,695) |
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| 86,956 |
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| 91,524 |
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| 71,414 |
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| 86,956 |
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Mortgage loan origination fees: |
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From non-affiliates |
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| 24,195 |
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| 21,427 |
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| 23,355 |
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| 24,195 |
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From PennyMac Mortgage Investment Trust |
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| 1,379 |
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| 1,007 |
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| 1,208 |
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| 1,379 |
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| 25,574 |
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| 22,434 |
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| 24,563 |
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| 25,574 |
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Fulfillment fees from PennyMac Mortgage Investment Trust |
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| 16,570 |
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| 12,935 |
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| 11,944 |
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| 16,570 |
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Net mortgage loan servicing fees: |
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Mortgage loan servicing fees: |
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From non-affiliates |
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| 106,467 |
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| 91,327 |
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| 135,483 |
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| 106,467 |
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From PennyMac Mortgage Investment Trust |
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| 10,486 |
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| 11,453 |
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| 11,019 |
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| 10,486 |
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From Investment Funds |
|
| 496 |
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| 701 |
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| — |
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| 496 |
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Ancillary and other fees |
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| 11,866 |
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| 11,452 |
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| 14,171 |
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| 11,866 |
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| 129,315 |
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| 114,933 |
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| 160,673 |
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| 129,315 |
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Amortization, impairment and change in fair value of mortgage servicing rights and mortgage servicing liabilities |
|
| (57,925) |
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| (116,863) |
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| (36,963) |
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| (57,925) |
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Change in fair value of excess servicing spread payable to PennyMac Mortgage Investment Trust |
|
| 2,773 |
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| 19,449 |
|
| (6,921) |
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| 2,773 |
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|
| (55,152) |
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| (97,414) |
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| (43,884) |
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| (55,152) |
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Net mortgage loan servicing fees |
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| 74,163 |
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| 17,519 |
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| 116,789 |
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| 74,163 |
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Management fees: |
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From PennyMac Mortgage Investment Trust |
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| 5,008 |
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| 5,352 |
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| 5,696 |
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| 5,008 |
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From Investment Funds |
|
| 366 |
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| 560 |
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| 79 |
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| 366 |
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|
| 5,374 |
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| 5,912 |
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| 5,775 |
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| 5,374 |
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Carried Interest from Investment Funds |
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| (128) |
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| 593 |
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| (180) |
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| (128) |
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Net interest expense: |
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Net interest income (expense): |
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Interest income: |
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From non-affiliates |
|
| 22,054 |
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| 11,927 |
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| 40,639 |
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| 22,054 |
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From PennyMac Mortgage Investment Trust |
|
| 1,805 |
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| 1,602 |
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| 1,976 |
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| 1,805 |
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|
|
| 23,859 |
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| 13,529 |
|
| 42,615 |
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| 23,859 |
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Interest expense: |
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To non-affiliates |
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| 24,827 |
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| 13,972 |
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| 32,811 |
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| 24,827 |
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To PennyMac Mortgage Investment Trust |
|
| 4,647 |
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| 7,015 |
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| 3,934 |
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| 4,647 |
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|
| 29,474 |
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| 20,987 |
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| 36,745 |
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| 29,474 |
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Net interest expense |
|
| (5,615) |
|
| (7,458) | |||||||
Net interest income (expense) |
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| 5,870 |
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| (5,615) |
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Change in fair value of investment in and dividends received from PennyMac Mortgage Investment Trust |
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| 139 |
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| (86) |
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| 182 |
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| 139 |
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Results of real estate acquired in settlement of loans |
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| (25) |
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| (435) |
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| (28) |
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| (25) |
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Other |
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| 1,465 |
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| 463 |
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| 1,872 |
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| 1,465 |
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Total net revenues |
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| 204,473 |
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| 143,401 |
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| 238,201 |
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| 204,473 |
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Expenses |
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Compensation |
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| 85,240 |
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| 68,298 |
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| 102,013 |
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| 85,240 |
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Servicing |
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| 26,843 |
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| 20,887 |
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| 26,299 |
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| 26,843 |
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Technology |
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| 11,356 |
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| 6,847 |
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| 14,620 |
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| 11,356 |
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Occupancy and equipment |
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| 6,377 |
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| 5,042 |
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Professional services |
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| 5,738 |
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| 3,818 |
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Marketing |
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| 2,161 |
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| 1,736 |
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Loan origination |
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| 4,133 |
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| 4,186 |
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| 2,115 |
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| 4,133 |
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Professional services |
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| 3,818 |
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| 3,733 | |||||||
Other |
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| 11,051 |
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| 9,311 |
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| 5,882 |
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| 4,273 |
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Total expenses |
|
| 142,441 |
|
| 113,262 |
|
| 165,205 |
|
| 142,441 |
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Income before provision for income taxes |
|
| 62,032 |
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| 30,139 |
|
| 72,996 |
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| 62,032 |
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Provision for income taxes |
|
| 7,646 |
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| 3,596 |
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| 6,070 |
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| 7,646 |
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Net income |
|
| 54,386 |
|
| 26,543 |
|
| 66,926 |
|
| 54,386 |
|
Less: Net income attributable to noncontrolling interest |
|
| 43,507 |
|
| 21,368 |
|
| 50,307 |
|
| 43,507 |
|
Net income attributable to PennyMac Financial Services, Inc. common stockholders |
| $ | 10,879 |
| $ | 5,175 |
| $ | 16,619 |
| $ | 10,879 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per common share |
|
|
|
|
|
| |||||||
Earnings per share |
|
|
|
|
|
|
| ||||||
Basic |
| $ | 0.48 |
| $ | 0.24 |
| $ | 0.70 |
| $ | 0.48 |
|
Diluted |
| $ | 0.47 |
| $ | 0.23 |
| $ | 0.67 |
| $ | 0.47 |
|
Weighted average common shares outstanding |
|
|
|
|
|
| |||||||
Weighted average shares outstanding |
|
|
|
|
|
|
| ||||||
Basic |
|
| 22,619 |
|
| 22,006 |
|
| 23,832 |
|
| 22,619 |
|
Diluted |
|
| 77,143 |
|
| 76,194 |
|
| 79,461 |
|
| 77,143 |
|
The accompanying notes are an integral part of these consolidated financial statements.
6
PENNYMAC FINANCIAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
| Class A Common Stock |
| Noncontrolling |
|
|
| Class A Common Stock |
| Noncontrolling |
|
| |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| interest in Private |
|
|
|
|
|
|
|
|
|
|
| interest in Private |
|
| |||||||||||||||
|
|
|
|
|
| Additional |
|
|
| National Mortgage |
| Total |
|
|
|
|
| Additional |
|
|
| National Mortgage |
| Total | |||||||||||||||
|
| Number of |
| Par |
| paid-in |
| Retained |
| Acceptance |
| stockholders' |
| Number of |
| Par |
| paid-in |
| Retained |
| Acceptance |
| stockholders' | |||||||||||||||
|
| shares |
| value |
| capital |
| earnings |
| Company, LLC |
| equity |
| shares |
| value |
| capital |
| earnings |
| Company, LLC |
| equity | |||||||||||||||
|
| (in thousands) |
| (in thousands) | |||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Balance at December 31, 2015 |
| 21,991 |
| $ | 2 |
| $ | 172,354 |
| $ | 98,470 |
| $ | 791,524 |
| $ | 1,062,350 | ||||||||||||||||||||||
Net income |
| — |
|
| — |
|
| — |
|
| 5,175 |
|
| 21,368 |
|
| 26,543 | ||||||||||||||||||||||
Stock and unit-based compensation |
| 47 |
|
| — |
|
| 1,107 |
|
| — |
|
| 3,270 |
|
| 4,377 | ||||||||||||||||||||||
Issuance of common stock in settlement of directors' fees |
| 6 |
|
| — |
|
| 74 |
|
| — |
|
| — |
|
| 74 | ||||||||||||||||||||||
Exchange of Class A units of Private National Mortgage Acceptance Company, LLC to Class A common stock of PennyMac Financial Services, Inc. |
| 3 |
|
| — |
|
| 601 |
|
| — |
|
| (601) |
|
| — | ||||||||||||||||||||||
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. |
| — |
|
| — |
|
| (131) |
|
| — |
|
| — |
|
| (131) | ||||||||||||||||||||||
Balance at March 31, 2016 |
| 22,047 |
| $ | 2 |
| $ | 174,005 |
| $ | 103,645 |
| $ | 815,561 |
| $ | 1,093,213 | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||
Balance at December 31, 2016 |
| 22,427 |
| $ | 2 |
| $ | 182,772 |
| $ | 164,549 |
| $ | 1,052,033 |
| $ | 1,399,356 |
| 22,427 |
| $ | 2 |
| $ | 182,772 |
| $ | 164,549 |
| $ | 1,052,033 |
| $ | 1,399,356 | |||||
Net income |
| — |
|
| — |
|
| — |
|
| 10,879 |
|
| 43,507 |
|
| 54,386 |
| — |
|
| — |
|
| — |
|
| 10,879 |
|
| 43,507 |
|
| 54,386 | |||||
Stock and unit-based compensation |
| 157 |
|
| — |
|
| 1,903 |
|
| — |
|
| 3,874 |
|
| 5,777 |
| 157 |
|
| — |
|
| 1,903 |
|
| — |
|
| 3,874 |
|
| 5,777 | |||||
Issuance of common stock in settlement of directors' fees |
| 5 |
|
| — |
|
| 84 |
|
| — |
|
| — |
|
| 84 | ||||||||||||||||||||||
Issuance of Class A common stock in settlement of directors' fees |
| 5 |
|
| — |
|
| 84 |
|
| — |
|
| — |
|
| 84 | ||||||||||||||||||||||
Exchange of Class A units of Private National Mortgage Acceptance Company, LLC to Class A common stock of PennyMac Financial Services, Inc. |
| 329 |
|
| — |
|
| 8,763 |
|
| — |
|
| (8,763) |
|
| — |
| 329 |
|
| — |
|
| 8,763 |
|
| — |
|
| (8,763) |
|
| — | |||||
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. |
| — |
|
| — |
|
| (2,008) |
|
| — |
|
| — |
|
| (2,008) |
| — |
|
| — |
|
| (2,008) |
|
| — |
|
| — |
|
| (2,008) | |||||
Balance at March 31, 2017 |
| 22,918 |
| $ | 2 |
| $ | 191,514 |
| $ | 175,428 |
| $ | 1,090,651 |
| $ | 1,457,595 |
| 22,918 |
| $ | 2 |
| $ | 191,514 |
| $ | 175,428 |
| $ | 1,090,651 |
| $ | 1,457,595 | |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||
Balance at December 31, 2017 |
| 23,530 |
| $ | 2 |
| $ | 204,103 |
| $ | 265,306 |
| $ | 1,250,263 |
| $ | 1,719,674 | ||||||||||||||||||||||
Cumulative effect of change in accounting principle – accounting for all existing classes of mortgage servicing rights at fair value |
| — |
|
| — |
|
| — |
|
| 189 |
|
| 587 |
|
| 776 | ||||||||||||||||||||||
Balance at January 1, 2018 |
| 23,530 |
|
| 2 |
|
| 204,103 |
|
| 265,495 |
|
| 1,250,850 |
|
| 1,720,450 | ||||||||||||||||||||||
Net income |
| — |
|
| — |
|
| — |
|
| 16,619 |
|
| 50,307 |
|
| 66,926 | ||||||||||||||||||||||
Stock and unit-based compensation |
| — |
|
| — |
|
| 5,191 |
|
| — |
|
| 4,235 |
|
| 9,426 | ||||||||||||||||||||||
Issuance of Class A common stock in settlement of directors' fees |
| — |
|
| — |
|
| 24 |
|
| — |
|
| 55 |
|
| 79 | ||||||||||||||||||||||
Exchange of Class A units of Private National Mortgage Acceptance Company, LLC to Class A common stock of PennyMac Financial Services, Inc. by noncontrolling interest unitholders and issued as equity compensation |
| 748 |
|
| — |
|
| 14,859 |
|
| — |
|
| (14,859) |
|
| — | ||||||||||||||||||||||
Tax effect of exchange and repurchases of Class A units of Private National Mortgage Acceptance Company, LLC to Class A common stock of PennyMac Financial Services, Inc., net |
| — |
|
| — |
|
| (2,682) |
|
| — |
|
| — |
|
| (2,682) | ||||||||||||||||||||||
Balance at March 31, 2018 |
| 24,278 |
| $ | 2 |
| $ | 221,495 |
| $ | 282,114 |
| $ | 1,290,588 |
| $ | 1,794,199 |
The accompanying notes are an integral part of these consolidated financial statements.
7
PENNYMAC FINANCIAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Quarter ended March 31, |
| Quarter ended March 31, |
| ||||||||
|
| 2017 |
| 2016 |
| 2018 |
| 2017 |
| ||||
|
| (in thousands) |
| (in thousands) |
| ||||||||
Cash flow from operating activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
| $ | 54,386 |
| $ | 26,543 |
| $ | 66,926 |
| $ | 54,386 |
|
Adjustments to reconcile net income to net cash used in operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net gains on mortgage loans held for sale at fair value |
|
| (86,956) |
|
| (91,524) |
|
| (71,414) |
|
| (86,956) |
|
Accrual of servicing rebate payable to Investment Funds |
|
| 45 |
|
| 75 |
|
| — |
|
| 45 |
|
Amortization, impairment and change in fair value of mortgage servicing rights, mortgage servicing liabilities and excess servicing spread |
|
| 55,152 |
|
| 97,414 |
|
| 43,884 |
|
| 55,152 |
|
Carried Interest from Investment Funds |
|
| 128 |
|
| (593) |
|
| 180 |
|
| 128 |
|
Capitalization of interest on mortgage loans held for sale at fair value |
|
| (8,900) |
|
| (5,827) |
|
| (14,467) |
|
| (8,900) |
|
Accrual of interest on excess servicing spread financing |
|
| 4,647 |
|
| 7,015 |
|
| 3,934 |
|
| 4,647 |
|
Amortization of debt issuance costs |
|
| 3,269 |
|
| 2,537 | |||||||
Amortization of debt issuance costs and premiums |
|
| (3,600) |
|
| 3,269 |
| ||||||
Change in fair value of investment in common shares of PennyMac Mortgage Investment Trust |
|
| (103) |
|
| 122 |
|
| (147) |
|
| (103) |
|
Results of real estate acquired in settlement in loans |
|
| 25 |
|
| 435 |
|
| 28 |
|
| 25 |
|
Stock and unit-based compensation expense |
|
| 5,525 |
|
| 4,377 | |||||||
Stock-based compensation expense |
|
| 6,171 |
|
| 5,525 |
| ||||||
Provision for servicing advance losses |
|
| 9,921 |
|
| 10,562 |
|
| 6,787 |
|
| 9,921 |
|
Depreciation and amortization |
|
| 1,952 |
|
| 1,076 |
|
| 2,592 |
|
| 1,952 |
|
Purchase of mortgage loans held for sale from PennyMac Mortgage Investment Trust |
|
| (10,016,788) |
|
| (6,854,876) |
|
| (9,212,188) |
|
| (10,016,788) |
|
Originations of mortgage loans held for sale |
|
| (1,061,212) |
|
| (1,218,163) |
|
| (1,281,302) |
|
| (1,061,212) |
|
Purchase of mortgage loans from Ginnie Mae securities and early buyout investors for modification and subsequent sale |
|
| (936,948) |
|
| (424,813) |
|
| (911,585) |
|
| (936,948) |
|
Sale and principal payments of mortgage loans held for sale |
|
| 11,860,133 |
|
| 7,942,200 | |||||||
Sale and principal payments of mortgage loans held for sale to non-affiliates |
|
| 11,103,785 |
|
| 11,860,133 |
| ||||||
Sale of mortgage loans held for sale to PennyMac Mortgage Investment Trust |
|
| 21,530 |
|
| 4,715 |
|
| 781,326 |
|
| 21,530 |
|
Repurchase of mortgage loans subject to representations and warranties |
|
| (5,303) |
|
| (6,913) |
|
| (6,309) |
|
| (5,303) |
|
Decrease in servicing advances |
|
| 21,251 |
|
| 1,897 |
|
| 27,450 |
|
| 21,251 |
|
Decrease in receivable from Investment Funds |
|
| 176 |
|
| 122 | |||||||
(Increase) decrease in receivable from PennyMac Mortgage Investment Trust |
|
| (4,206) |
|
| 1,843 | |||||||
Decrease in deferred tax asset |
|
| — |
|
| 3,570 | |||||||
Collection of Carried Interest |
|
| 7,834 |
|
| — |
| ||||||
Sale of real estate acquired in settlement of loans |
|
| 1,230 |
|
| — |
| ||||||
Increase in receivable from PennyMac Mortgage Investment Trust |
|
| (955) |
|
| (4,206) |
| ||||||
(Increase) decrease in receivable from Investment Funds |
|
| (43) |
|
| 176 |
| ||||||
Increase in other assets |
|
| (1,019) |
|
| (3,692) |
|
| (1,593) |
|
| (966) |
|
Decrease in accounts payable and accrued expenses |
|
| (28,163) |
|
| (3,680) | |||||||
Increase (decrease) in accounts payable and accrued expenses |
|
| 4,745 |
|
| (28,163) |
| ||||||
Decrease in payable to Investment Funds |
|
| (2,037) |
|
| (1,586) |
|
| (2,401) |
|
| (2,037) |
|
Decrease in payable to PennyMac Mortgage Investment Trust |
|
| (5,480) |
|
| (9,698) |
|
| (19,544) |
|
| (5,480) |
|
Increase in income taxes payable |
|
| 7,630 |
|
| — |
|
| 6,068 |
|
| 7,630 |
|
Net cash used in operating activities |
|
| (111,345) |
|
| (516,862) | |||||||
Net cash provided by (used in) operating activities |
|
| 537,392 |
|
| (111,292) |
| ||||||
Cash flow from investing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
(Increase) decrease in short-term investments |
|
| (30,370) |
|
| 18,055 | |||||||
Decrease (increase) in short-term investments |
|
| 64,190 |
|
| (30,370) |
| ||||||
Net settlement of derivative financial instruments used for hedging |
|
| (20,492) |
|
| 38,579 |
|
| (128,099) |
|
| (20,492) |
|
Purchase of mortgage servicing rights |
|
| (203) |
|
| (11) |
|
| (27,544) |
|
| (203) |
|
Purchase of furniture, fixtures, equipment and leasehold improvements |
|
| (2,329) |
|
| (8,939) |
|
| (2,779) |
|
| (2,329) |
|
Acquisition of capitalized software |
|
| (4,526) |
|
| (1,378) |
|
| (3,722) |
|
| (4,526) |
|
Increase in margin deposits and restricted cash |
|
| (2,434) |
|
| (4,551) | |||||||
Net cash (used in) provided by investing activities |
|
| (60,354) |
|
| 41,755 | |||||||
Sale of assets purchased from PMT under agreement to resell |
|
| 1,190 |
|
| — |
| ||||||
Decrease (increase) in margin deposits |
|
| 15,501 |
|
| (2,434) |
| ||||||
Net cash used in investing activities |
|
| (81,263) |
|
| (60,354) |
| ||||||
Cash flow from financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale of assets under agreements to repurchase |
|
| 5,815,923 |
|
| 7,614,302 |
|
| 9,771,234 |
|
| 5,815,923 |
|
Repurchase of assets sold under agreements to repurchase |
|
| (5,516,480) |
|
| (7,122,979) |
|
| (10,338,629) |
|
| (5,516,480) |
|
Issuance of mortgage loan participation certificates |
|
| 5,302,595 |
|
| 4,838,963 |
|
| 6,155,178 |
|
| 5,302,595 |
|
Repayment of mortgage loan participation certificates |
|
| (5,732,434) |
|
| (4,827,226) |
|
| (6,172,301) |
|
| (5,732,434) |
|
Advances on notes payable |
|
| 400,000 |
|
| 68,000 |
|
| 650,000 |
|
| 400,000 |
|
Repayment of notes payable |
|
| (110,633) |
|
| (1,828) |
|
| (400,000) |
|
| (110,633) |
|
Advances of obligations under capital lease |
|
| 10,298 |
|
| — |
|
| — |
|
| 10,298 |
|
Repayment of obligations under capital lease |
|
| (2,544) |
|
| (1,509) |
|
| (4,536) |
|
| (2,544) |
|
Repayment of excess servicing spread financing |
|
| (14,632) |
|
| (20,881) |
|
| (12,291) |
|
| (14,632) |
|
Settlement of excess servicing spread financing |
|
| — |
|
| (59,045) | |||||||
Payment of debt issuance costs |
|
| (7,246) |
|
| (1,602) |
|
| (7,891) |
|
| (7,246) |
|
Proceeds from common stock options exercised |
|
| 252 |
|
| — | |||||||
Net cash provided by financing activities |
|
| 145,099 |
|
| 486,195 | |||||||
Net (decrease) increase in cash |
|
| (26,600) |
|
| 11,088 | |||||||
Cash at beginning of period |
|
| 99,367 |
|
| 105,472 | |||||||
Cash at end of period |
| $ | 72,767 |
| $ | 116,560 | |||||||
Issuance of common stock pursuant to exercise of options |
|
| 3,255 |
|
| 252 |
| ||||||
Net cash (used in) provided by financing activities |
|
| (355,981) |
|
| 145,099 |
| ||||||
Net increase (decrease) in cash and restricted cash |
|
| 100,148 |
|
| (26,547) |
| ||||||
Cash and restricted cash at beginning of quarter |
|
| 38,173 |
|
| 99,642 |
| ||||||
Cash and restricted cash at end of quarter |
| $ | 138,321 |
| $ | 73,095 |
| ||||||
Cash and restricted cash at end of period are comprised of the following: |
|
|
|
|
|
|
| ||||||
Cash |
| $ | 137,863 |
| $ | 72,767 |
| ||||||
Restricted cash included in Other assets |
|
| 458 |
|
| 328 |
| ||||||
|
| $ | 138,321 |
| $ | 73,095 |
|
The accompanying notes are an integral part of these consolidated financial statements.
8
PENNYMAC FINANCIAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 1—Organization and Basis of Presentation
PennyMac Financial Services, Inc. (“PFSI” or the “Company”) was formed as a Delaware corporation on December 31, 2012. Pursuant to a reorganization, the Company became a holding corporation and its primary asset is an equity interest in Private National Mortgage Acceptance Company, LLC (“PennyMac”). The Company is the managing member of PennyMac and operates and controls all of the businesses and affairs of PennyMac subject to the consent rights of other members under certain circumstances, and consolidates the financial results of PennyMac and its subsidiaries.
PennyMac is a Delaware limited liability company which, through its subsidiaries, engages in mortgage banking and investment management activities. PennyMac’s mortgage banking activities consist of residential mortgage loan production (including correspondent production and consumer direct lending) and mortgage loan servicing. PennyMac’s investment management activities and a portion of its mortgage loan servicing activities are conducted on behalf of entitiesinvestment 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 PNMAC Mortgage Opportunity Fund, LLC and PNMAC Mortgage Opportunity Fund, L.P., (the “Master Fund”), both registered under the Investment Company Act of 1940, as amended, an affiliate of these registered funds, PNMAC Mortgage Opportunity Fund Investors, LLC (collectively, the “Investment Funds”), and PennyMac Mortgage Investment Trust (“PMT”), a publicly held real estate investment trust (“REIT”). Together, the Investment Funds and PMT are referred to as the “Advised Entities.” In 2017 and through the quarter ended March 31, 2018, the Investment Funds sold or liquidated all of their remaining investments. PCM expects to complete liquidation of the Investment Funds during 2018.
· | PennyMac Loan Services, LLC (“PLS”)—a Delaware limited liability company that services portfolios of residential mortgage loans on behalf of non-affiliates and the Advised Entities, purchases, originates and |
PLS is approved as a seller/servicer of mortgage loans by the Federal National Mortgage Association (“Fannie Mae”) and the Federal Home Loan Mortgage Corporation (“Freddie Mac”) and as an issuer of securities guaranteed by the Government National Mortgage Association (“Ginnie Mae”). PLS is a licensed Federal Housing Administration Nonsupervised Title II Lender with the U.S. Department of Housing and Urban Development (“HUD”) and a lender/servicer with the Veterans Administration (“VA”) and U.S. Department of Agriculture (“USDA”) (each an “Agency” and collectively the “Agencies”).
· | PNMAC Opportunity Fund Associates, LLC (“PMOFA”)—a Delaware limited liability company and the general partner of the Master Fund. PMOFA is entitled to incentive fees representing allocations of profits (“Carried Interest”) from the Master Fund. |
9
Note 2—Basis of Presentation and Accounting Changes
Basis of Presentation
The accompanying consolidated financial statements have been prepared in compliance with accounting principles generally accepted in the United States (“GAAP”) as codified in the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) for interim financial information and with the SEC’s instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, these financial statements and notes do not include all of the information required by GAAP for complete financial statements. TheThis interim consolidated information should be read together with the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.2017.
The accompanying unaudited consolidated financial statements reflect all normal recurring adjustments necessary to present fairly the financial position, income, and cash flows for the interim periods, but are not necessarily
9
indicative of income to be anticipated for the full year ending December 31, 2017.2018. Intercompany accounts and transactions have been eliminated.
Preparation of financial statements in compliance with GAAP requires management to make judgments and estimates 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.
Accounting Changes
During the quarter ended March 31, 2018, the Company adopted changes to the accounting principles used in the preparation of its financial statements summarized below.
Mortgage Servicing Rights
Effective January 1, 2018, the Company has elected to change the accounting for the classes of mortgage servicing rights (“MSRs”) it had accounted for using the amortization method through December 31, 2017, to the fair value method as allowed in the Transfers and Servicing topic of the FASB’s ASC. The Company determined that a single accounting treatment across all MSRs is consistent with lender valuation under its financing arrangements and simplifies the Company’s hedging activities. As the result of this change, the Company recorded an adjustment to increase its investment in MSRs by $848,000, an increase in its liability for income taxes payable of $72,000 and in increase in stockholders’ equity of $776,000.
Revenue Recognition
In May 2014, the FASB issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers (Subtopic 606) (“ASU 2014-09”), which supersedes the guidance in the Revenue Recognition topic of the ASC. Effective January 1, 2018, the Company adopted ASU 2014-09 as amended using the modified retrospective method. The adoption of ASU 2014-09 did not require the Company to record a cumulative effect adjustment to its beginning retained earnings.
The Company’s revenues from contracts with customers that are subject to ASU 2014-09 include fulfillment fees, management fees, Carried Interest and certain reimbursed overhead costs. Other revenue and income streams are not subject to ASU 2014-09 as they are financial instruments or other contractual rights and obligations accounted for under the Receivables, Investments and Debt and Equity Securities, Topics of the ASC Transfers and Servicing, Topic 825 Financial Instruments and Derivatives and Hedging.
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Fulfillment Fees
Fulfillment fees represent fees the Company collects for services it performs on behalf of PMT in connection with the acquisition, packaging and sale of mortgage loans. Fulfillment fee amounts are based upon a negotiated fee schedule and the unpaid principal balance of the mortgage loans purchased by PMT. The Company’s obligation under the agreement is fulfilled when PMT completes the sale or securitization of a mortgage loan it purchases. Fulfillment fees are generally collected within 30 days of purchase by PMT, although a portion of the fulfillment fees may not be collected until 30 days following sale or securitization to the extent such sale or securitization does not occur in the month of purchase. Fulfillment fee revenue is recognized in the month the fee is earned. Fulfillment fees receivable contract assets are disclosed in Note 2—4—Transactions with Affiliates.
Management fees
Management fees represent compensation to the Company for its management services provided to the Advised Entities. Management fees are earned based on the Investment Funds’ net assets and PMT’s shareholders’ equity amounts and profitability in excess of specified thresholds, and are recognized as services are provided and are paid to the Company on a quarterly basis within 30 days of the end of the quarter. Management fees receivable contract assets are disclosed in Note 4—Transactions with Affiliates.
Carried Interest
The Company’s Carried Interest arrangements with the Investment Funds represent capital allocations to the Company. As a result, the Company has concluded as part of its assessment of the effect of the adoption of ASU 2014-09 that its Carried Interest represents an equity method investment subject to the Investments – Equity Method and Joint Ventures topic of the ASC. Therefore, effective January 1, 2018, the Company recharacterized its Carried Interest as financial instruments under the equity method of accounting. Carried Interest balances are disclosed in Note 9—Carried Interest Due from Investment Funds.
Expense reimbursements
Under the Company’s management agreement with PMT, PMT is required to pay its pro rata portion of rent, telephone, utilities, office furniture, equipment, machinery and other office, internal and overhead expenses of the Company and its affiliates required for PMT’s and its subsidiaries’ operations. These expenses are allocated based on the ratio of PMT’s proportion of gross assets compared to all remaining gross assets managed by the Company as calculated at each fiscal quarter end. Before the adoption of ASU 2014-09, the Company accounted for such reimbursements as reductions to expenses. With the adoption of ASU 2014-09, the Company is required to include such expense reimbursements in its net revenues. As a result of the adoption of ASU 2014-09, certain overhead reimbursement amounts were reclassified from the following expense line items to Other revenue as summarized below:
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| Quarter ended | |
Income statement line |
| March 31, 2018 | |
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| (in thousands) | |
Compensation |
| $ | 120 |
Occupancy and equipment |
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| 589 |
Technology |
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| 220 |
Other |
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| 192 |
Total expense reimbursements included in Other revenue |
| $ | 1,121 |
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Cash Flows
During the quarter ended March 31, 2018, the Company adopted ASU 2016-18, Statement of Cash Flows (Topic 230) – Restricted Cash (“ASU 2016-18”). ASU 2016-18 requires that a statement of cash flows explain the change during the reporting period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the consolidated statement of cash flows. Accordingly, the Company retrospectively changed the presentation of its consolidated statements of cash flows to conform to the requirements of ASU 2016-18. For the purpose of reporting statement of cash flows, the Company has identified tenant security deposits relating to rental properties owned by PMT and managed by the Company as restricted cash, which are included in Other asset on the Company’s consolidated balance sheets. As the result of adoption of ASU 2016-18, the Company’s consolidated statements of cash flows for the quarter ended March 31, 2017 changed as follows:
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| As previously |
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| Effect of adoption |
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| reported |
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| of ASU 2016-18 |
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| As reported |
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| (in thousands) | |||||||
Cash flow from operating activities |
| $ | (111,345) |
| $ | 53 |
| $ | (111,292) |
Cash and restricted cash at quarter end |
| $ | 72,767 |
| $ | 328 |
| $ | 73,095 |
Note 3—Concentration of Risk
A substantial portion of the Company’s activities relate to the Advised Entities. Revenues generated from these entities (generally comprised of gains on mortgage loans held for sale, mortgage loan origination fees, fulfillment fees, mortgage loan servicing fees, change in fair value of excess servicing spread financing (“ESS”), management fees, Carried Interest, servicing recapture fees and net interest charged to these entities) totaled 16%15% and 30%16% of total net revenue for the quarters ended March 31, 20172018 and 2016,2017, respectively.
Note 3—4—Transactions with Affiliates
Transactions with PMT
Operating Activities
Mortgage Loan Production Activities and Mortgage Servicing Rights (“MSR”) Recapture
The Company provides fulfillment and other services to PMT under a mortgage banking services agreement. Before September 12, 2016, the Company was entitled to a fulfillment fee based on the type of mortgage loan that PMT acquired and equal to a percentage of the unpaid principal balance (“UPB”) of such mortgage loan. The applicable fulfillment fee percentages were (i) 0.50% for conventional mortgage loans, (ii) 0.88% for loans sold in accordance with the Ginnie Mae Mortgage‑Backed Securities Guide, and (iii) 0.50% for all other mortgage loans not contemplated above; provided, however, that the Company was permitted, in its sole discretion, to 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 was only credited to the reimbursement applicable to the month in which the related mortgage loan was funded.
Effective September 12, 2016, pursuant to the terms of an amended and restated mortgage banking services agreement for which it receives a fulfillment fee. Pursuant to the applicableterms of mortgage banking services agreement, the monthly fulfillment fee percentages areis an amount that shall equal (a) no greater than the product of (i) 0.35% forand (ii) the aggregate initial unpaid principal balance (the “Initial UPB”) of all mortgage loans purchased in such month, plus (b) in the case of all mortgage loans other than mortgage loans sold to or delivered tosecuritized through Fannie Mae or Freddie Mac, no greater than the product of (i) 0.50% and (ii) 0.85% forthe aggregate Initial UPB of all othersuch mortgage loans;loans sold and securitized in such month; provided, however, that no fulfillment fee shall be due or payable to the Company with respect to any mortgage loans underwritten to the Ginnie Mae guidelines.Mortgage‑Backed Securities (“MBS”) Guide. PMT does not hold the Ginnie Mae approval required to issue Ginnie Mae mortgage-backed securities (“MBS”)MBS and act as a servicer. Accordingly, under the agreement, the Company currently purchases mortgage loans underwritten in accordance with the Ginnie Mae Mortgage-Backed SecuritiesMBS Guide “as is” and without recourse of any kind from PMT at PMT’s cost less an administrative fee plus accrued interest and a sourcing fee ranging from two to three and one-half basis points, generally based on the average number of calendar days mortgage loans are held by PMT before being purchased by the Company.
In consideration for the mortgage banking services provided by the Company with respect to PMT’s acquisition of mortgage loans under the Company’s early purchase program, the Company is entitled to fees accruing (i) at a rate equal to $1,500 per year per early purchase facility administered by the Company, and (ii) in the amount of $35 for each mortgage loan that PMT acquires thereunder. The mortgage banking services agreement expires, unless terminated earlier in accordance with the agreement, on September 12, 2020, subject to automatic renewal for additional 18-month periods.
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The Company sells newly originated loans to PMT under a mortgage loan purchase agreement and a flow commercial mortgage loan purchase agreement. Historically, the Company has used the mortgage loan purchase agreement for the purpose of selling to PMT prime jumbo residential mortgage loans. Beginning in the quarter ended September 30, 2017, the Company also sells non-government insured or guaranteed mortgage loans to PMT under the mortgage loan purchase agreement. The Company sells to PMT small balance commercial mortgage loans, including multifamily mortgage loans, originated as part of its commercial lending activities using the flow commercial mortgage loan purchase agreement.
Pursuant to the terms of an amended and restated MSR recapture agreement, effective September 12, 2016, if the Company refinances through its consumer direct lending business mortgage loans for which PMT previously held the MSRs, the Company is 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 originatedcash in those refinancings (or, under certain circumstances, other mortgage loans) that have an aggregate UPB that is not less thanamount equal to 30% of the aggregate UPBfair market value of the MSRs related to all the mortgage loans so originated.
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Where the fair value of the aggregate MSRs to be transferred for the applicable month is less than $200,000, the Company may, at its option, pay cash to PMT in an amount equal to such fair value instead of transferring such MSRs. The MSR recapture agreement expires, unless terminated earlier in accordance with the agreement, on September 12, 2020, subject to automatic renewal for additional 18-month periods, unless terminated earlier in accordance with the terms of the agreement.
Following is a summary of mortgage loan production activities and MSR recapture between the Company and PMT:
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| Quarter ended March 31, |
| Quarter ended March 31, |
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| 2017 |
| 2016 |
| 2018 |
| 2017 |
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Mortgage servicing rights and excess servicing spread recapture incurred included in Net gains on mortgage loans held for sale at fair value |
| $ | 1,695 |
| $ | 1,952 | |||||||
Net gain (loss) on mortgage loans held for sale at fair value: |
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Net gain on mortgage loans held for sale to PMT |
| $ | 13,811 |
| $ | — |
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Mortgage servicing rights and excess servicing spread recapture incurred |
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| (1,425) |
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| (1,695) |
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| $ | 12,386 |
| $ | (1,695) |
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Sale of mortgage loans held for sale to PMT |
| $ | 781,326 |
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| 21,530 |
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Fulfillment fee revenue |
| $ | 16,570 |
| $ | 12,935 |
| $ | 11,944 |
| $ | 16,570 |
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Unpaid principal balance of mortgage loans fulfilled for PMT |
| $ | 4,631,906 |
| $ | 3,259,363 | |||||||
Unpaid principal balance of mortgage loans fulfilled for PMT subject to fulfillment fees |
| $ | 4,225,631 |
| $ | 4,631,906 |
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Sourcing fees paid to PMT |
| $ | 2,871 |
| $ | 1,950 |
| $ | 2,641 |
| $ | 2,871 |
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Unpaid principal balance of mortgage loans purchased from PMT |
| $ | 9,574,717 |
| $ | 6,495,722 |
| $ | 8,847,873 |
| $ | 9,574,717 |
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Proceeds from sale of mortgage loans held for sale to PMT |
| $ | 21,530 |
| $ | 4,715 | |||||||
Tax service fees received from PMT included in Mortgage loan origination fees |
| $ | 1,379 |
| $ | 1,007 |
| $ | 1,208 |
| $ | 1,379 |
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Property management fees received from PMT included in Other income |
| $ | 99 |
| $ | 71 |
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Early purchase program fees earned from PMT included in Mortgage loan servicing fees |
| $ | 5 |
| $ | 1 |
| $ | — |
| $ | 5 |
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Mortgage Loan Servicing
The Company has a mortgage loan servicing agreement with PMT.PMT (“Servicing Agreement”). The servicing agreementServicing Agreement provides for servicing fees of per‑loan monthly amounts based on the delinquency, bankruptcy and/or foreclosure status of the serviced mortgage loan or the real estate acquired in settlement of loans (“REO”).REO. The Company also remains entitled to customary ancillary income and market-based fees and charges includingrelating to mortgage loans it services for PMT. These include boarding and deboarding fees, liquidation and disposition fees, assumption, modification and origination fees and a percentage of late charges relating to mortgage loans it services for PMT. The servicing agreement was amended and restated as of September 12, 2016; however, the fee structure was not amended in any material respect.charges.
· | The base servicing fee rates for distressed whole mortgage loans range from $30 per month for current loans up to |
· | To the extent the Company facilitates rentals of PMT's REO under its REO rental program, the Company collects an REO rental fee of $30 per month per REO, an REO property lease renewal fee of $100 per lease renewal, and a property management fee in an amount equal to the Company’s cost if property management services and/or any related software costs are outsourced to a third-party property |
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management firm or 9% of gross rental income if the Company provides property management services directly. The Company is also entitled to retain any tenant paid application fees and late rent fees and seek reimbursement for certain third-party vendor fees. |
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· | Except as otherwise provided in the MSR recapture agreement, when the Company effects a refinancing of a mortgage loan on behalf of PMT and not through a third-party lender and the resulting mortgage loan is readily saleable, or the Company originates a loan to facilitate the disposition of a REO, the Company is entitled to receive from PMT market-based fees and compensation consistent with pricing and terms the Company offers unaffiliated parties on a retail basis. |
· | Because PMT has a small number of employees and limited infrastructure, the Company is required to provide a range of services and activities significantly greater in scope than the services provided in connection with a customary servicing arrangement. For these services, the Company receives a supplemental servicing fee of $25 per month for each distressed mortgage loan. The Company is entitled to reimbursement for all customary, good faith reasonable and necessary out-of-pocket expenses incurred by the Company in performance of its servicing obligations. |
· | The Company is entitled to retain any incentive payments made to it and to which it is entitled under the U.S. Department of Treasury’s Home Affordable Modification |
· | The Company is also entitled to certain activity-based fees for distressed whole mortgage loans that are charged based on the achievement of certain events. These fees range from $750 for a streamline modification to $1,750 for a liquidation and $500 for a deed-in-lieu of foreclosure. The Company is not entitled to earn more than one liquidation fee, reperformance fee or modification fee per mortgage loan in any 18-month period. |
· | The base servicing fees for non-distressed mortgage loans are calculated through a monthly per-loan dollar amount, with the actual dollar amount for each loan based on whether the mortgage loan is a fixed-rate or adjustable-rate loan. The base servicing fee rates are $7.50 per month and $8.50 per month for fixed-rate loans and adjustable-rate loans, respectively. |
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The servicing agreementServicing Agreement expires on September 12, 2020, subject to automatic renewal for additional 18-month periods, unless terminated earlier in accordance with the terms of the agreement.
Following is a summary of mortgage loan servicing fees earned from PMT:
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| Quarter ended March 31, |
| Quarter ended March 31, | ||||||||
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| 2017 |
| 2016 |
| 2018 |
| 2017 | ||||
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| (in thousands) |
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Mortgage loans acquired for sale at fair value: |
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Base and supplemental |
| $ | 65 |
| $ | 56 |
| $ | 56 |
| $ | 65 |
Activity-based |
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| 143 |
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| 115 |
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| 122 |
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| 143 |
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| 208 |
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| 171 |
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| 178 |
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| 208 |
Mortgage loans at fair value: |
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Base and supplemental |
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| 1,958 |
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| 3,359 |
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| 1,005 |
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| 1,958 |
Activity-based |
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| 2,390 |
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| 3,449 |
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| 2,080 |
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| 2,390 |
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| 4,348 |
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| 6,808 |
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| 3,085 |
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| 4,348 |
Mortgage servicing rights: |
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Base and supplemental |
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| 5,837 |
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| 4,385 |
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| 7,649 |
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| 5,837 |
Activity-based |
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| 93 |
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| 89 |
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| 107 |
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| 93 |
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| 5,930 |
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| 4,474 |
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| 7,756 |
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| 5,930 |
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| $ | 10,486 |
| $ | 11,453 |
| $ | 11,019 |
| $ | 10,486 |
Investment Management Activities
The Company has a management agreement with PMT.PMT (“Management Agreement”). The management agreementManagement 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 average shareholders’ equity up to $2 billion, (ii) 1.375% per year of PMT’s average shareholders’ equity in excess of $2 billion and up to $5 billion, and (iii) 1.25% per year of PMT’s average shareholders’ equity in excess of $5 billion. |
· | The performance incentive fee is calculated quarterly 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 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%
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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 attributable to its common shares of beneficial interest computed in accordance with GAAP adjusted for certain other non‑cash charges determined after discussions between the Company 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 rolling four‑quarter period.
The “high watermark” is the quarterly adjustment that 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
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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 the Company 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 a combination of cash and PMT’s common shares (subject to a limit of no more than 50% paid in common shares), at PMT’s option.
The management agreementManagement Agreement expires on September 12, 2020, subject to automatic renewal for additional 18-month periods, unless terminated earlier in accordance with the terms of the agreement. In the event of termination of the management agreementManagement Agreement between PMT and the Company, the Company may be entitled to a termination fee in certain circumstances. The termination fee is equal to three times the sum of (a) the average annual base management fee, and (b) the average annual performance incentive fee earned by the Company, in each case during the 24-month period immediately preceding the date of termination.
Following is a summary of the base management and performance incentive fees earned from PMT:
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| 2016 |
| 2018 |
| 2017 | ||||
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| (in thousands) |
| (in thousands) | ||||||||
Base management |
| $ | 5,008 |
| $ | 5,352 |
| $ | 5,696 |
| $ | 5,008 |
Performance incentive |
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| — |
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| — |
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| — |
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| $ | 5,008 |
| $ | 5,352 |
| $ | 5,696 |
| $ | 5,008 |
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Expense Reimbursement
Under the management agreement,Management Agreement, PMT reimburses the Company for its organizational and operating expenses, including third-party expenses, incurred on PMT’s behalf, it being understood that the Company and its affiliates shall allocate a portion of their personnel’s time to provide certain legal, tax and investor relations services for the direct benefit of PMT. With respect to the allocation of the Company’s and its affiliates’ personnel, from and after September 12, 2016, the Company shall be reimbursed $120,000 per fiscal quarter, such amount to be reviewed annually and not preclude reimbursement for any other services performed by the Company or its affiliates.
PMT is also required to pay its pro rata portion of rent, telephone, utilities, office furniture, equipment, machinery and other office, internal and overhead expenses of the Company and its affiliates required for PMT’s and its
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subsidiaries’ operations. These expenses will be allocated based on the ratio of PMT’s proportion of gross assets compared to all remaining gross assets managed by the Company as calculated at each fiscal quarter end.
The Company received reimbursements from PMT for expenses as follows:
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| 2018 |
| 2017 |
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Reimbursement of: |
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Common overhead incurred by the Company |
| $ | 1,434 |
| $ | 2,561 | |||||||
Common overhead and compensation expense incurred by the Company (1) |
| $ | 1,121 |
| $ | 1,434 |
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Expenses incurred on PMT's behalf, net |
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| 255 |
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| 55 |
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| 573 |
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| 255 |
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| $ | 1,689 |
| $ | 2,616 |
| $ | 1,694 |
| $ | 1,689 |
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Payments and settlements during the period (1) |
| $ | 24,393 |
| $ | 27,661 | |||||||
Payments and settlements during the quarter (2) |
| $ | 7,658 |
| $ | 24,393 |
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(1) | The Company adopted ASU 2014-09 using the modified retrospective method effective January 1, 2018. Adoption of ASU 2014-09 using the modified retrospective method required the Company to include those reimbursements from PMT in Other revenue starting January 1, 2018. |
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(2) | Payments and settlements include payments for management fees and correspondent production activities itemized in the preceding tables and netting settlements made pursuant to master netting agreements between the Company and PMT. |
Conditional Reimbursement of Underwriting Fees
In connection with its initial public offering of common shares of beneficial interest on August 4, 2009 (“IPO”), PMT conditionally agreed to reimburse the Company up to $2.9 million for underwriting fees paid to the IPO underwriters by the Company on PMT’s behalf. The Company received no reimbursement from PMT during the quarters ended March 31, 2017 and 2016.
In the event a termination fee is payable to the Company under the management agreement,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. The Company received no reimbursement of underwriting fees from PMT during the quarters ended March 31, 2018 and 2017.
Investing Activities
Master Repurchase Agreement with the Issuer Trust
On December 19, 2016, the Company, through PLS, entered into a master repurchase agreement with one of PMT’s wholly-owned subsidiaries, PennyMac Holdings, LLC (“PMH”) (the “PMH Repurchase Agreement”), pursuant to which PMH may borrow from the Company for the purpose of financing PMH’s participation certificates representing beneficial ownership in ESS. PLS then re-pledges such participation certificates to PNMAC GMSR ISSUER TRUST (the “Issuer Trust”) under a master repurchase agreement by and among PLS, the Issuer Trust and PennyMac, as guarantor (the “PC Repurchase Agreement”). The Issuer Trust was formed for the purpose of allowing PLS to finance MSRs and ESS relating to such MSRs (the “GNMA MSR Facility”).
In connection with the GNMA MSR Facility, PLS pledges and/or sells to the Issuer Trust participation certificates representing beneficial interests in MSRs and ESS pursuant to the terms of the PC Repurchase Agreement. In return, the Issuer Trust (a) has issued to PLS, pursuant to the terms of an indenture, the Series 2016-MSRVF1 Variable Funding Note, dated December 19, 2016, known as the “PNMAC GMSR ISSUER TRUST MSR Collateralized Notes, Series 2016-MSRVF1” (the “VFN”), and (b) has issued and may, from time to time pursuant to the terms of any supplemental indenture, issue to institutional investors additional term notes (“Term Notes”), in each case secured on a pari passu basis by the participation certificates relating to the MSRs and ESS. The maximum principal balance of the VFN is $1,000,000,000.
The principal amount paid by PLS for the participation certificates under the PMH Repurchase Agreement is based upon a percentage of the market value of the underlying ESS. Upon PMH’s repurchase of the participation certificates, PMH is required to repay PLS the principal amount relating thereto plus accrued interest (at a rate reflective of the current market and consistent with the weighted average note rate of the VFN and any outstanding Term Notes) to the date of such repurchase. PLS is then required to repay the Issuer Trust the corresponding amount under the PC Repurchase Agreement.
14
Prior to the Company’s entry into the PMH Repurchase Agreement and PC Repurchase Agreement in connection with the GNMA MSR Facility, the Company was a party to a repurchase agreement with Credit Suisse First Boston Mortgage Capital LLC (“CSFB”) (the “MSR Repo”), pursuant to which it financed Ginnie Mae MSRs and servicing advance receivables and pledged to CSFB all of its rights and interests in any Ginnie Mae MSRs it owned or acquired, and a separate acknowledgement agreement with respect thereto, by and among Ginnie Mae, CSFB and the Company.
In connection with the MSR Repo described above, the Company and PMT entered into an underlying loan and security agreement, dated as of April 30, 2015, pursuant to which PMT was able to borrow up to $150 million from the Company for the purpose of financing ESS (the “Underlying LSA”). In order to secure its borrowings, PMT pledged its ESS to the Company under the Underlying LSA and the Company, in turn, re-pledged such ESS to CSFB under the MSR Repo. The principal amount of the borrowings under the Underlying LSA was based upon a percentage of the market value of the ESS pledged by PMT, subject to the $150 million sublimit described above. Pursuant to the Underlying LSA, PMT granted to the Company a security interest in all of its right, title and interest in, to and under the ESS pledged to secure the borrowings.
17
The Company and PMT agreed in connection with the Underlying LSA that PMT was required to repay the Company the principal amount of borrowings plus accrued interest to the date of such repayment, and the Company was required to repay CSFB the corresponding amount under the MSR Repo. Interest accrued on PMT’s note relating to the Underlying LSA at a rate based on CSFB’s cost of funds under the MSR Repo. PMT was also required to pay the Company a fee for the structuring of the Underlying LSA in an amount equal to the portion of the corresponding fee paid by the Company to CSFB and allocable to the $150 million relating to the ESS financing.ESS. The note receivableUnderlying LSA was replaced by the PMH Repurchase Agreement upon the closing of the GNMA MSR facility.
The Company holds an investment in PMT in the form of 75,000 common shares of beneficial interest.
Following is a summary of investing activities between the Company and PMT:
|
|
|
|
|
|
|
|
| Quarter ended March 31, | ||||
|
| 2017 |
| 2016 | ||
|
| (in thousands) | ||||
Assets purchased from PennyMac Mortgage Investment Trust under agreements to resell: |
|
|
|
|
|
|
Interest income |
| $ | 1,805 |
| $ | — |
Note receivable from PennyMac Mortgage Investment Trust: |
|
|
|
|
|
|
Interest income |
| $ | — |
| $ | 1,602 |
Common shares of beneficial interest of PennyMac Mortgage Investment Trust: |
|
|
|
|
|
|
Dividends received from PennyMac Mortgage Investment Trust |
| $ | 36 |
| $ | 35 |
Change in fair value of investment in common shares of PennyMac Mortgage Investment Trust |
|
| 103 |
|
| (121) |
|
| $ | 139 |
| $ | (86) |
|
|
|
|
|
|
|
|
|
| Quarter ended March 31, |
| ||||
|
| 2018 |
| 2017 |
| ||
|
| (in thousands) | |||||
Interest income relating to Assets purchased from PennyMac Mortgage Investment Trust under agreements to resell |
| $ | 1,976 |
| $ | 1,805 |
|
Common shares of beneficial interest of PennyMac Mortgage Investment Trust: |
|
|
|
|
|
|
|
Dividends received from PennyMac Mortgage Investment Trust |
| $ | 35 |
| $ | 36 |
|
Change in fair value of investment in common shares of |
|
| 147 |
|
| 103 |
|
|
| $ | 182 |
| $ | 139 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| March 31, |
| December 31, |
| March 31, |
| December 31, |
| ||||
|
| 2017 |
| 2016 |
| 2018 |
| 2017 |
| ||||
|
| (in thousands) |
| (in thousands) |
| ||||||||
Assets purchased from PennyMac Mortgage Investment Trust under agreements to resell |
| $ | 150,000 |
| $ | 150,000 |
| $ | 142,938 |
| $ | 144,128 |
|
Common shares of beneficial interest of PennyMac Mortgage Investment Trust: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value |
| $ | 1,331 |
| $ | 1,228 |
| $ | 1,352 |
| $ | 1,205 |
|
Number of shares |
|
| 75 |
|
| 75 |
|
| 75 |
|
| 75 |
|
Financing Activities
Spread Acquisition and MSR Servicing Agreements
Effective February 1, 2013, the Company entered into a master spread acquisition and MSR servicing agreement (the “2/1/13 Spread Acquisition Agreement”), pursuant to which it sold to PMT or one of its wholly-owned subsidiaries the rights to receive certain ESS from MSRs acquired by the Company from banks and other third party financial institutions. The Company was 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 were
15
subject to the terms thereof, as modified and supplemented by the terms of a confirmation executed in connection with such transaction.
To the extent the Company refinanced any of the mortgage loans relating to the ESS sold to PMT, the 2/1/13 Spread Acquisition Agreement contained recapture provisions requiring that the Company 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 was less than $200,000, the Company was, at its option, permitted to pay cash to PMT in an amount equal to such fair value instead of transferring such ESS.
On February 29, 2016, the parties terminated the 2/1/13 Spread Acquisition Agreement and all amendments thereto. In connection with the termination of the 2/1/13 Spread Acquisition Agreement, PLS reacquired from PMH all of its right, title and interest in and to all of the Fannie Mae ESS previously sold by PLS to PMH and then subject to such 2/1/13 Spread Acquisition Agreement.
On December 19, 2014,2016, the Company entered intoamended and restated a second master spread acquisition and MSR servicing agreement with PMT (the “12/19/14 Spread“Spread Acquisition Agreement”). The terms of the 12/19/14 Spread Acquisition Agreement are substantially similar, pursuant to the terms of the 2/1/13 Spread Acquisition Agreement, except that the Company only intends to sell ESS relating to Freddie Mac MSRs under the 12/19/14 Spread Acquisition Agreement.
To the extent the Company refinances any of the mortgage loans relating to the ESS it sells to PMT, the 12/19/14 Spread Acquisition Agreement also contains recapture provisions requiring that the Company 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, the Company may, at its option, pay cash to PMT in an amount equal to such fair market value in lieu of transferring such ESS.
On February 29, 2016, PLS also reacquired from PMT all of its right, title and interest in and to all of the Freddie Mac ESS previously sold by PLS to PMT and then subject to such 12/19/14 Spread Acquisition Agreement. The 12/19/14 Spread Acquisition Agreement remains in full force and effect.
On December 19, 2016, the Company amended and restated a third master spread acquisition and MSR servicing agreement with PMT (the “12/19/16 Spread Acquisition Agreement”). The terms of the 12/19/16 Spread Acquisition Agreement are substantially similar to the terms of the 2/1/13 Spread Acquisition Agreement and the 12/19/14 Spread Acquisition Agreement, except that the Company only intends to sell ESS relating to Ginnie Mae MSRs under the 12/19/16 Spread Acquisition Agreement. Pursuant to the 12/19/16 Spread Acquisition Agreement,which the Company may sell to PMT, from time to time, the right to receive participation certificates representing beneficial ownership in ESS arising from Ginnie Mae MSRs acquired by the Company, in which case the Company generally would be required to service or subservice the related mortgage loans for Ginnie Mae. The primary purpose of the amendment and restatement was to facilitate the continued financing of the ESS owned by PMT in connection with the parties’ participation in the GNMA MSR Facility.
To the extent the Company refinances any of the mortgage loans relating to the ESS it has acquired, the 12/19/16 Spread Acquisition Agreement also contains recapture provisions requiring that the Company transfer to PMT, at no cost, the ESS relating to a certain percentage of the unpaid principal balance of the newly originated mortgage loans. However, under the 12/19/16 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 unpaid principal balance of the refinanced mortgage loans, the Company is 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 unpaid principal balance of the modified mortgage loans, the 12/19/16 Spread Acquisition Agreement contains provisions that require the Company to transfer additional ESS or cash in the amount of such shortfall. To the extent the
16
fair market value of the aggregate ESS to be transferred for the applicable month is less than $200,000, the Company may, at its option, wire cash to PMT in an amount equal to such fair market value in lieu of transferring such ESS.
18
Following is a summary of financing activities between the Company and PMT:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Quarter ended March 31, |
| Quarter ended March 31, |
| ||||||||
|
| 2017 |
| 2016 |
| 2018 |
| 2017 |
| ||||
|
| (in thousands) |
| (in thousands) |
| ||||||||
Excess servicing spread financing: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance pursuant to recapture agreement |
| $ | 1,573 |
| $ | 1,911 |
| $ | 904 |
| $ | 1,573 |
|
Repayment |
| $ | 14,632 |
| $ | 20,881 |
| $ | 12,291 |
| $ | 14,632 |
|
Settlement |
| $ | — |
| $ | 59,045 | |||||||
Change in fair value |
| $ | (2,773) |
| $ | (19,449) |
| $ | (6,921) |
| $ | 2,773 |
|
Interest expense |
| $ | 4,647 |
| $ | 7,015 |
| $ | 3,934 |
| $ | 4,647 |
|
Recapture incurred pursuant to refinancings by the Company of mortgage loans subject to excess servicing spread financing included in Net gains on mortgage loans held for sale at fair value |
| $ | 1,403 |
| $ | 1,822 |
| $ | 830 |
| $ | 1,403 |
|
|
|
|
|
|
|
|
| ||||||
|
| March 31, |
| December 31, |
| ||||||||
|
| 2018 |
| 2017 |
| ||||||||
|
| (in thousands) |
| ||||||||||
Excess servicing spread financing at fair value |
| $ | 236,002 |
| $ | 236,534 |
|
Amounts DueReceivable from and Payable to PMT
Amounts duereceivable from and payable to PMT are summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| March 31, |
| December 31, |
| March 31, |
| December 31, |
| ||||
|
| 2017 |
| 2016 |
| 2018 |
| 2017 |
| ||||
|
| (in thousands) |
| (in thousands) |
| ||||||||
Receivable from PMT: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Allocated expenses and expenses incurred on PMT's behalf |
| $ | 10,211 |
| $ | 1,046 |
| $ | 8,806 |
| $ | 11,542 |
|
Management fees |
|
| 5,008 |
|
| 5,081 |
|
| 5,696 |
|
| 5,901 |
|
Servicing fees |
|
| 4,149 |
|
| 5,465 |
|
| 5,562 |
|
| 6,583 |
|
Fulfillment fees |
|
| 4,471 |
|
| 346 |
| ||||||
Correspondent production fees |
|
| 1,825 |
|
| 1,735 |
| ||||||
Conditional Reimbursement |
|
| 900 |
|
| 900 |
|
| 870 |
|
| 870 |
|
Fulfillment fees |
|
| 345 |
|
| 1,300 | |||||||
Interest on assets purchased under agreements to resell |
|
| 106 |
|
| 253 |
|
| 126 |
|
| 142 |
|
Correspondent production fees |
|
| 37 |
|
| 2,371 | |||||||
|
| $ | 20,756 |
| $ | 16,416 |
| $ | 27,356 |
| $ | 27,119 |
|
Payable to PMT: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits made by PMT to fund servicing advances |
| $ | 153,827 |
| $ | 162,945 |
| $ | 117,674 |
| $ | 132,844 |
|
Mortgage servicing rights recapture payable |
|
| 536 |
|
| 707 |
|
| 207 |
|
| 282 |
|
Other |
|
| 10,380 |
|
| 6,384 |
|
| 106 |
|
| 3,872 |
|
|
| $ | 164,743 |
| $ | 170,036 |
| $ | 117,987 |
| $ | 136,998 |
|
1719
Investment Funds
Management Agreements
The Company has investment management agreements with the Investment Funds pursuant to which it receives management fees consisting of base management fees and carried interest.Carried Interest. The management fees are based on the lesser of the funds’ net asset values or aggregate capital contributions. The base management fees accrue at annual rates ranging from 1.5% to 2.0% of the applicable amounts on which they are based.
The Carried Interest that the Company recognizes from the Investment Funds is determined by the Investment Funds’ performance and its contractual rights to share in the Investments Funds’ returns in excess of the preferred returns, if any, accruing to the funds’ investors. The Company recognizes Carried Interest as a participation in the profits in the Investment Funds after the investors in the Investment Funds have achieved a preferred return as defined in the fund agreements. After the investors have achieved the preferred returns specified in the respective fund agreements, a “catch up” return accrues to the Company until it receives a specified percentage of the preferred return. Thereafter, the Company participates in future returns in excess of the preferred return at the rates specified in the fund agreements. The Company received $61.3 million in cash in settlement of the majority of its Carried Interest in 2017. During the quarter ended March 31, 2018, the Company received an additional distribution of $7.8 million in cash.
The amount of the Carried Interest that the Company receives 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 results of the Investment Funds and may be reduced as a result of subsequent performance. However, the Company is not required to pay guaranteed returns to the Investment Funds and the amount of Carried Interest will only be reversed to the extent of amounts previously recognized.
The Investment Funds will continue in existence through December 31, 2017, subject to two one-year extensions at the Company’s discretion, in accordance with the terms of the limited liability company and limited partnership agreements that govern the Investment Funds.Mortgage Loan Servicing Agreements
The Company also has loan servicing agreements with the Investment Funds. The loan servicing to be provided by the Company under the loan servicing agreements with the Investment Funds includes collecting principal, interest and escrow account payments, if any, with respect to mortgage loans, as well as managing loss mitigation, which may include, among other things, collection activities, loan workouts, modifications, foreclosures and short sales. The Company may also engage in certain loan origination activities that include refinancing mortgage loans and arranging financings that facilitate sales of REOs.
The loan servicing agreements with the Investment Funds generally provide for fee revenue, which varies depending on the type and quality of the loans being serviced. The Company is also entitled to certain customary market-based fees and charges. This arrangement was modified, effective January 1, 2012, with respect to one
In 2017 and through the quarter ended March 31, 2018, the Investment Funds sold or liquidated all of their remaining investment assets. Accordingly, future management and servicing fees from the Investment Funds will be discontinued. The terms of the Investment Funds. At that time,Funds currently run through December 31, 2018, subject to a one-year extension at the Company settled its accrued servicing fee rebate and amended its loan servicing agreementCompany’s discretion, in accordance with such fund to charge scheduled servicing fees in placethe terms of the previous “at cost” servicing arrangement.limited liability company and limited partnership agreements that govern the Investment Funds. The Company expects to complete liquidation of the Investment Funds during 2018.
1820
Amounts due from and payable to the Investment Funds are summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| March 31, |
| December 31, |
| March 31, |
| December 31, |
| ||||
|
| 2017 |
| 2016 |
| 2018 |
| 2017 |
| ||||
|
| (in thousands) |
| (in thousands) |
| ||||||||
Carried Interest due from Investment Funds: |
|
|
|
|
|
|
|
|
|
|
|
|
|
PNMAC Mortgage Opportunity Fund, LLC |
| $ | 42,365 |
| $ | 42,427 |
| $ | 290 |
| $ | 6,389 |
|
PNMAC Mortgage Opportunity Fund Investors, LLC |
|
| 28,413 |
|
| 28,479 |
|
| 248 |
|
| 2,163 |
|
|
| $ | 70,778 |
| $ | 70,906 |
| $ | 538 |
| $ | 8,552 |
|
Receivable from Investment Funds: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loan servicing fees |
| $ | 299 |
| $ | 231 | |||||||
Mortgage loan servicing fee rebate deposit |
|
| 255 |
|
| 250 |
| $ | 300 |
| $ | 300 |
|
Management fees |
|
| 232 |
|
| 500 |
|
| 82 |
|
| 88 |
|
Expense reimbursements |
|
| 212 |
|
| 238 |
|
| 78 |
|
| 27 |
|
Mortgage loan servicing fees |
|
| — |
|
| 2 |
| ||||||
|
| $ | 998 |
| $ | 1,219 |
| $ | 460 |
| $ | 417 |
|
Payable to Investment Funds: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits received to fund servicing advances |
| $ | 18,208 |
| $ | 20,221 |
| $ | — |
| $ | 2,329 |
|
Other |
|
| 148 |
|
| 172 |
|
| 26 |
|
| 98 |
|
|
| $ | 18,356 |
| $ | 20,393 |
| $ | 26 |
| $ | 2,427 |
|
Exchanged Private National Mortgage Acceptance Company, LLC Unitholders
The Company entered into a tax receivable agreement with owners of PennyMac other than the Company on the date of the IPO that provides for the payment from time to time by the Company to PennyMac’s exchanged unitholders an amount equal to 85% of the amount of the net tax benefits, if any, that the Company is deemed to realize as a result of (i) increases in tax basis of PennyMac’s assets 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 $78.7$46.0 million and $76.0$44.0 million Payable to exchanged Private National Mortgage Acceptance Company, LLC unitholders under tax receivable agreement as of March 31, 20172018 and December 31, 2016,2017, respectively. The Company made nodid not make any payments under the tax receivable agreement during the quarters ended March 31, 20172018 and 2016.2017.
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 dilutive shares of common stock were issued.
Potentially dilutive shares of common stock include non-vested unit and stock-based compensation awards and PennyMac Class A units. The Company applies the treasury stock method to determine the diluted weighted average shares of common stock outstanding represented by the non-vested unit and stock-based compensation awards. The diluted earnings per share calculation assumes the exchange of 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 that would be applicable to such earnings.
19
The following table summarizes the basic and diluted earnings per share calculations:
|
|
|
|
|
|
|
|
| Quarter ended March 31, | ||||
|
| 2017 |
| 2016 | ||
|
| (in thousands, except per share amounts) | ||||
Basic earnings per share of common stock: |
|
|
|
|
|
|
Net income attributable to PennyMac Financial Services, Inc. common stockholders |
| $ | 10,879 |
| $ | 5,175 |
Weighted average shares of common stock outstanding |
|
| 22,619 |
|
| 22,006 |
Basic earnings per share of common stock |
| $ | 0.48 |
| $ | 0.24 |
|
|
|
|
|
|
|
Diluted earnings per share of common stock: |
|
|
|
|
|
|
Net income attributable to PennyMac Financial Services, Inc. common stockholders |
| $ | 10,879 |
| $ | 5,175 |
Effect of net income attributable to PennyMac Class A units exchangeable to common stock, net of income taxes |
|
| 25,550 |
|
| 12,671 |
Diluted net income attributable to common stockholders |
| $ | 36,429 |
| $ | 17,846 |
Weighted average shares of common stock outstanding |
|
| 22,619 |
|
| 22,006 |
Dilutive shares: |
|
|
|
|
|
|
PennyMac Class A units exchangeable to common stock |
|
| 53,589 |
|
| 54,043 |
Common shares issuable under stock-based compensation plan |
|
| 935 |
|
| 145 |
Diluted weighted average shares of common stock outstanding |
|
| 77,143 |
|
| 76,194 |
Diluted earnings per share of common stock |
| $ | 0.47 |
| $ | 0.23 |
Calculations of diluted earnings per share require certain potentially dilutive shares to be excluded based on whether their inclusion in the diluted earnings per share calculation would be anti-dilutive. The following table summarizes the anti-dilutive weighted-average number of outstanding stock options and performance-based restricted stock units (“RSUs”) excluded from the calculation of diluted earnings per share:
|
|
|
|
|
|
|
|
| Quarter ended March 31, | ||||
|
| 2017 |
| 2016 | ||
|
| (in thousands except for weighted-average exercise price) | ||||
Stock options (1) |
|
| 1,562 |
|
| 2,106 |
Performance-based RSUs (2) |
|
| 1,763 |
|
| 2,567 |
Total anti-dilutive stock-based compensation units |
|
| 3,325 |
|
| 4,673 |
Weighted-average exercise price of anti-dilutive stock options (1) |
| $ | 18.15 |
| $ | 15.80 |
|
|
|
|
.
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 sold in the form of servicing arrangements and the liability under representations and warranties it makes to purchasers and insurers of the mortgage loans sold.loans.
20
The following table summarizes cash flows between the Company and transferees as a result of the sale of mortgage loans in transactions where the Company maintains continuing involvement as servicer with the mortgage loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Quarter ended March 31, |
| Quarter ended March 31, |
| ||||||||
|
| 2017 |
| 2016 |
| 2018 |
| 2017 |
| ||||
|
| (in thousands) |
| (in thousands) |
| ||||||||
Cash flows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales proceeds |
| $ | 11,860,133 |
| $ | 7,942,200 |
| $ | 11,103,785 |
| $ | 11,860,133 |
|
Servicing fees received (1) |
| $ | 84,186 |
| $ | 58,480 |
| $ | 113,091 |
| $ | 84,186 |
|
Net servicing advances |
| $ | (10,302) |
| $ | (8,281) |
| $ | (10,637) |
| $ | (10,302) |
|
(1) | Net of guarantee fees paid to the Agencies. |
|
|
|
|
|
|
|
|
| March 31, |
| December 31, | ||
|
| 2017 |
| 2016 | ||
|
| (in thousands) | ||||
Unpaid principal balance of mortgage loans outstanding |
| $ | 97,505,384 |
| $ | 89,516,155 |
Delinquencies: |
|
|
|
|
|
|
30-89 days |
| $ | 2,136,516 |
| $ | 2,545,970 |
90 days or more: |
|
|
|
|
|
|
Not in foreclosure |
| $ | 544,717 |
| $ | 735,263 |
In foreclosure |
| $ | 200,047 |
| $ | 137,856 |
Foreclosed |
| $ | 2,456 |
| $ | 2,552 |
Bankruptcy |
| $ | 288,728 |
| $ | 256,471 |
21
The following table summarizes the UPB of the mortgage loans sold by the Company in which it maintains continuing involvement:
|
|
|
|
|
|
|
|
|
| March 31, |
| December 31, |
| ||
|
| 2018 |
| 2017 |
| ||
|
| (in thousands) |
| ||||
Unpaid principal balance of mortgage loans outstanding |
| $ | 127,039,741 |
| $ | 120,853,138 |
|
Delinquencies: |
|
|
|
|
|
|
|
30-89 days |
| $ | 3,690,693 |
| $ | 5,097,688 |
|
90 days or more: |
|
|
|
|
|
|
|
Not in foreclosure |
| $ | 2,523,978 |
| $ | 2,303,114 |
|
In foreclosure |
| $ | 670,366 |
| $ | 606,744 |
|
Foreclosed |
| $ | 31,673 |
| $ | 30,310 |
|
Bankruptcy |
| $ | 718,791 |
| $ | 657,368 |
|
The following tables summarize the UPB of the Company’s mortgage loan servicing portfolio is summarized as follows:portfolio:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| March 31, 2017 |
| March 31, 2018 | ||||||||||||||
|
|
|
| Contract |
| Total |
|
|
| Contract |
| Total | ||||||
|
| Servicing |
| servicing and |
| mortgage |
| Servicing |
| servicing and |
| mortgage | ||||||
|
| rights owned |
| subservicing |
| loans serviced |
| rights owned |
| subservicing |
| loans serviced | ||||||
|
| (in thousands) |
| (in thousands) | ||||||||||||||
Investor: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-affiliated entities |
| $ | 137,249,780 |
| $ | — |
| $ | 137,249,780 | |||||||||
Affiliated entities |
|
| — |
|
| 63,452,796 |
|
| 63,452,796 | |||||||||
Non-affiliated entities: |
|
|
|
|
|
|
|
|
| |||||||||
Originated |
| $ | 127,039,741 |
| $ | — |
| $ | 127,039,741 | |||||||||
Purchased |
|
| 48,214,146 |
|
| — |
|
| 48,214,146 | |||||||||
|
|
| 175,253,887 |
|
| — |
|
| 175,253,887 | |||||||||
Advised Entities |
|
| — |
|
| 77,539,438 |
|
| 77,539,438 | |||||||||
Mortgage loans held for sale |
|
| 2,180,760 |
|
| — |
|
| 2,180,760 |
|
| 2,512,546 |
|
| — |
|
| 2,512,546 |
|
| $ | 139,430,540 |
| $ | 63,452,796 |
| $ | 202,883,336 |
| $ | 177,766,433 |
| $ | 77,539,438 |
| $ | 255,305,871 |
Commercial real estate loans subserviced for the Company |
| $ | — |
| $ | 42,870 |
| $ | 42,870 | |||||||||
Subserviced for the Company (1) |
| $ | 3,213,427 |
| $ | — |
| $ | 3,213,427 | |||||||||
Delinquent mortgage loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30 days |
| $ | 2,655,089 |
| $ | 321,926 |
| $ | 2,977,015 |
| $ | 6,469,708 |
| $ | 345,036 |
| $ | 6,814,744 |
60 days |
|
| 817,780 |
|
| 114,676 |
|
| 932,456 |
|
| 1,438,485 |
|
| 124,829 |
|
| 1,563,314 |
90 days or more: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Not in foreclosure |
|
| 2,112,358 |
|
| 566,055 |
|
| 2,678,413 |
|
| 3,520,714 |
|
| 448,718 |
|
| 3,969,432 |
In foreclosure |
|
| 922,343 |
|
| 573,943 |
|
| 1,496,286 |
|
| 984,228 |
|
| 189,773 |
|
| 1,174,001 |
Foreclosed |
|
| 36,383 |
|
| 391,160 |
|
| 427,543 |
|
| 42,960 |
|
| 252,265 |
|
| 295,225 |
|
| $ | 6,543,953 |
| $ | 1,967,760 |
| $ | 8,511,713 |
| $ | 12,456,095 |
| $ | 1,360,621 |
| $ | 13,816,716 |
Bankruptcy |
| $ | 842,519 |
| $ | 264,962 |
| $ | 1,107,481 |
| $ | 1,096,679 |
| $ | 120,942 |
| $ | 1,217,621 |
Custodial funds managed by the Company (1) |
| $ | 2,732,225 |
| $ | 779,880 |
| $ | 3,512,105 | |||||||||
Custodial funds managed by the Company (2) |
| $ | 3,316,317 |
| $ | 1,009,182 |
| $ | 4,325,499 |
(1) | Certain of the mortgage loans serviced by the Company are subserviced on the Company’s behalf by other mortgage loan servicers on a transitional basis where the Company has purchased the rights to service the loans but servicing of the loans has not yet been transferred to the Company’s servicing system. |
(2) | Custodial funds include borrower and investor custodial cash accounts relating to mortgage loans serviced under the servicing agreements and are not recorded on the Company’s consolidated balance sheets. The Company earns placement fees on certain of the custodial funds it manages on behalf of the mortgage loans’ investors, which are included in Interest income in the Company’s consolidated statements of income. |
22
|
|
|
|
|
|
|
|
|
|
|
| December 31, 2017 | |||||||
|
|
|
| Contract |
| Total | |||
|
| Servicing |
| servicing and |
| mortgage | |||
|
| rights owned |
| subservicing |
| loans serviced | |||
|
| (in thousands) | |||||||
Investor: |
|
|
|
|
|
|
|
|
|
Non-affiliated entities: |
|
|
|
|
|
|
|
|
|
Originated |
| $ | 120,853,138 |
| $ | — |
| $ | 120,853,138 |
Purchased |
|
| 47,016,708 |
|
| — |
|
| 47,016,708 |
|
|
| 167,869,846 |
|
| — |
|
| 167,869,846 |
Advised Entities |
|
| — |
|
| 74,980,268 |
|
| 74,980,268 |
Mortgage loans held for sale |
|
| 2,998,377 |
|
| — |
|
| 2,998,377 |
|
| $ | 170,868,223 |
| $ | 74,980,268 |
| $ | 245,848,491 |
Delinquent mortgage loans: |
|
|
|
|
|
|
|
|
|
30 days |
| $ | 5,326,710 |
| $ | 515,922 |
| $ | 5,842,632 |
60 days |
|
| 1,935,216 |
|
| 215,957 |
|
| 2,151,173 |
90 days or more: |
|
|
|
|
|
|
|
|
|
Not in foreclosure |
|
| 3,690,159 |
|
| 541,945 |
|
| 4,232,104 |
In foreclosure |
|
| 916,614 |
|
| 293,835 |
|
| 1,210,449 |
Foreclosed |
|
| 41,244 |
|
| 278,890 |
|
| 320,134 |
|
| $ | 11,909,943 |
| $ | 1,846,549 |
| $ | 13,756,492 |
Bankruptcy |
| $ | 1,046,969 |
| $ | 176,324 |
| $ | 1,223,293 |
Custodial funds managed by the Company (1) |
| $ | 3,267,279 |
| $ | 901,041 |
| $ | 4,168,320 |
(1) | Custodial funds include borrower and investor custodial cash accounts relating to mortgage loans serviced under the servicing agreements and are not recorded on the Company’s consolidated balance sheets. The Company earns placement fees on certain of the custodial funds it manages on behalf of the mortgage loans’ investors, which |
21
|
|
|
|
|
|
|
|
|
|
|
| December 31, 2016 | |||||||
|
|
|
| Contract |
| Total | |||
|
| Servicing |
| servicing and |
| mortgage | |||
|
| rights owned |
| subservicing |
| loans serviced | |||
|
| (in thousands) | |||||||
Investor: |
|
|
|
|
|
|
|
|
|
Non-affiliated entities |
| $ | 131,252,002 |
| $ | — |
| $ | 131,252,002 |
Affiliated entities |
|
| — |
|
| 60,886,717 |
|
| 60,886,717 |
Mortgage loans held for sale |
|
| 2,101,283 |
|
| — |
|
| 2,101,283 |
|
| $ | 133,353,285 |
| $ | 60,886,717 |
| $ | 194,240,002 |
Commercial real estate loans subserviced for the Company |
| $ | — |
| $ | 22,338 |
| $ | 22,338 |
Delinquent mortgage loans: |
|
|
|
|
|
|
|
|
|
30 days |
| $ | 3,240,640 |
| $ | 407,177 |
| $ | 3,647,817 |
60 days |
|
| 1,035,871 |
|
| 145,720 |
|
| 1,181,591 |
90 days or more: |
|
|
|
|
|
|
|
|
|
Not in foreclosure |
|
| 2,203,895 |
|
| 566,496 |
|
| 2,770,391 |
In foreclosure |
|
| 937,204 |
|
| 685,001 |
|
| 1,622,205 |
Foreclosed |
|
| 28,943 |
|
| 448,017 |
|
| 476,960 |
|
| $ | 7,446,553 |
| $ | 2,252,411 |
| $ | 9,698,964 |
Bankruptcy |
| $ | 793,517 |
| $ | 280,459 |
| $ | 1,073,976 |
Custodial funds managed by the Company (1) |
| $ | 3,097,365 |
| $ | 736,398 |
| $ | 3,833,763 |
|
|
Following is a summary of the geographical distribution of mortgage loans included in the Company’s mortgage loan servicing portfolio for the top five and all other states as measured by UPB:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| March 31, |
| December 31, |
| March 31, |
| December 31, |
| ||||
State |
| 2017 |
| 2016 |
| 2018 |
| 2017 |
| ||||
|
| (in thousands) |
| (in thousands) |
| ||||||||
California |
| $ | 43,053,075 |
| $ | 42,303,952 |
| $ | 47,802,425 |
| $ | 45,621,369 |
|
Texas |
|
| 16,717,643 |
|
| 16,037,426 |
|
| 20,275,588 |
|
| 19,741,970 |
|
Florida |
|
| 18,339,719 |
|
| 17,490,194 |
| ||||||
Virginia |
|
| 13,873,143 |
|
| 13,143,510 |
|
| 16,725,533 |
|
| 16,210,673 |
|
Florida |
|
| 13,623,881 |
|
| 12,817,627 | |||||||
Maryland |
|
| 9,155,970 |
|
| 8,564,923 |
|
| 11,900,100 |
|
| 11,350,939 |
|
All other states |
|
| 106,459,624 |
|
| 101,372,564 |
|
| 140,262,506 |
|
| 135,433,346 |
|
|
| $ | 202,883,336 |
| $ | 194,240,002 |
| $ | 255,305,871 |
| $ | 245,848,491 |
|
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 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.
22
Offsetting of Derivative Assets
Following are summaries of derivative assets and related netting amounts.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| March 31, 2017 |
| December 31, 2016 | ||||||||||||||
|
| Gross |
| Gross amount |
| Net amount |
| Gross |
| Gross amount |
| Net amount | ||||||
|
| amount of |
| offset in the |
| of assets in the |
| amount of |
| offset in the |
| of assets in the | ||||||
|
| recognized |
| consolidated |
| consolidated |
| recognized |
| consolidated |
| consolidated | ||||||
|
| assets |
| balance sheet |
| balance sheet |
| assets |
| balance sheet |
| balance sheet | ||||||
|
| (in thousands) | ||||||||||||||||
Derivatives not subject to master netting arrangements - IRLCs |
| $ | 68,618 |
| $ | — |
| $ | 68,618 |
| $ | 65,848 |
| $ | — |
| $ | 65,848 |
Derivatives subject to a master netting arrangements: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward purchase contracts |
|
| 69,321 |
|
| — |
|
| 69,321 |
|
| 77,905 |
|
| — |
|
| 77,905 |
Forward sale contracts |
|
| 1,173 |
|
| — |
|
| 1,173 |
|
| 28,324 |
|
| — |
|
| 28,324 |
MBS put options |
|
| 1,541 |
|
| — |
|
| 1,541 |
|
| 3,934 |
|
| — |
|
| 3,934 |
MBS call options |
|
| — |
|
|
|
|
| — |
|
| 217 |
|
|
|
|
| 217 |
Put options on interest rate futures purchase contracts |
|
| 1,630 |
|
| — |
|
| 1,630 |
|
| 3,109 |
|
| — |
|
| 3,109 |
Call options on interest rate futures purchase contracts |
|
| 1,012 |
|
| — |
|
| 1,012 |
|
| 203 |
|
| — |
|
| 203 |
Netting |
|
| — |
|
| (61,294) |
|
| (61,294) |
|
| — |
|
| (96,635) |
|
| (96,635) |
|
|
| 74,677 |
|
| (61,294) |
|
| 13,383 |
|
| 113,692 |
|
| (96,635) |
|
| 17,057 |
|
| $ | 143,295 |
| $ | (61,294) |
| $ | 82,001 |
| $ | 179,540 |
| $ | (96,635) |
| $ | 82,905 |
Derivative Assets, Financial Instruments, and Cash 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, 2017 |
| December 31, 2016 | ||||||||||||||||||||
|
|
|
| Gross amount not |
|
|
|
|
| Gross amount not |
|
| ||||||||||||
|
|
|
| offset in the |
|
|
|
|
| offset in the |
|
| ||||||||||||
|
|
|
| consolidated |
|
|
|
|
| consolidated |
|
| ||||||||||||
|
|
|
| balance sheet |
|
|
|
|
| balance sheet |
|
| ||||||||||||
|
| Net amount |
|
|
|
|
|
|
| Net amount |
|
|
|
|
|
| ||||||||
|
| of assets in the |
|
|
| Cash |
|
|
| of assets in the |
|
|
| Cash |
|
| ||||||||
|
| consolidated |
| Financial |
| collateral |
| Net |
| consolidated |
| Financial |
| collateral |
| Net | ||||||||
|
| balance sheet |
| instruments |
| received |
| amount |
| balance sheet |
| instruments |
| received |
| amount | ||||||||
|
| (in thousands) | ||||||||||||||||||||||
IRLCs |
| $ | 68,618 |
| $ | — |
| $ | — |
| $ | 68,618 |
| $ | 65,848 |
| $ | — |
| $ | — |
| $ | 65,848 |
Federal National Mortgage Association |
|
| 4,624 |
|
| — |
|
| — |
|
| 4,624 |
|
| — |
|
| — |
|
| — |
|
| — |
Barclays Capital |
|
| 4,181 |
|
| — |
|
| — |
|
| 4,181 |
|
| 12,002 |
|
| — |
|
| — |
|
| 12,002 |
RJ O'Brien |
|
| 2,642 |
|
| — |
|
| — |
|
| 2,642 |
|
| 2,750 |
|
| — |
|
| — |
|
| 2,750 |
Others |
|
| 1,936 |
|
| — |
|
| — |
|
| 1,936 |
|
| 2,305 |
|
| — |
|
| — |
|
| 2,305 |
|
| $ | 82,001 |
| $ | — |
| $ | — |
| $ | 82,001 |
| $ | 82,905 |
| $ | — |
| $ | — |
| $ | 82,905 |
23
Offsetting of Derivative Liabilities and Financial Liabilities
Following is a summary of net derivative liabilities and assets sold under agreements to repurchase and related netting amounts. As discussed above, all derivatives with the exception of IRLCs are subject to master netting arrangements. The assets sold under agreements to repurchase do not qualify for netting.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| March 31, 2017 |
| December 31, 2016 | ||||||||||||||
|
|
|
|
|
| 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 | ||||||
|
| recognized |
| consolidated |
| consolidated |
| recognized |
| consolidated |
| consolidated | ||||||
|
| liabilities |
| balance sheet |
| balance sheet |
| liabilities |
| balance sheet |
| balance sheet | ||||||
|
| (in thousands) | ||||||||||||||||
Derivatives not subject to master netting arrangements - IRLCs |
| $ | 2,611 |
| $ | — |
| $ | 2,611 |
| $ | 6,457 |
| $ | — |
| $ | 6,457 |
Derivatives subject to a master netting arrangement: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward purchase contracts |
|
| 1,225 |
|
| — |
|
| 1,225 |
|
| 16,914 |
|
| — |
|
| 16,914 |
Forward sale contracts |
|
| 65,843 |
|
| — |
|
| 65,843 |
|
| 85,035 |
|
| — |
|
| 85,035 |
Netting |
|
| — |
|
| (53,806) |
|
| (53,806) |
|
| — |
|
| (86,044) |
|
| (86,044) |
|
|
| 67,068 |
|
| (53,806) |
|
| 13,262 |
|
| 101,949 |
|
| (86,044) |
|
| 15,905 |
Total derivatives |
|
| 69,679 |
|
| (53,806) |
|
| 15,873 |
|
| 108,406 |
|
| (86,044) |
|
| 22,362 |
Mortgage loans sold under agreements to repurchase: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount outstanding |
|
| 2,036,366 |
|
| — |
|
| 2,036,366 |
|
| 1,736,922 |
|
| — |
|
| 1,736,922 |
Unamortized debt issuance costs |
|
| (1,558) |
|
| — |
|
| (1,558) |
|
| (1,808) |
|
| — |
|
| (1,808) |
|
|
| 2,034,808 |
|
| — |
|
| 2,034,808 |
|
| 1,735,114 |
|
| — |
|
| 1,735,114 |
|
| $ | 2,104,487 |
| $ | (53,806) |
| $ | 2,050,681 |
| $ | 1,843,520 |
| $ | (86,044) |
| $ | 1,757,476 |
24
Derivative Liabilities, Financial Instruments, and Collateral Held by Counterparty
The following table summarizes by significant counterparty the amount of derivative liabilities and assets sold under agreements to repurchase after considering master netting arrangements and financial instruments or cash pledged that do not qualify under the accounting guidance for netting. All assets sold under agreements to repurchase are secured by sufficient collateral or have fair value that exceeds the liability amount recorded on the consolidated balance sheets.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| March 31, 2017 |
| December 31, 2016 | ||||||||||||||||||||
|
|
|
| Gross amounts |
|
|
|
|
| Gross amounts |
|
| ||||||||||||
|
|
|
| not offset in the |
|
|
|
|
| not offset in the |
|
| ||||||||||||
|
| Net amount |
| consolidated |
|
|
| Net amount |
| consolidated |
|
| ||||||||||||
|
| of liabilities |
| balance sheet |
|
|
| of liabilities |
| balance sheet |
|
| ||||||||||||
|
| in the |
|
|
| Cash |
|
|
| in the |
|
|
| Cash |
|
| ||||||||
|
| consolidated |
| Financial |
| collateral |
| Net |
| consolidated |
| Financial |
| collateral |
| Net | ||||||||
|
| balance sheet |
| instruments |
| pledged |
| amount |
| balance sheet |
| instruments |
| pledged |
| amount | ||||||||
|
| (in thousands) | ||||||||||||||||||||||
IRLCs |
| $ | 2,611 |
| $ | — |
| $ | — |
| $ | 2,611 |
| $ | 6,457 |
| $ | — |
| $ | — |
| $ | 6,457 |
Credit Suisse First Boston Mortgage Capital LLC |
|
| 882,443 |
|
| (882,127) |
|
| — |
|
| 316 |
|
| 961,533 |
|
| (960,988) |
|
| — |
|
| 545 |
Bank of America, N.A. |
|
| 452,827 |
|
| (444,148) |
|
| — |
|
| 8,679 |
|
| 349,638 |
|
| (342,769) |
|
| — |
|
| 6,869 |
Morgan Stanley Bank, N.A. |
|
| 280,735 |
|
| (280,735) |
|
| — |
|
| — |
|
| 189,756 |
|
| (188,851) |
|
| — |
|
| 905 |
JP Morgan Chase Bank, N.A. |
|
| 198,331 |
|
| (197,692) |
|
| — |
|
| 639 |
|
| 135,322 |
|
| (135,322) |
|
| — |
|
| — |
Citibank, N.A. |
|
| 129,814 |
|
| (127,980) |
|
| — |
|
| 1,834 |
|
| 81,555 |
|
| (80,525) |
|
| — |
|
| 1,030 |
Barclays Capital |
|
| 54,203 |
|
| (54,203) |
|
| — |
|
| — |
|
| 28,467 |
|
| (28,467) |
|
| — |
|
| — |
Royal Bank of Canada |
|
| 49,481 |
|
| (49,481) |
|
| — |
|
| — |
|
| 2,937 |
|
| — |
|
| — |
|
| 2,937 |
Goldman Sachs |
|
| 443 |
|
| — |
|
| — |
|
| 443 |
|
| 823 |
|
| — |
|
| — |
|
| 823 |
BNP Paribas |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 1,151 |
|
| — |
|
| — |
|
| 1,151 |
Federal National Mortgage Association |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 1,033 |
|
| — |
|
| — |
|
| 1,033 |
Others |
|
| 1,351 |
|
| — |
|
| — |
|
| 1,351 |
|
| 612 |
|
| — |
|
| — |
|
| 612 |
|
| $ | 2,052,239 |
| $ | (2,036,366) |
| $ | — |
| $ | 15,873 |
| $ | 1,759,284 |
| $ | (1,736,922) |
| $ | — |
| $ | 22,362 |
Note 7—Fair Value
TheMost of the Company’s consolidated financial statements include assets and certain of its liabilities that are measured based on their fair values. The application of fair value 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 fair value as discussed in the following paragraphs.
The Company groups its assets and liabilities at fair value in three levels, based on the markets in which the assets and liabilities are traded and the observability of the inputs used to determine fair value. These levels are:
· | Level 1—Quoted prices in active markets for identical assets or liabilities. |
· | Level 2—Prices determined or determinable using other significant observable inputs. Observable inputs are inputs that other market participants would use in pricing an asset or liability and are developed based |
23
on market data obtained from sources independent of the Company. These may include quoted prices for similar assets and liabilities, interest rates, prepayment speeds, credit risk and other inputs. |
· | Level 3—Prices determined using significant unobservable inputs. In situations where observable inputs are unavailable, unobservable inputs may be used. Unobservable inputs reflect the Company’s own judgments about the factors that market participants use in pricing an asset or liability, and are based on the best information available in the circumstances. |
As a result of the difficulty in observing certain significant valuation inputs affecting “Level 3” fair value assets and liabilities, the Company is required to make judgments regarding these items’ fair values. Different persons in possession of the same facts may reasonably arrive at different conclusions as to the inputs to be applied in valuing these assets and liabilities and their fair values. Likewise, due to the general
25
illiquidity of some of these assets and liabilities, subsequent transactions may be at values significantly different from those reported.
Fair Value Accounting Elections
Management identified all of its non-cash financial assets other than Assets purchased from PennyMac Mortgage Investment Trust under agreements to resell, as well as its originated MSRs relating to loans with initial interest rates of more than 4.5%, its purchased MSRs and its MSLsMortgage servicing liabilities (“MSLs”) to be accounted for at fair value so changes in fair value will be reflected in income 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 MSRs’ fair value risk. OriginatedBeginning January 1, 2018, the Company accounts for all MSRs at fair value. Before January 1, 2018, originated MSRs backed by mortgage loans with initial interest rates of less than or equal to 4.5% arewere accounted for using the amortization method.
24
Assets and Liabilities Measured at Fair Value on a Recurring Basis
Following is a summary of assets and liabilities that are measured at fair value on a recurring basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| March 31, 2017 |
| March 31, 2018 | ||||||||||||||||||||
|
| Level 1 |
| Level 2 |
| Level 3 |
| Total |
| Level 1 |
| Level 2 |
| Level 3 |
| Total | ||||||||
|
| (in thousands) |
| (in thousands) | ||||||||||||||||||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term investments |
| $ | 116,334 |
| $ | — |
| $ | — |
| $ | 116,334 |
| $ | 105,890 |
| $ | — |
| $ | — |
| $ | 105,890 |
Mortgage loans held for sale at fair value |
|
| — |
|
| 1,950,069 |
|
| 327,682 |
|
| 2,277,751 |
|
| — |
|
| 2,123,837 |
|
| 460,399 |
|
| 2,584,236 |
Derivative assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate lock commitments |
|
| — |
|
| — |
|
| 68,618 |
|
| 68,618 |
|
| — |
|
| — |
|
| 53,495 |
|
| 53,495 |
Repurchase agreement derivatives |
|
| — |
|
| — |
|
| 20,974 |
|
| 20,974 | ||||||||||||
Forward purchase contracts |
|
| — |
|
| 69,321 |
|
| — |
|
| 69,321 |
|
| — |
|
| 28,796 |
|
| — |
|
| 28,796 |
Forward sales contracts |
|
| — |
|
| 1,173 |
|
| — |
|
| 1,173 |
|
| — |
|
| 979 |
|
| — |
|
| 979 |
MBS put options |
|
| — |
|
| 1,541 |
|
| — |
|
| 1,541 |
|
| — |
|
| 12,878 |
|
| — |
|
| 12,878 |
Put options on interest rate futures purchase contracts |
|
| 1,630 |
|
| — |
|
| — |
|
| 1,630 |
|
| 1,039 |
|
| — |
|
| — |
|
| 1,039 |
Call options on interest rate futures purchase contracts |
|
| 1,012 |
|
| — |
|
| — |
|
| 1,012 |
|
| 715 |
|
| — |
|
| — |
|
| 715 |
Total derivative assets before netting |
|
| 2,642 |
|
| 72,035 |
|
| 68,618 |
|
| 143,295 |
|
| 1,754 |
|
| 42,653 |
|
| 74,469 |
|
| 118,876 |
Netting |
|
| — |
|
| — |
|
| — |
|
| (61,294) |
|
| — |
|
| — |
|
| — |
|
| (29,407) |
Total derivative assets |
|
| 2,642 |
|
| 72,035 |
|
| 68,618 |
|
| 82,001 |
|
| 1,754 |
|
| 42,653 |
|
| 74,469 |
|
| 89,469 |
Investment in PennyMac Mortgage Investment Trust |
|
| 1,331 |
|
| — |
|
| — |
|
| 1,331 |
|
| 1,352 |
|
| — |
|
| — |
|
| 1,352 |
Mortgage servicing rights at fair value |
|
| — |
|
| — |
|
| 506,916 |
|
| 506,916 |
|
| — |
|
| — |
|
| 2,354,489 |
|
| 2,354,489 |
|
| $ | 120,307 |
| $ | 2,022,104 |
| $ | 903,216 |
| $ | 2,984,333 |
| $ | 108,996 |
| $ | 2,166,490 |
| $ | 2,889,357 |
| $ | 5,135,436 |
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Excess servicing spread financing at fair value payable to PennyMac Mortgage Investment Trust |
| $ | — |
| $ | — |
| $ | 277,484 |
| $ | 277,484 |
| $ | — |
| $ | — |
| $ | 236,002 |
| $ | 236,002 |
Derivative liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate lock commitments |
|
| — |
|
| — |
|
| 2,611 |
|
| 2,611 |
|
| — |
|
| — |
|
| 2,599 |
|
| 2,599 |
Forward purchase contracts |
|
| — |
|
| 1,225 |
|
| — |
|
| 1,225 |
|
| — |
|
| — |
|
| — |
|
| — |
Forward sales contracts |
|
| — |
|
| 65,843 |
|
| — |
|
| 65,843 |
|
| — |
|
| 19,276 |
|
| — |
|
| 19,276 |
Total derivative liabilities before netting |
|
| — |
|
| 67,068 |
|
| 2,611 |
|
| 69,679 |
|
| — |
|
| 19,276 |
|
| 2,599 |
|
| 21,875 |
Netting |
|
| — |
|
| — |
|
| — |
|
| (53,806) |
|
| — |
|
| — |
|
| — |
|
| (17,399) |
Total derivative liabilities |
|
| — |
|
| 67,068 |
|
| 2,611 |
|
| 15,873 |
|
| — |
|
| 19,276 |
|
| 2,599 |
|
| 4,476 |
Mortgage servicing liabilities at fair value |
|
| — |
|
| — |
|
| 15,994 |
|
| 15,994 |
|
| — |
|
| — |
|
| 12,063 |
|
| 12,063 |
|
| $ | — |
| $ | 67,068 |
| $ | 296,089 |
| $ | 309,351 |
| $ | — |
| $ | 19,276 |
| $ | 250,664 |
| $ | 252,541 |
2625
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| December 31, 2016 |
| December 31, 2017 | ||||||||||||||||||||
|
| Level 1 |
| Level 2 |
| Level 3 |
| Total |
| Level 1 |
| Level 2 |
| Level 3 |
| Total | ||||||||
|
| (in thousands) |
| (in thousands) | ||||||||||||||||||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term investments |
| $ | 85,964 |
| $ | — |
| $ | — |
| $ | 85,964 |
| $ | 170,080 |
| $ | — |
| $ | — |
| $ | 170,080 |
Mortgage loans held for sale at fair value |
|
| — |
|
| 2,125,544 |
|
| 47,271 |
|
| 2,172,815 |
|
| — |
|
| 2,316,892 |
|
| 782,211 |
|
| 3,099,103 |
Derivative assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate lock commitments |
|
| — |
|
| — |
|
| 65,848 |
|
| 65,848 |
|
| — |
|
| — |
|
| 60,012 |
|
| 60,012 |
Repurchase agreement derivatives |
|
| — |
|
| — |
|
| 10,656 |
|
| 10,656 | ||||||||||||
Forward purchase contracts |
|
| — |
|
| 77,905 |
|
| — |
|
| 77,905 |
|
| — |
|
| 4,288 |
|
| — |
|
| 4,288 |
Forward sales contracts |
|
| — |
|
| 28,324 |
|
| — |
|
| 28,324 |
|
| — |
|
| 2,101 |
|
| — |
|
| 2,101 |
MBS put options |
|
| — |
|
| 3,934 |
|
| — |
|
| 3,934 |
|
| — |
|
| 3,481 |
|
| — |
|
| 3,481 |
MBS call options |
|
| — |
|
| 217 |
|
| — |
|
| 217 | ||||||||||||
Put options on interest rate futures purchase contracts |
|
| 3,109 |
|
| — |
|
| — |
|
| 3,109 |
|
| 3,570 |
|
| — |
|
| — |
|
| 3,570 |
Call options on interest rate futures purchase contracts |
|
| 203 |
|
| — |
|
| — |
|
| 203 |
|
| 938 |
|
| — |
|
| — |
|
| 938 |
Total derivative assets before netting |
|
| 3,312 |
|
| 110,380 |
|
| 65,848 |
|
| 179,540 |
|
| 4,508 |
|
| 9,870 |
|
| 70,668 |
|
| 85,046 |
Netting |
|
| — |
|
| — |
|
| — |
|
| (96,635) |
|
| — |
|
| — |
|
| — |
|
| (6,867) |
Total derivative assets |
|
| 3,312 |
|
| 110,380 |
|
| 65,848 |
|
| 82,905 |
|
| 4,508 |
|
| 9,870 |
|
| 70,668 |
|
| 78,179 |
Investment in PennyMac Mortgage Investment Trust |
|
| 1,228 |
|
| — |
|
| — |
|
| 1,228 |
|
| 1,205 |
|
| — |
|
| — |
|
| 1,205 |
Mortgage servicing rights at fair value |
|
| — |
|
| — |
|
| 515,925 |
|
| 515,925 |
|
| — |
|
| — |
|
| 638,010 |
|
| 638,010 |
|
| $ | 90,504 |
| $ | 2,235,924 |
| $ | 629,044 |
| $ | 2,858,837 |
| $ | 175,793 |
| $ | 2,326,762 |
| $ | 1,490,889 |
| $ | 3,986,577 |
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Excess servicing spread financing at fair value payable to PennyMac Mortgage Investment Trust |
| $ | — |
| $ | — |
| $ | 288,669 |
| $ | 288,669 |
| $ | — |
| $ | — |
| $ | 236,534 |
| $ | 236,534 |
Derivative liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate lock commitments |
|
| — |
|
| — |
|
| 6,457 |
|
| 6,457 |
|
| — |
|
| — |
|
| 1,740 |
|
| 1,740 |
Forward purchase contracts |
|
| — |
|
| 16,914 |
|
| — |
|
| 16,914 |
|
| — |
|
| 1,272 |
|
| — |
|
| 1,272 |
Forward sales contracts |
|
| — |
|
| 85,035 |
|
| — |
|
| 85,035 |
|
| — |
|
| 7,031 |
|
| — |
|
| 7,031 |
Total derivative liabilities before netting |
|
| — |
|
| 101,949 |
|
| 6,457 |
|
| 108,406 |
|
| — |
|
| 8,303 |
|
| 1,740 |
|
| 10,043 |
Netting |
|
| — |
|
| — |
|
| — |
|
| (86,044) |
|
| — |
|
| — |
|
| — |
|
| (4,247) |
Total derivative liabilities |
|
| — |
|
| 101,949 |
|
| 6,457 |
|
| 22,362 |
|
| — |
|
| 8,303 |
|
| 1,740 |
|
| 5,796 |
Mortgage servicing liabilities at fair value |
|
| — |
|
| — |
|
| 15,192 |
|
| 15,192 |
|
| — |
|
| — |
|
| 14,120 |
|
| 14,120 |
|
| $ | — |
| $ | 101,949 |
| $ | 310,318 |
| $ | 326,223 |
| $ | — |
| $ | 8,303 |
| $ | 252,394 |
| $ | 256,450 |
2726
As shown above, all or a portion of the Company’s mortgage loans held for sale, IRLCs,Interest Rate Lock Commitments (“IRLCs”), repurchase agreement derivatives, MSRs at fair value, ESS at fair value and MSLs are measured using Level 3 fair value inputs. Following are roll forwards of these items for each of the quarters ended March 31, 20172018 and 2016:2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Quarter ended March 31, 2017 |
| Quarter ended March 31, 2018 |
| |||||||||||||||||||||||
|
| Mortgage |
| Net interest |
| Mortgage |
|
|
|
| Mortgage |
| Net interest |
| Repurchase |
| Mortgage |
|
|
|
| |||||||
|
| loans held |
| rate lock |
| servicing |
|
|
|
| loans held |
| rate lock |
| agreement |
| servicing |
|
|
|
| |||||||
|
| for sale |
| commitments (1) |
| rights |
|
| Total |
| for sale |
| commitments (1) |
| derivatives |
| rights |
|
| Total |
| |||||||
|
| (in thousands) |
| (in thousands) |
| |||||||||||||||||||||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2016 |
| $ | 47,271 |
| $ | 59,391 |
| $ | 515,925 |
| $ | 622,587 | ||||||||||||||||
Purchases |
|
| 690,472 |
|
| — |
|
| 203 |
|
| 690,675 | ||||||||||||||||
Balance, December 31, 2017 |
| $ | 782,211 |
| $ | 58,272 |
| $ | 10,656 |
| $ | 638,010 |
| $ | 1,489,149 |
| ||||||||||||
Reclassification of mortgage servicing rights previously accounted for under the amortization method pursuant to a change in accounting principle |
|
| — |
|
| — |
|
| — |
|
| 1,482,426 |
|
| — |
| ||||||||||||
Balance, January 1, 2018 |
|
| 782,211 |
|
| 58,272 |
|
| 10,656 |
|
| 2,120,436 |
|
| 1,489,149 |
| ||||||||||||
Purchases and issuances, net |
|
| 647,269 |
|
| 65,598 |
|
| 10,751 |
|
| 27,606 |
|
| 751,224 |
| ||||||||||||
Sales and repayments |
|
| (274,302) |
|
| — |
|
| — |
|
| (274,302) |
|
| (604,094) |
|
| — |
|
| (7) |
|
| — |
|
| (604,101) |
|
Interest rate lock commitments issued, net |
|
| — |
|
| 71,757 |
|
| — |
|
| 71,757 | ||||||||||||||||
Mortgage servicing rights resulting from mortgage loan sales |
|
| — |
|
| — |
|
| 5,984 |
|
| 5,984 |
|
| — |
|
| — |
|
| — |
|
| 143,910 |
|
| 143,910 |
|
Changes in fair value included in income arising from: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| — |
|
Changes in instrument-specific credit risk |
|
| (1,928) |
|
| — |
|
| — |
|
| (1,928) |
|
| (8,755) |
|
| — |
|
| — |
|
| — |
|
| (8,755) |
|
Other factors |
|
| — |
|
| 25,119 |
|
| (15,196) |
|
| 9,923 |
|
| — |
|
| (44,913) |
|
| (426) |
|
| 62,537 |
|
| 17,198 |
|
|
|
| (1,928) |
|
| 25,119 |
|
| (15,196) |
|
| 7,995 |
|
| (8,755) |
|
| (44,913) |
|
| (426) |
|
| 62,537 |
|
| 8,443 |
|
Transfers from Level 3 to Level 2 |
|
| (133,831) |
|
| — |
|
| — |
|
| (133,831) |
|
| (356,232) |
|
| — |
|
| — |
|
| — |
|
| (356,232) |
|
Transfers of interest rate lock commitments to mortgage loans held for sale |
|
| — |
|
| (90,260) |
|
| — |
|
| (90,260) |
|
| — |
|
| (28,061) |
|
| — |
|
| — |
|
| (28,061) |
|
Balance, March 31, 2017 |
| $ | 327,682 |
| $ | 66,007 |
| $ | 506,916 |
| $ | 900,605 | ||||||||||||||||
Changes in fair value recognized during the period relating to assets still held at March 31, 2017 |
| $ | (4,042) |
| $ | 25,119 |
| $ | (15,196) |
| $ | 5,881 | ||||||||||||||||
Balance, March 31, 2018 |
| $ | 460,399 |
| $ | 50,896 |
| $ | 20,974 |
| $ | 2,354,489 |
| $ | 2,886,758 |
| ||||||||||||
Changes in fair value recognized during the quarter relating to assets still held at March 31, 2018 |
| $ | (7,598) |
| $ | 50,896 |
| $ | (77) |
| $ | 62,537 |
| $ | 105,758 |
|
(1) | For the purpose of this table, the IRLC asset and liability positions are shown net. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Quarter ended March 31, 2017 |
|
| Quarter ended March 31, 2018 |
| ||||||||||||||
|
| Excess |
|
|
|
|
|
|
| Excess |
|
|
|
|
|
| ||||
|
| servicing |
| Mortgage |
|
|
|
|
| servicing |
| Mortgage |
|
|
|
| ||||
|
| spread |
| servicing |
|
|
|
|
| spread |
| servicing |
|
|
|
| ||||
|
| financing |
| liabilities |
| Total |
|
| financing |
| liabilities |
| Total |
| ||||||
|
| (in thousands) |
|
| (in thousands) |
| ||||||||||||||
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2016 |
| $ | 288,669 |
| $ | 15,192 |
| $ | 303,861 |
| ||||||||||
Balance, December 31, 2017 |
| $ | 236,534 |
| $ | 14,120 |
| $ | 250,654 |
| ||||||||||
Issuance of excess servicing spread financing pursuant to a recapture agreement with PennyMac Mortgage Investment Trust |
|
| 1,573 |
|
| — |
|
| 1,573 |
|
|
| 904 |
|
| — |
|
| 904 |
|
Accrual of interest |
|
| 4,647 |
|
| — |
|
| 4,647 |
|
|
| 3,934 |
|
| — |
|
| 3,934 |
|
Repayments |
|
| (14,632) |
|
| — |
|
| (14,632) |
|
|
| (12,291) |
|
| — |
|
| (12,291) |
|
Mortgage servicing liabilities resulting from mortgage loan sales |
|
| — |
|
| 4,059 |
|
| 4,059 |
|
|
| — |
|
| 2,037 |
|
| 2,037 |
|
Changes in fair value included in income |
|
| (2,773) |
|
| (3,257) |
|
| (6,030) |
|
|
| 6,921 |
|
| (4,094) |
|
| 2,827 |
|
Balance, March 31, 2017 |
| $ | 277,484 |
| $ | 15,994 |
| $ | 293,478 |
| ||||||||||
Changes in fair value recognized during the period relating to liabilities still outstanding at March 31, 2017 |
| $ | (2,773) |
| $ | (3,257) |
| $ | (6,030) |
| ||||||||||
Balance, March 31, 2018 |
| $ | 236,002 |
| $ | 12,063 |
| $ | 248,065 |
| ||||||||||
Changes in fair value recognized during the quarter relating to liabilities still outstanding at March 31, 2018 |
| $ | 6,921 |
| $ | (4,094) |
| $ | 2,827 |
| ||||||||||
|
|
|
|
|
|
|
|
|
|
|
2827
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
| Quarter ended March 31, 2016 |
| Quarter ended March 31, 2017 |
|
| |||||||||||||||||||||
|
| Mortgage |
| Net interest |
| Mortgage |
|
|
|
| Mortgage |
| Net interest |
| Mortgage |
|
|
|
|
| |||||||
|
| loans held |
| rate lock |
| servicing |
|
|
|
| loans held |
| rate lock |
| servicing |
|
|
|
|
| |||||||
|
| for sale |
| commitments (1) |
| rights |
| Total |
| for sale |
| commitments (1) |
| rights |
|
| Total |
|
| ||||||||
|
| (in thousands) |
| (in thousands) |
|
| |||||||||||||||||||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Balance, December 31, 2015 |
| $ | 48,531 |
| $ | 43,773 |
| $ | 660,247 |
| $ | 752,551 | |||||||||||||||
Balance, December 31, 2016 |
| $ | 47,271 |
| $ | 59,391 |
| $ | 515,925 |
| $ | 622,587 |
|
| |||||||||||||
Purchases |
|
| 345,886 |
|
| — |
|
| 11 |
|
| 345,897 |
|
| 690,472 |
|
| — |
|
| 203 |
|
| 690,675 |
|
| |
Sales and repayments |
|
| (283,732) |
|
| — |
|
| — |
|
| (283,732) |
|
| (274,302) |
|
| — |
|
| — |
|
| (274,302) |
|
| |
Interest rate lock commitments issued, net |
|
| — |
|
| 78,463 |
|
| — |
|
| 78,463 |
|
| — |
|
| 71,757 |
|
| — |
|
| 71,757 |
|
| |
Mortgage servicing rights resulting from mortgage loan sales |
|
| — |
|
| — |
|
| 4,468 |
|
| 4,468 |
|
| — |
|
| — |
|
| 5,984 |
|
| 5,984 |
|
| |
Changes in fair value included in income arising from: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Changes in instrument-specific credit risk |
|
| 1,769 |
|
| — |
|
| (48,876) |
|
| (47,107) |
|
| (1,928) |
|
| — |
|
| — |
|
| (1,928) |
|
| |
Other factors |
|
| — |
|
| 71,670 |
|
| (21,447) |
|
| 50,223 |
|
| — |
|
| 25,119 |
|
| (15,196) |
|
| 9,923 |
|
| |
|
|
| 1,769 |
|
| 71,670 |
|
| (70,323) |
|
| 3,116 |
|
| (1,928) |
|
| 25,119 |
|
| (15,196) |
|
| 7,995 |
|
| |
Transfers from Level 3 to Level 2 |
|
| (79,424) |
|
| — |
|
| — |
|
| (79,424) |
|
| (133,831) |
|
| — |
|
| — |
|
| (133,831) |
|
| |
Transfers of interest rate lock commitments to mortgage loans held for sale |
|
| — |
|
| (122,021) |
|
| — |
|
| (122,021) |
|
| — |
|
| (90,260) |
|
| — |
|
| (90,260) |
|
| |
Balance, March 31, 2016 |
| $ | 33,030 |
| $ | 71,885 |
| $ | 594,403 |
| $ | 699,318 | |||||||||||||||
Changes in fair value recognized during the period relating to assets still held at March 31, 2016 |
| $ | 501 |
| $ | 71,885 |
| $ | (21,447) |
| $ | 50,939 | |||||||||||||||
Balance, March 31, 2017 |
| $ | 327,682 |
| $ | 66,007 |
| $ | 506,916 |
| $ | 900,605 |
|
| |||||||||||||
Changes in fair value recognized during the quarter relating to assets still held at March 31, 2017 |
| $ | (4,042) |
| $ | 25,119 |
| $ | (15,196) |
| $ | 5,881 |
|
|
(1) | For the purpose of this table, the |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Quarter ended March 31, 2016 |
|
| Quarter ended March 31, 2017 |
| ||||||||||||||
|
| Excess |
|
|
|
|
|
| Excess |
|
|
|
|
| ||||||
|
| servicing |
| Mortgage |
|
|
|
| servicing |
| Mortgage |
|
|
| ||||||
|
| spread |
| servicing |
|
|
|
| spread |
| servicing |
|
|
| ||||||
|
| financing |
| liabilities |
| Total |
|
| financing |
| liabilities |
| Total |
| ||||||
|
| (in thousands) |
|
| (in thousands) |
| ||||||||||||||
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2015 |
| $ | 412,425 |
| $ | 1,399 |
| $ | 413,824 |
| ||||||||||
Balance, December 31, 2016 |
| $ | 288,669 |
| $ | 15,192 |
| $ | 303,861 |
| ||||||||||
Issuance of excess servicing spread financing pursuant to a recapture agreement with PennyMac Mortgage Investment Trust |
|
| 1,911 |
|
| — |
|
| 1,911 |
|
|
| 1,573 |
|
| — |
|
| 1,573 |
|
Mortgage servicing liabilities resulting from mortgage loan sales |
|
| — |
|
| 5,409 |
|
| 5,409 |
| ||||||||||
Accrual of interest |
|
| 7,015 |
|
| — |
|
| 7,015 |
|
|
| 4,647 |
|
| — |
|
| 4,647 |
|
Repayments |
|
| (20,881) |
|
| — |
|
| (20,881) |
|
|
| (14,632) |
|
| — |
|
| (14,632) |
|
Settlement |
|
| (59,045) |
|
| — |
|
| (59,045) |
| ||||||||||
Mortgage servicing liabilities resulting from mortgage loan sales |
|
| — |
|
| 4,059 |
|
| 4,059 |
| ||||||||||
Changes in fair value included in income |
|
| (19,449) |
|
| (61) |
|
| (19,510) |
|
|
| (2,773) |
|
| (3,257) |
|
| (6,030) |
|
Balance, March 31, 2016 |
| $ | 321,976 |
| $ | 6,747 |
| $ | 328,723 |
| ||||||||||
Changes in fair value recognized during the period relating to liabilities still outstanding at March 31, 2016 |
| $ | (12,239) |
| $ | (61) |
| $ | (12,300) |
| ||||||||||
Balance, March 31, 2017 |
| $ | 277,484 |
| $ | 15,994 |
| $ | 293,478 |
| ||||||||||
Changes in fair value recognized during the quarter relating to liabilities still outstanding at March 31, 2017 |
| $ | (2,773) |
| $ | (3,257) |
| $ | (6,030) |
|
The information used in the preceding roll forwards represents activity for any assets and liabilities measured at fair value on a recurring basis and identified as using significant “Level 3” significant fair value inputs at either the beginning or the end of the periods presented. The Company had transfers among the fair value levels arising from transfers of IRLCs to mortgage loans held for sale at fair value upon purchase or funding of the respective mortgage loans and from the return to salability in the active secondary market of certain mortgage loans held for sale.
2928
Assets and Liabilities Measured at Fair Value under the Fair Value Option
Net changes in fair values included in income for assets and liabilities carried at 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, |
| Quarter ended March 31, | |||||||||||||||||||||||||||||||||
|
| 2017 |
| 2016 |
| 2018 |
| 2017 |
| ||||||||||||||||||||||||||||
|
| Net gains on |
|
|
|
|
| Net gains on |
|
|
|
|
| Net gains on |
| Net |
|
|
|
| Net gains on |
| Net |
|
|
|
| ||||||||||
|
| mortgage |
| Net mortgage |
|
|
| mortgage |
| Net mortgage |
|
|
| mortgage |
| mortgage |
|
|
|
| mortgage |
| mortgage |
|
|
|
| ||||||||||
|
| loans held |
| loan |
|
|
| loans held |
| loan |
|
|
| loans held |
| loan |
|
|
|
| loans held |
| loan |
|
|
|
| ||||||||||
|
| for sale at |
| servicing |
|
|
| for sale at |
| servicing |
|
|
| for sale at |
| servicing |
|
|
|
| for sale at |
| servicing |
|
|
|
| ||||||||||
|
| fair value |
| fees |
| Total |
| fair value |
| fees |
| Total |
| fair value |
| fees |
| Total |
| fair value |
| fees |
| Total |
| ||||||||||||
|
| (in thousands) |
| (in thousands) | |||||||||||||||||||||||||||||||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans held for sale at fair value |
| $ | 82,310 |
| $ | — |
| $ | 82,310 |
| $ | 136,082 |
| $ | — |
| $ | 136,082 |
| $ | (6,118) |
| $ | — |
| $ | (6,118) |
| $ | 82,310 |
| $ | — |
| $ | 82,310 |
|
Mortgage servicing rights at fair value |
|
| — |
|
| (15,196) |
|
| (15,196) |
|
| — |
|
| (70,323) |
|
| (70,323) |
|
| — |
|
| 62,537 |
|
| 62,537 |
|
| — |
|
| (15,196) |
|
| (15,196) |
|
|
| $ | 82,310 |
| $ | (15,196) |
| $ | 67,114 |
| $ | 136,082 |
| $ | (70,323) |
| $ | 65,759 |
| $ | (6,118) |
| $ | 62,537 |
| $ | 56,419 |
| $ | 82,310 |
| $ | (15,196) |
| $ | 67,114 |
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Excess servicing spread financing at fair value payable to PennyMac Mortgage Investment Trust |
| $ | — |
| $ | 2,773 |
| $ | 2,773 |
| $ | — |
| $ | 19,449 |
| $ | 19,449 |
| $ | — |
| $ | (6,921) |
| $ | (6,921) |
| $ | — |
| $ | 2,773 |
| $ | 2,773 |
|
Mortgage servicing liabilities at fair value |
|
| — |
|
| 3,257 |
|
| 3,257 |
|
| — |
|
| 61 |
|
| 61 |
|
| — |
|
| 4,094 |
|
| 4,094 |
|
| — |
|
| 3,257 |
|
| 3,257 |
|
|
| $ | — |
| $ | 6,030 |
| $ | 6,030 |
| $ | — |
| $ | 19,510 |
| $ | 19,510 |
| $ | — |
| $ | (2,827) |
| $ | (2,827) |
| $ | — |
| $ | 6,030 |
| $ | 6,030 |
|
Following are the fair value and related principal amounts due upon maturity of assets accounted for under the fair value option:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| March 31, 2017 |
| March 31, 2018 |
| December 31, 2017 | |||||||||||||||||||||
|
|
|
| Principal |
|
|
|
|
| Principal |
|
|
|
|
| Principal |
|
| |||||||||
|
|
|
| amount |
|
|
|
|
| amount |
|
|
|
|
| amount |
|
| |||||||||
|
| Fair |
| due upon |
|
|
| Fair |
| due upon |
|
|
| Fair |
| due upon |
|
| |||||||||
|
| value |
| maturity |
| Difference |
| value |
| maturity |
| Difference |
| value |
| maturity |
| Difference | |||||||||
|
| (in thousands) |
| (in thousands) | |||||||||||||||||||||||
Mortgage loans held for sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current through 89 days delinquent |
| $ | 2,013,417 |
| $ | 1,912,907 |
| $ | 100,510 |
| $ | 2,257,840 |
| $ | 2,177,185 |
| $ | 80,655 |
| $ | 2,430,517 |
| $ | 2,326,772 |
| $ | 103,745 |
90 days or more delinquent: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Not in foreclosure |
|
| 239,165 |
|
| 242,444 |
|
| (3,279) |
|
| 269,172 |
|
| 274,615 |
|
| (5,443) |
|
| 614,329 |
|
| 614,357 |
|
| (28) |
In foreclosure |
|
| 25,169 |
|
| 25,409 |
|
| (240) |
|
| 57,224 |
|
| 60,746 |
|
| (3,522) |
|
| 54,257 |
|
| 57,248 |
|
| (2,991) |
|
| $ | 2,277,751 |
| $ | 2,180,760 |
| $ | 96,991 |
| $ | 2,584,236 |
| $ | 2,512,546 |
| $ | 71,690 |
| $ | 3,099,103 |
| $ | 2,998,377 |
| $ | 100,726 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| December 31, 2016 | |||||||
|
|
|
| Principal |
|
| |||
|
|
|
| amount |
|
| |||
|
| Fair |
| due upon |
|
| |||
|
| value |
| maturity |
| Difference | |||
|
| (in thousands) | |||||||
Mortgage loans held for sale: |
|
|
|
|
|
|
|
|
|
Current through 89 days delinquent |
| $ | 2,148,947 |
| $ | 2,077,034 |
| $ | 71,913 |
90 days or more delinquent: |
|
|
|
|
|
|
|
|
|
Not in foreclosure |
|
| 19,227 |
|
| 19,399 |
|
| (172) |
In foreclosure |
|
| 4,641 |
|
| 4,850 |
|
| (209) |
|
| $ | 2,172,815 |
| $ | 2,101,283 |
| $ | 71,532 |
30
Assets Measured at Fair Value on a Nonrecurring Basis
Following is a summary of assets and liabilities that were measured at fair value on a nonrecurring basis during the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| March 31, 2017 | ||||||||||
|
| Level 1 |
| Level 2 |
| Level 3 |
| Total | ||||
|
| (in thousands) | ||||||||||
Mortgage servicing rights at lower of amortized cost or fair value |
| $ | — |
| $ | — |
| $ | 1,198,651 |
| $ | 1,198,651 |
Real estate acquired in settlement of loans |
|
| — |
|
| — |
|
| 888 |
|
| 888 |
|
| $ | — |
| $ | — |
| $ | 1,199,539 |
| $ | 1,199,539 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| March 31, 2018 | ||||||||||
|
| Level 1 |
| Level 2 |
| Level 3 |
| Total | ||||
|
| (in thousands) | ||||||||||
Real estate acquired in settlement of loans |
| $ | — |
| $ | — |
| $ | 1,273 |
| $ | 1,273 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| December 31, 2016 |
| December 31, 2017 | ||||||||||||||||||||
|
| Level 1 |
| Level 2 |
| Level 3 |
| Total |
| Level 1 |
| Level 2 |
| Level 3 |
| Total | ||||||||
|
| (in thousands) |
| (in thousands) | ||||||||||||||||||||
Mortgage servicing rights at lower of amortized cost or fair value |
| $ | — |
| $ | — |
| $ | 1,093,242 |
| $ | 1,093,242 |
| $ | — |
| $ | — |
| $ | 1,463,552 |
| $ | 1,463,552 |
Real estate acquired in settlement of loans |
|
|
|
|
|
|
|
| 1,152 |
|
| 1,152 |
|
| — |
|
| — |
|
| 2,355 |
|
| 2,355 |
|
| $ | — |
| $ | — |
| $ | 1,094,394 |
| $ | 1,094,394 |
| $ | — |
| $ | — |
| $ | 1,465,907 |
| $ | 1,465,907 |
|
|
|
|
|
|
|
|
|
|
|
|
|
29
The following table summarizes the total gains (losses) on assets measured at fair value on a nonrecurring basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Quarter ended March 31, |
| Quarter ended March 31, |
| ||||||||
|
| 2017 |
| 2016 |
| 2018 |
| 2017 |
| ||||
|
| (in thousands) |
| (in thousands) |
| ||||||||
Mortgage servicing rights at lower of amortized cost or fair value |
| $ | 13,999 |
| $ | (77,073) |
| $ | — |
| $ | 13,999 |
|
Real estate acquired in settlement of loans |
|
| (37) |
|
| (435) |
|
| 27 |
|
| (37) |
|
|
| $ | 13,962 |
| $ | (77,508) |
| $ | 27 |
| $ | 13,962 |
|
|
|
|
|
|
|
|
|
Fair Value of Financial Instruments Carried at Amortized Cost
The Company’s Assets purchased from PennyMac Mortgage Investment Trust under agreements to resell, Assets sold under agreements to repurchase, Mortgage loan participation purchase and sale agreements, Notes payable, and Obligations under capital leaseand amounts receivable from and payable to the Advised Entities are carried at amortized cost.
The Company has concluded that the These assets and liabilities’ fair value of the Assets purchased from PennyMac Mortgage Investment Trust under agreements to resell and the receivables from and payables to the Advised Entities approximate the carrying value due to their short terms and/or variable interest rates.
The Company’s borrowings carried at amortized costvalues do not have observable inputs and the fair value is measured using management’s estimate of fair value, where the inputs into the determination of fair value require significant management judgment or estimation. TheAccordingly, the Company has classified these financial instruments as “Level 3” fair value assets and liabilities and has concluded that those assets and liabilities’ fair values approximate the carrying value due to the lack of observable inputs to estimate their fair values.short terms and/or variable interest rates.
Valuation Techniques and Inputs
Most of the Company’s financial assets, a portionand all of its MSRs, and its ESS financing and MSLs, 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, ESS and MSLs are “Level 3” fair value assets and liabilities which require the use of unobservable inputs that are significant to the estimation of the items’ fair values. Unobservable inputs reflect the Company’s own judgments about the factors that market participants use in pricing an asset or liability, and are based on the best information available under the circumstances.
Due to the difficulty in estimating the fair values of “Level 3” fair value assets and liabilities, management has assigned the responsibility for estimating the fair value of these items to specialized staff and subjects the valuation
31
process to significant senior management oversight. The Company’s Financial Analysis and Valuation group (the “FAV group”) is the Company’s specialized staff responsible for estimating the fair values of “Level 3” fair value assets and liabilities other than IRLCs.
With respect to the non-IRLC “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” fair value assets and liabilities, including the models’ performance versus actual results, and reports those results to the Company’s senior management valuation committee. The Company’s senior management valuation committee includes the Company’s executive chairman, and chief executive, chief financial, chief risk chief enterprise operations and deputy chief financial 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 non-IRLC “Level 3” fair value assets and liabilities, including major factors affecting the valuation and any changes in model methods and 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.
With respect to IRLCs, the Company has assigned responsibility for developing fair values to its Capital Markets Risk Management staff. The fair values developed by the Capital Markets Risk Management staff are reviewed by the Company’s Capital Markets Operations group.
30
Following is a description of the techniques and inputs used in estimating the fair values of “Level 2” and “Level 3” fair value assets and liabilities:
Mortgage Loans Held for Sale
Most of the Company’s mortgage loans held for sale at fair value are saleable into active markets and are therefore categorized as “Level 2” fair value assets and their fair values are determined using their quoted market or contracted selling price or market price equivalent.
Certain of the Company’s mortgage loans held for sale may become non-saleable into active markets due to identification of a defect by the Company or to the repurchase by the Company of a mortgage loan with an identified defect. The Company may also purchase certain delinquent government guaranteed or insured mortgage loans from Ginnie Mae guaranteed pools in its mortgage loan servicing portfolio.
The Company’s right to purchase delinquent government guaranteed or insured mortgage loans arises 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. Such repurchased mortgage loans may be resold to third-party investors and thereafter may be repurchased to the extent eligible for resale into a new Ginnie Mae guaranteed pool. Such eligibility for resale generally occurs when the repurchased mortgage loans held by the Company that are not saleable into active markets become current either through the borrower’s reperformance or through completion of a modification of the mortgage loan’s terms.and are therefore categorized as “Level 3” fair value assets. Mortgage loans held for sale categorized as “Level 3” fair value assets include:
· | Certain delinquent government guaranteed or insured mortgage loans purchased by the Company from Ginnie Mae guaranteed pools in its mortgage loan servicing portfolio. The Company’s right to purchase delinquent government guaranteed or insured mortgage loans arises 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. Such repurchased mortgage loans may be resold to third-party investors and thereafter may be repurchased to the extent they become eligible for resale into a new Ginnie Mae guaranteed pool. Such eligibility for resale generally occurs when the repurchased mortgage loans become current either through the borrower’s reperformance or through completion of a modification of the mortgage loan’s terms. |
· | Certain of the Company’s mortgage loans held for sale that become non-saleable into active markets due to identification of a defect by the Company or to the repurchase by the Company of a mortgage loan with an identified defect. |
The Company uses a discounted cash flow model to estimate the fair value of its “Level 3” fair value mortgage loans held for sale at fair value. The significant unobservable inputs used in the fair value measurement of the Company’s “Level 3” fair value mortgage loans held for sale at fair value are discount rates, home price projections, voluntary prepayment/resale speeds and total 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.
32
Following is a quantitative summary of key “Level 3” fair value inputs used in the valuation of mortgage loans held for sale at fair value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Key inputs |
| March 31, 2017 |
| December 31, 2016 |
| March 31, 2018 |
| December 31, 2017 |
|
Discount rate: |
|
|
|
|
|
|
|
|
|
Range |
| 2.8% – 8.9% |
| 2.6% – 8.8% |
| 3.2% – 9.8% |
| 2.9% – 10.0% |
|
Weighted average |
| 2.8% |
| 3.0% |
| 3.2% |
| 2.9% |
|
Twelve-month projected housing price index change: |
|
|
|
|
|
|
|
|
|
Range |
| 3.0% – 4.0% |
| 2.0% – 4.5% |
| 2.0% – 5.8% |
| 3.1% – 5.6% |
|
Weighted average |
| 3.6% |
| 3.7% |
| 2.6% |
| 3.6% |
|
Voluntary prepayment / resale speed (1): |
|
|
|
|
|
|
|
|
|
Range |
| 0.1% – 21.4% |
| 0.1% – 24.4% |
| 0.2% – 66.7% |
| 0.2% – 72.2% |
|
Weighted average |
| 19.8% |
| 20.9% |
| 25.2% |
| 44.6% |
|
Total prepayment speed (2): |
|
|
|
|
|
|
|
|
|
Range |
| 0.1% – 40.9% |
| 0.1% – 39.8% |
| 0.2% – 70.2% |
| 0.2% – 75.2% |
|
Weighted average |
| 38.9% |
| 34.3% |
| 42.3% |
| 55.8% |
|
(1) | Voluntary prepayment/resale speed is measured using Life Voluntary Conditional Prepayment Rate (“CPR”). |
(2)Total prepayment speed is measured using Life Total CPR.
31
Changes in fair value attributable to changes in instrument specific credit risk are measured by reference to the change in the respective mortgage loan’s delinquency status and performance history 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 valuein the Company’s consolidated statements of income.
Derivative Financial Instruments
Interest Rate Lock Commitments
The Company categorizes IRLCs as a “Level 3” fair value asset or liability. The Company estimates the fair value of an IRLC based on quoted Agency 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 fair 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 the IRLCs’ fair value measurement. The financial effects of changes in these inputs 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-through rate for the mortgage loan principal and interest payment cash flow component, which has decreased in fair value. Changes in fair value of IRLCs are included in Net gains on mortgage loans acquired for sale at fair value and may be allocated to Net mortgage loan servicing fees –Amortization, impairment and change in fair value of mortgage servicing rights and mortgage servicing liabilities as a hedge of the fair value of MSRs in the consolidated statements of income when it is included as a component of the MSR hedging strategy.
33
Following is a quantitative summary of key “Level 3” fair value inputs used in the valuation of IRLCs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Key inputs |
| March 31, 2017 |
| December 31, 2016 |
| March 31, 2018 |
| December 31, 2017 |
Pull-through rate: |
|
|
|
|
|
|
|
|
Range |
| 43.9% – 100% |
| 35.0% – 100.0% |
| 24.8% – 100% |
| 25.0% – 100% |
Weighted average |
| 83.8% |
| 84.9% |
| 83.7% |
| 85.6% |
Mortgage servicing rights value expressed as: |
|
|
|
|
|
|
|
|
Servicing fee multiple: |
|
|
|
|
|
|
|
|
Range |
| 1.5 – 5.5 |
| 1.2 – 5.9 |
| 1.2 – 5.7 |
| 1.4 – 5.8 |
Weighted average |
| 4.0 |
| 4.3 |
| 3.9 |
| 4.0 |
Percentage of unpaid principal balance: |
|
|
|
|
|
|
|
|
Range |
| 0.3% – 2.7% |
| 0.3% – 2.8% |
| 0.3% – 3.1% |
| 0.3% – 3.0% |
Weighted average |
| 1.2% |
| 1.3% |
| 1.4% |
| 1.4% |
Hedging Derivatives
Fair value of exchange-traded hedging derivative financial instruments based on exchange traded market prices are categorized by the Company as “Level 1” fair value assets and liabilities. Fair value of hedging derivative financial instruments based on observable MBS prices or interest rate volatilities in the MBS market are categorized as “Level 2” fair value assets and liabilities. Changes in the fair value of hedging derivatives are included in Net gains on mortgage loans acquired for sale at fair value, or Net mortgage loan servicing fees – Amortization, impairment and change in fair value of mortgage servicing rights and mortgage servicing liabilities, as applicable, in the consolidated statements of income.
32
Repurchase Agreement Derivatives
The Company has a master repurchase agreement that includes incentives for financing mortgage loans approved for satisfying certain consumer relief characteristics. These incentives are classified for financial reporting purposes as embedded derivatives and are accounted for separate from the master repurchase agreement. The Company classifies these derivatives as “Level 3” fair value assets. The significant unobservable input into the valuation of these derivative assets is the ratio of derivative value to the outstanding receivable, which represents a discount for the time value of money and the Company’s expected approval rate of the mortgage loans financed under the master repurchase agreement. The ratio included in the Company’s fair value estimate was 97% at March 31, 2018 and December 31, 2017.
Mortgage Servicing Rights
MSRs are categorized as “Level 3” fair value assets. 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 the applicable pricing spread (discount rate), the prepayment rates of the underlying mortgage loans, the applicable pricing spread (discount rate), and the per-loan annual cost to service the respective mortgage loans. Changes in the fair value of MSRs are included in Net mortgage loan servicing fees—Amortization, impairment and change in fair value of mortgage servicing rights and mortgage servicing liabilities in the consolidated statements of income. Through December 31, 2017, the Company accounted for certain of its MSRs using the amortization method. Beginning January 1, 2018, the Company accounts for all MSRs at fair value prospectively.
.
34
Following are the key inputs used in determining the fair value of MSRs at the time of initial recognition, excluding MSR purchases:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Quarter ended March 31, |
| Quarter ended March 31, | |||||||||||||||||
|
| 2017 |
| 2016 |
| 2018 |
| 2017 | |||||||||||||
|
| Fair |
| Amortized |
| Fair |
| Amortized |
| Fair |
| Fair |
| Amortized | |||||||
|
| value |
| cost |
| value |
| cost |
| value |
| value |
| cost | |||||||
|
| (Amount recognized and unpaid principal balance of underlying mortgage loans in thousands) |
| (Amount recognized and unpaid principal balance of underlying mortgage loans in thousands) | |||||||||||||||||
MSR and pool characteristics: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount recognized |
| $ | 5,984 |
| $ | 130,218 |
| $ | 4,468 |
| $ | 96,314 |
| $ | 143,910 |
| $ | 5,984 |
| $ | 130,218 |
Unpaid principal balance of underlying mortgage loans |
| $ | 504,065 |
| $ | 10,700,600 |
| $ | 367,807 |
| $ | 6,984,172 |
| $ | 10,162,316 |
| $ | 504,065 |
| $ | 10,700,600 |
Weighted average servicing fee rate (in basis points) |
|
| 31 |
|
| 29 |
|
| 33 |
|
| 33 |
|
| 35 |
|
| 31 |
|
| 29 |
Key inputs: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pricing spread (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Range |
|
| 7.6% – 11.0% |
|
| 7.6% – 14.9% |
|
| 7.2% – 9.8% |
|
| 7.2% – 12.8% |
|
| 7.4% – 14.1% |
|
| 7.6% – 11.0% |
|
| 7.6% – 14.9% |
Weighted average |
|
| 10.5% |
|
| 10.6% |
|
| 8.7% |
|
| 8.9% |
|
| 10.3% |
|
| 10.5% |
|
| 10.6% |
Annual total prepayment speed (2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Range |
|
| 4.2% – 50.5% |
|
| 3.4% – 45.4% |
|
| 4.1% – 52.3% |
|
| 3.8% – 48.0% |
|
| 3.9% – 49.0% |
|
| 4.2% – 50.5% |
|
| 3.4% – 45.4% |
Weighted average |
|
| 10.8% |
|
| 8.2% |
|
| 13.2% |
|
| 11.1% |
|
| 8.9% |
|
| 10.8% |
|
| 8.2% |
Life (in years) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Range |
|
| 0.9 – 11.3 |
|
| 1.6 – 12.2 |
|
| 1.3 – 11.7 |
|
| 1.5 – 11.9 |
|
| 1.1 – 11.6 |
|
| 0.9 – 11.3 |
|
| 1.6 – 12.2 |
Weighted average |
|
| 7.2 |
|
| 8.6 |
|
| 6.4 |
|
| 7.2 |
|
| 8.2 |
|
| 7.2 |
|
| 8.6 |
Per-loan annual cost of servicing |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Range |
|
| $78 – $101 |
|
| $79 – $101 |
|
| $68 – $95 |
|
| $68 – $95 |
|
| $78 – $98 |
|
| $78 – $101 |
|
| $79 – $101 |
Weighted average |
|
| $90 |
|
| $91 |
|
| $82 |
|
| $82 |
|
| $89 |
|
| $90 |
|
| $91 |
(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. |
(2) | Prepayment speed is measured using Life Total CPR. |
3533
Following is a quantitative summary of key inputs used in the valuation and assessment for impairment of the Company’s MSRs at period endas of the dates presented and the effect on fair value from adverse changes in those inputs (weighted averages are based upon UPB):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
| March 31, 2017 |
| December 31, 2016 |
| March 31, 2018 |
| December 31, 2017 |
| |||||||||||||
|
| Fair |
| Amortized |
| Fair |
| Amortized |
| Fair |
| Fair |
| Amortized |
| |||||||
|
| value |
| cost |
| value |
| cost |
| value |
| value |
| cost |
| |||||||
|
| (Carrying value, unpaid principal balance of underlying |
| (Carrying value, unpaid principal balance of underlying |
| |||||||||||||||||
|
| mortgage loans and effect on fair value amounts in thousands) |
| mortgage loans and effect on fair value amounts in thousands) |
| |||||||||||||||||
MSR and pool characteristics: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Carrying value |
| $ | 506,916 |
| $ | 1,218,145 |
| $ | 515,925 |
| $ | 1,111,747 |
| $2,354,489 |
| $638,010 |
| $1,481,578 |
| |||
Unpaid principal balance of underlying mortgage loans |
| $ | 42,138,932 |
| $ | 93,210,356 |
| $ | 43,667,165 |
| $ | 85,509,941 |
| $173,487,165 |
| $51,883,539 |
| $114,365,698 |
| |||
Weighted average note interest rate |
|
| 4.1% |
|
| 3.7% |
|
| 4.1% |
|
| 3.7% |
| 3.9% |
| 4.0% |
| 3.8% |
| |||
Weighted average servicing fee rate (in basis points) |
|
| 32 |
|
| 31 |
|
| 32 |
| 31 |
| 32 |
| 32 |
| 31 |
| ||||
Key inputs: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Pricing spread (1): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Range |
|
| 7.6% – 14.9% |
|
| 7.6% – 14.9% |
|
| 7.6% – 14.9% |
|
| 7.6% – 14.9% |
| 7.4% – 14.4% |
| 7.6% – 14.1% |
| 7.6% – 14.1% |
| |||
Weighted average |
|
| 10.1% |
|
|
| 10.7% |
|
|
| 10.1% |
|
|
| 10.7% |
| 10.2% |
| 9.8% |
| 10.3% |
|
Effect on fair value of (2): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
5% adverse change |
| $ | (8,913) |
| $ | (24,695) |
|
| $ | (9,097) |
| $ | (22,382) |
| ($42,903) |
| ($10,760) |
| ($27,700) |
| ||
10% adverse change |
| $ | (17,510) |
| $ | (48,422) |
|
| $ | (17,872) |
| $ | (43,889) |
| ($84,255) |
| ($21,155) |
| ($54,376) |
| ||
20% adverse change |
| $ | (33,818) |
| $ | (93,179) |
|
| $ | (34,516) |
| $ | (84,464) |
| ($162,614) |
| ($40,916) |
| ($104,869) |
| ||
Average life (in years): |
|
|
|
|
|
|
|
|
| |||||||||||||
Prepayment speed (3): |
|
|
|
|
|
|
| |||||||||||||||
Range |
|
| 1.1 – 8.6 |
| 1.9 – 9.4 |
| 1.3 – 8.6 |
| 1.6 – 9.4 |
| 7.3% – 58.6% |
| 7.9% – 46.2% |
| 7.4% – 44.1% |
| ||||||
Weighted average |
|
| 6.8 |
|
|
| 8.1 |
|
| 6.7 |
|
|
| 8.1 |
| 8.9% |
| 10.5% |
| 9.7% |
| |
Prepayment speed (3): |
|
|
|
|
|
|
|
|
| |||||||||||||
Average life (in years): |
|
|
|
|
|
|
| |||||||||||||||
Range |
|
| 7.0% – 53.4% |
|
| 6.5% – 40.3% |
|
| 7.0% – 46.7% |
|
| 6.6% – 43.9% |
| 0.9 – 8.3 |
| 1.2 – 7.8 |
| 2.0 – 8.3 |
| |||
Weighted average |
|
| 10.2% |
|
| 8.5% |
|
| 10.3% |
|
| 8.7% |
| 7.7 |
| 6.6 |
| 7.5 |
| |||
Effect on fair value of (2): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
5% adverse change |
| $ | (8,496) |
| $ | (18,158) |
| $ | (8,818) |
| $ | (16,636) |
| ($33,489) |
| ($10,809) |
| ($23,544) |
| |||
10% adverse change |
| $ | (16,706) |
| $ | (35,753) |
| $ | (17,336) |
| $ | (32,750) |
| ($65,896) |
| ($21,239) |
| ($46,284) |
| |||
20% adverse change |
| $ | (32,321) |
| $ | (69,359) |
| $ | (33,533) |
| $ | (63,513) |
| ($127,676) |
| ($41,038) |
| ($89,514) |
| |||
Annual per-loan cost of servicing: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Range |
|
| $78 – $99 |
| $79 – $99 |
| $78 – $101 |
| $79 – $101 |
| $78 – $97 |
| $78 – $97 |
| $79 – $97 |
| ||||||
Weighted average |
|
| $90 |
|
| $89 |
|
|
| $92 |
|
| $92 |
| $89 |
| $89 |
| $89 |
| ||
Effect on fair value of (2): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
5% adverse change |
| $ | (5,370) |
| $ | (9,461) |
|
| $ | (5,612) |
| $ | (8,890) |
| ($18,880) |
| ($6,247) |
| ($11,216) |
| ||
10% adverse change |
| $ | (10,740) |
| $ | (18,923) |
|
| $ | (11,225) |
| $ | (17,781) |
| ($37,760) |
| ($12,494) |
| ($22,431) |
| ||
20% adverse change |
| $ | (21,479) |
| $ | (37,845) |
|
| $ | (22,450) |
| $ | (35,562) |
| ($75,520) |
| ($24,987) |
| ($44,863) |
|
(1) | The Company applies a pricing spread to the United States Dollar LIBOR curve for purposes of discounting cash flows relating to MSRs. |
(2) | For MSRs carried at fair value, an adverse change in one of the above-mentioned key inputs is expected to result in a reduction in fair value which will be recognized in income. For MSRs carried at lower of amortized cost or fair value, an adverse change in one of the above-mentioned key inputs |
(3) | 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 inputs; do not incorporate changes to other inputs; are subject to the accuracy of various models and inputs used; and do not incorporate other factors that would affect the Company’s overall financial performance in such events, including operational adjustments made by management to account for changing circumstances. For these reasons, the preceding estimates should not be viewed as earnings forecasts.
3634
Excess Servicing Spread Financing at Fair Value
The Company categorizes ESS as a “Level 3” fair value liability. Because the ESS is a claim to a portion of the cash flows from MSRs, the fair value measurement of the ESS is similar to that of MSRs. The Company uses the same discounted cash flow approach to measuring the ESS as used to measure MSRs except that certain inputs relating to the cost to service the mortgage loans underlying the MSR and certain ancillary income are not included as these cash flows do not accrue to the holder of the ESS. The key inputs used in the estimation of ESS fair value include pricing spread (discount rate) and prepayment speed. Significant changes to either of those inputs in isolation could result in a significant change in the fair value of ESS. Changes in these key inputs are not necessarily directly related.
ESS is generally subject to fair value increases when mortgage interest rates increase. Increasing mortgage interest rates normally slow mortgage refinancing activity. Decreased refinancing activity increases the life of the mortgage loans underlying the ESS, thereby increasing its fair value, which is owed to PMT. Increasesvalue. Changes in the fair value of ESS decrease income and are included in Net mortgage loan servicing fees—fees—Change in fair value of excess servicing spread payable to PennyMac Mortgage Investment Trust.Investment.
Following are the key inputs used in estimating the fair value of ESS financing:ESS:
|
|
|
|
|
|
|
|
|
|
| March 31, |
| December 31, |
| March 31, |
| December 31, |
|
| 2017 |
| 2016 |
| 2018 |
| 2017 |
Carrying value (in thousands) |
| $277,484 |
| $288,669 |
| $236,002 |
| $236,534 |
ESS and pool characteristics: |
|
|
|
|
|
|
|
|
Unpaid principal balance of underlying mortgage loans (in thousands) |
| $31,154,796 |
| $32,376,359 |
| $26,236,839 |
| $27,217,199 |
Average servicing fee rate (in basis points) |
| 34 |
| 34 |
| 34 |
| 34 |
Average excess servicing spread (in basis points) |
| 19 |
| 19 |
| 19 |
| 19 |
Key inputs: |
|
|
|
|
|
|
|
|
Pricing spread (1): |
|
|
|
|
|
|
|
|
Range |
| 3.8% – 4.8% |
| 3.8% – 4.8% |
| 3.6% – 4.1% |
| 3.8% – 4.3% |
Weighted average |
| 4.4% |
| 4.4% |
| 3.9% |
| 4.1% |
Annualized prepayment speed (2): |
|
|
|
| ||||
Range |
| 8.0% – 52.4% |
| 8.4% – 41.4% | ||||
Weighted average |
| 9.9% |
| 10.8% | ||||
Average life (in years): |
|
|
|
|
|
|
|
|
Range |
| 1.3 – 8.6 |
| 1.4 – 8.6 |
| 1.1 – 7.8 |
| 1.4 – 7.7 |
Weighted average |
| 6.8 |
| 6.8 |
| 6.8 |
| 6.5 |
Annualized prepayment speed (2): |
|
|
|
| ||||
Range |
| 7.0% – 46.6% |
| 7.0% – 41.3% | ||||
Weighted average |
| 10.3% |
| 10.5% |
(1)The Company applies a pricing spread to the United States Dollar LIBOR curve for purposes of discounting cash flows relating to ESS.
(2)Prepayment speed is measured using Life Total CPR.
Mortgage Servicing Liabilities
MSLs are categorized as “Level 3” fair value liabilities. The Company uses a discounted cash flow approach to estimate the fair value of MSLs. 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 MSLs include the applicable pricing spread (discount rate), the prepayment rates of the underlying mortgage loans, the applicable pricing spread (discount rate), and the per-loan annual cost to service the respective mortgage loans. Changes in the fair value of MSLs are included in Net servicing fees—Amortization, impairment and change in fair value of mortgage servicing rights and mortgage servicing liabilitiesin the consolidated statements of income.
3735
Following are the key inputs used in determining the fair value of MSLs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| March 31, |
| December 31, |
|
| March 31, |
|
| December 31, | ||
|
| 2017 |
| 2016 |
|
| 2018 |
|
| 2017 | ||
MSL and pool characteristics: |
|
|
|
|
|
|
|
|
|
|
|
|
Carrying value (in thousands) |
| $ | 15,994 |
| $ | 15,192 |
| $ | 12,063 |
| $ | 14,120 |
Unpaid principal balance of underlying mortgage loans (in thousands) |
| $ | 1,900,493 |
| $ | 2,074,896 |
| $ | 1,766,722 |
| $ | 1,620,609 |
Weighted average servicing fee rate (in basis points) |
|
| 25 |
|
| 25 |
|
| 25 |
|
| 25 |
Key inputs: |
|
|
|
|
|
|
|
|
|
|
|
|
Pricing spread (1) |
|
| 8.0% |
|
| 8.0% |
|
| 8.5% |
|
| 7.7% |
Prepayment speed (2) |
|
| 29.1% |
|
| 32.9% | ||||||
Average life (in years) |
|
| 3.7 |
|
| 3.7 |
|
| 4.1 |
|
| 3.5 |
Prepayment speed (2) |
|
| 31.5% |
|
| 31.7% | ||||||
Annual per-loan cost of servicing |
| $ | 427 |
| $ | 497 |
| $ | 387 |
| $ | 404 |
(1) | The Company applies a pricing spread to the United States Dollar LIBOR curve for purposes of discounting cash flows relating to MSLs. |
(2) | Prepayment speed is measured using Life Total CPR. |
Note 8—7—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, |
| ||||
|
| 2017 |
| 2016 |
| 2018 |
| 2017 |
| ||||
|
| (in thousands) |
| (in thousands) |
| ||||||||
Government-insured or guaranteed |
| $ | 1,857,429 |
| $ | 1,984,020 |
| $ | 1,989,293 |
| $ | 2,085,764 |
|
Conventional conforming |
|
| 92,640 |
|
| 141,524 |
|
| 134,544 |
|
| 231,128 |
|
Purchased from Ginnie Mae pools serviced by the Company |
|
| 321,711 |
|
| 40,437 |
|
| 454,651 |
|
| 777,300 |
|
Repurchased pursuant to representations and warranties |
|
| 5,971 |
|
| 6,834 |
|
| 5,748 |
|
| 4,911 |
|
|
| $ | 2,277,751 |
| $ | 2,172,815 |
| $ | 2,584,236 |
| $ | 3,099,103 |
|
Fair value of mortgage loans pledged to secure: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets sold under agreements to repurchase |
| $ | 2,000,112 |
| $ | 1,422,255 |
| $ | 2,036,895 |
| $ | 2,530,299 |
|
Mortgage loan participation and sale agreements |
|
| 252,605 |
|
| 702,919 | |||||||
Mortgage loan participation purchase and sale agreements |
|
| 532,294 |
|
| 551,688 |
| ||||||
|
| $ | 2,252,717 |
| $ | 2,125,174 |
| $ | 2,569,189 |
| $ | 3,081,987 |
|
Note 9—8—Derivative Financial InstrumentsActivities
The Company is exposed to fair value risk relative toholds and issues derivative financial instruments in connection with its mortgage loans held for saleoperating activities. Derivative financial instruments are created as wella result of certain of the Company’s operations and the Company also enters into derivative transactions as to its IRLCs and MSRs. The Company bears fair 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 valuepart of its IRLCs and mortgage loans held for sale when market mortgage interest rates increase. The Company is exposed to loss in fair valuerate risk management activities. Derivative financial instruments created as a result of its MSRs when market mortgage interest rates decrease.the Company’s operations include:
· | IRLCs that are created when the Company commits to purchase or originate a mortgage loan acquired for sale. |
· | Derivatives that are embedded in a master repurchase agreement that provides for the Company to receive incentives for financing mortgage loans that satisfy certain consumer relief characteristics under the master repurchase agreement. |
The Company also 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 fair 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 the portion of its MSRs not financed with ESS.
The Company does not use derivative financial instruments for purposes other than in support
36
The Company records all derivative financial instruments at fair value and records changes in fair value in current period income.
38
Derivatives
The Company had the following derivative financial instruments recorded on its consolidated balance sheets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| March 31, 2017 |
| December 31, 2016 |
| March 31, 2018 |
| December 31, 2017 | ||||||||||||||||||||||||
|
|
|
| Fair value |
|
|
| Fair value |
|
|
| Fair value |
|
|
| Fair value | ||||||||||||||||
|
| Notional |
| Derivative |
| Derivative |
| Notional |
| Derivative |
| Derivative |
| Notional |
| Derivative |
| Derivative |
| Notional |
| Derivative |
| Derivative | ||||||||
Instrument |
| amount |
| assets |
| liabilities |
| amount |
| assets |
| liabilities |
| amount |
| assets |
| liabilities |
| amount |
| assets |
| liabilities | ||||||||
|
| (in thousands) |
| (in thousands) | ||||||||||||||||||||||||||||
Derivatives not designated as hedging instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Not subject to master netting arrangements: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Interest rate lock commitments |
| 3,727,441 |
| $ | 68,618 |
| $ | 2,611 |
| 4,279,611 |
| $ | 65,848 |
| $ | 6,457 |
| 4,275,126 |
| $ | 53,495 |
| $ | 2,599 |
| 3,654,955 |
| $ | 60,012 |
| $ | 1,740 |
Repurchase agreement derivatives |
|
|
|
| 20,974 |
|
| — |
|
|
|
| 10,656 |
|
| — | ||||||||||||||||
Used for hedging purposes: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Forward purchase contracts |
| 9,292,052 |
|
| 69,321 |
|
| 1,225 |
| 12,746,191 |
|
| 77,905 |
|
| 16,914 |
| 6,543,783 |
|
| 28,796 |
|
| — |
| 4,920,883 |
|
| 4,288 |
|
| 1,272 |
Forward sales contracts |
| 11,383,749 |
|
| 1,173 |
|
| 65,843 |
| 16,577,942 |
|
| 28,324 |
|
| 85,035 |
| 6,924,346 |
|
| 979 |
|
| 19,276 |
| 5,204,796 |
|
| 2,101 |
|
| 7,031 |
MBS put options |
| 2,950,000 |
|
| 1,541 |
|
| — |
| 1,175,000 |
|
| 3,934 |
|
| — |
| 3,750,000 |
|
| 12,878 |
|
| — |
| 4,925,000 |
|
| 3,481 |
|
| — |
MBS call options |
| — |
|
| — |
|
| — |
| 1,600,000 |
|
| 217 |
|
| — | ||||||||||||||||
Put options on interest rate futures purchase contracts |
| 1,160,000 |
|
| 1,630 |
|
| — |
| 1,125,000 |
|
| 3,109 |
|
| — |
| 2,800,000 |
|
| 1,039 |
|
| — |
| 2,125,000 |
|
| 3,570 |
|
| — |
Call options on interest rate futures purchase contracts |
| 482,300 |
|
| 1,012 |
|
| — |
| 900,000 |
|
| 203 |
|
| — |
| 225,000 |
|
| 715 |
|
| — |
| 100,000 |
|
| 938 |
|
| — |
Call options on interest rate futures sale contracts |
| 57,300 |
|
| — |
|
| — |
| — |
|
| — |
|
| — | ||||||||||||||||
Treasury futures purchase contracts |
| 510,000 |
|
| — |
|
| — |
| 100,000 |
|
| — |
|
| — | ||||||||||||||||
Treasury futures sale contracts |
| 1,250,000 |
|
| — |
|
| — |
| — |
|
| — |
|
| — | ||||||||||||||||
Interest rate swap futures purchase contracts |
| 200,000 |
|
| — |
|
| — |
| 200,000 |
|
| — |
|
| — |
| 465,000 |
|
| — |
|
| — |
| 1,400,000 |
|
| — |
|
| — |
Total derivatives before netting |
|
|
|
| 143,295 |
|
| 69,679 |
|
|
|
| 179,540 |
|
| 108,406 |
|
|
|
| 118,876 |
|
| 21,875 |
|
|
|
| 85,046 |
|
| 10,043 |
Netting |
|
|
|
| (61,294) |
|
| (53,806) |
|
|
|
| (96,635) |
|
| (86,044) |
|
|
|
| (29,407) |
|
| (17,399) |
|
|
|
| (6,867) |
|
| (4,247) |
|
|
|
| $ | 82,001 |
| $ | 15,873 |
|
|
| $ | 82,905 |
| $ | 22,362 |
|
|
| $ | 89,469 |
| $ | 4,476 |
|
|
| $ | 78,179 |
| $ | 5,796 |
Deposits placed with derivative counterparties included in Other assets, net |
|
|
| $ | 7,488 |
|
|
|
|
|
| $ | 10,591 |
|
|
| ||||||||||||||||
Deposits placed with derivative counterparties |
|
|
| $ | 12,008 |
|
|
|
|
|
| $ | 2,620 |
|
|
|
The following table summarizes the notional valueamount activity for derivative contracts used in the Company’s hedging activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Quarter ended March 31, 2017 |
| Quarter ended March 31, 2018 | ||||||||||||
|
| Balance |
|
|
|
|
| Balance |
| Amount |
|
|
|
|
| Amount |
|
| beginning of |
|
|
| Dispositions/ |
| end of |
| beginning of |
|
|
| Dispositions/ |
| end of |
Instrument |
| period |
| Additions |
| expirations |
| period |
| quarter |
| Additions |
| expirations |
| quarter |
|
| (in thousands) |
| (in thousands) | ||||||||||||
Forward purchase contracts |
| 12,746,191 |
| 42,184,309 |
| (45,638,448) |
| 9,292,052 |
| 4,920,883 |
| 45,330,785 |
| (43,707,885) |
| 6,543,783 |
Forward sale contracts |
| 16,577,942 |
| 51,649,826 |
| (56,844,019) |
| 11,383,749 |
| 5,204,796 |
| 56,355,552 |
| (54,636,002) |
| 6,924,346 |
MBS put options |
| 1,175,000 |
| 5,525,000 |
| (3,750,000) |
| 2,950,000 |
| 4,925,000 |
| 4,500,000 |
| (5,675,000) |
| 3,750,000 |
MBS call options |
| 1,600,000 |
| — |
| (1,600,000) |
| — |
| — |
| 5,675,000 |
| (5,675,000) |
| — |
Put options on interest rate futures purchase contracts |
| 1,125,000 |
| 3,060,000 |
| (3,025,000) |
| 1,160,000 |
| 2,125,000 |
| 5,525,000 |
| (4,850,000) |
| 2,800,000 |
Call options on interest rate futures purchase contracts |
| 900,000 |
| 955,000 |
| (1,372,700) |
| 482,300 |
| 100,000 |
| 375,000 |
| (250,000) |
| 225,000 |
Put options on interest rate futures sale contracts |
| — |
| 3,025,000 |
| (3,025,000) |
| — |
| — |
| 4,850,000 |
| (4,850,000) |
| — |
Call options on interest rate futures sale contracts |
| — |
| 1,430,000 |
| (1,372,700) |
| 57,300 |
| — |
| 250,000 |
| (250,000) |
| — |
Treasury futures purchase contracts |
| — |
| 104,800 |
| (104,800) |
| — |
| 100,000 |
| 1,904,900 |
| (1,494,900) |
| 510,000 |
Treasury futures sale contracts |
| — |
| 104,800 |
| (104,800) |
| — |
| — |
| 3,406,200 |
| (2,156,200) |
| 1,250,000 |
Interest rate swap futures purchase contracts |
| 200,000 |
| 200,000 |
| (200,000) |
| 200,000 |
| 1,400,000 |
| 465,000 |
| (1,400,000) |
| 465,000 |
Interest rate swap futures sale contracts |
| — |
| 200,000 |
| (200,000) |
| — |
| — |
| 1,400,000 |
| (1,400,000) |
| — |
37
|
|
|
|
|
|
|
|
|
|
| Quarter ended March 31, 2017 | ||||||
|
| Amount |
|
|
|
|
| Amount |
|
| beginning of |
|
|
| Dispositions/ |
| end of |
Instrument |
| quarter |
| Additions |
| expirations |
| quarter |
|
| (in thousands) | ||||||
Forward purchase contracts |
| 12,746,191 |
| 42,184,309 |
| (45,638,448) |
| 9,292,052 |
Forward sale contracts |
| 16,577,942 |
| 51,649,826 |
| (56,844,019) |
| 11,383,749 |
MBS put options |
| 1,175,000 |
| 5,525,000 |
| (3,750,000) |
| 2,950,000 |
MBS call options |
| 1,600,000 |
| — |
| (1,600,000) |
| — |
Put options on interest rate futures purchase contracts |
| 1,125,000 |
| 3,060,000 |
| (3,025,000) |
| 1,160,000 |
Call options on interest rate futures purchase contracts |
| 900,000 |
| 955,000 |
| (1,372,700) |
| 482,300 |
Put options on interest rate futures sale contracts |
| — |
| 3,025,000 |
| (3,025,000) |
| — |
Call options on interest rate futures sale contracts |
| — |
| 1,430,000 |
| (1,372,700) |
| 57,300 |
Treasury futures purchase contracts |
| — |
| 104,800 |
| (104,800) |
| — |
Treasury futures sale contracts |
| — |
| 104,800 |
| (104,800) |
| — |
Interest rate swap futures purchase contracts |
| 200,000 |
| 200,000 |
| (200,000) |
| 200,000 |
Interest rate swap futures sale contracts |
| — |
| 200,000 |
| (200,000) |
| — |
Derivative Balances and Netting of Financial Instruments
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 and repurchase agreement derivatives.
Offsetting of Derivative Assets
Following are summaries of derivative assets and related netting amounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| March 31, 2018 |
| December 31, 2017 | ||||||||||||||
|
| Gross |
| Gross amount |
| Net amount |
| Gross |
| Gross amount |
| Net amount | ||||||
|
| amount of |
| offset in the |
| of assets in the |
| amount of |
| offset in the |
| of assets in the | ||||||
|
| recognized |
| consolidated |
| consolidated |
| recognized |
| consolidated |
| consolidated | ||||||
|
| assets |
| balance sheet |
| balance sheet |
| assets |
| balance sheet |
| balance sheet | ||||||
|
| (in thousands) | ||||||||||||||||
Derivatives not subject to master netting arrangements: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate lock commitments |
| $ | 53,495 |
| $ | — |
| $ | 53,495 |
| $ | 60,012 |
| $ | — |
| $ | 60,012 |
Repurchase agreement derivatives |
|
| 20,974 |
|
| — |
|
| 20,974 |
|
| 10,656 |
|
| — |
|
| 10,656 |
|
|
| 74,469 |
|
| — |
|
| 74,469 |
|
| 70,668 |
|
| — |
|
| 70,668 |
Derivatives subject to master netting arrangements: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward purchase contracts |
|
| 28,796 |
|
| — |
|
| 28,796 |
|
| 4,288 |
|
| — |
|
| 4,288 |
Forward sale contracts |
|
| 979 |
|
| — |
|
| 979 |
|
| 2,101 |
|
| — |
|
| 2,101 |
MBS put options |
|
| 12,878 |
|
| — |
|
| 12,878 |
|
| 3,481 |
|
| — |
|
| 3,481 |
Put options on interest rate futures purchase contracts |
|
| 1,039 |
|
| — |
|
| 1,039 |
|
| 3,570 |
|
| — |
|
| 3,570 |
Call options on interest rate futures purchase contracts |
|
| 715 |
|
| — |
|
| 715 |
|
| 938 |
|
| — |
|
| 938 |
Netting |
|
| — |
|
| (29,407) |
|
| (29,407) |
|
| — |
|
| (6,867) |
|
| (6,867) |
|
|
| 44,407 |
|
| (29,407) |
|
| 15,000 |
|
| 14,378 |
|
| (6,867) |
|
| 7,511 |
|
| $ | 118,876 |
| $ | (29,407) |
| $ | 89,469 |
| $ | 85,046 |
| $ | (6,867) |
| $ | 78,179 |
38
Derivative Assets, Financial Instruments, and Cash 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, 2018 |
| December 31, 2017 | ||||||||||||||||||||
|
|
|
| Gross amount not |
|
|
|
|
| Gross amount not |
|
| ||||||||||||
|
|
|
| offset in the |
|
|
|
|
| offset in the |
|
| ||||||||||||
|
|
|
| consolidated |
|
|
|
|
| consolidated |
|
| ||||||||||||
|
| Net amount |
| balance sheet |
|
|
| Net amount |
| balance sheet |
|
| ||||||||||||
|
| of assets in the |
|
|
| Cash |
|
|
| of assets in the |
|
|
| Cash |
|
| ||||||||
|
| consolidated |
| Financial |
| collateral |
| Net |
| consolidated |
| Financial |
| collateral |
| Net | ||||||||
|
| balance sheet |
| instruments |
| received |
| amount |
| balance sheet |
| instruments |
| received |
| amount | ||||||||
|
| (in thousands) | ||||||||||||||||||||||
Interest rate lock commitments |
| $ | 53,495 |
| $ | — |
| $ | — |
| $ | 53,495 |
| $ | 60,012 |
| $ | — |
| $ | — |
| $ | 60,012 |
Deutsche Bank |
|
| 20,974 |
|
| — |
|
| — |
|
| 20,974 |
|
| 10,656 |
|
| — |
|
| — |
|
| 10,656 |
Bank of America, N.A. |
|
| 3,317 |
|
| — |
|
| — |
|
| 3,317 |
|
| — |
|
| — |
|
| — |
|
| — |
JPMorgan Chase Bank, N.A. |
|
| 2,489 |
|
| — |
|
| — |
|
| 2,489 |
|
| 267 |
|
| — |
|
| — |
|
| 267 |
Goldman Sachs |
|
| 2,430 |
|
| — |
|
| — |
|
| 2,430 |
|
| 540 |
|
| — |
|
| — |
|
| 540 |
Federal National Mortgage Association |
|
| 1,997 |
|
| — |
|
| — |
|
| 1,997 |
|
| 1,092 |
|
| — |
|
| — |
|
| 1,092 |
RJ O'Brien |
|
| 1,754 |
|
| — |
|
| — |
|
| 1,754 |
|
| 4,508 |
|
| — |
|
| — |
|
| 4,508 |
Others |
|
| 3,013 |
|
| — |
|
| — |
|
| 3,013 |
|
| 1,104 |
|
| — |
|
| — |
|
| 1,104 |
|
| $ | 89,469 |
| $ | — |
| $ | — |
| $ | 89,469 |
| $ | 78,179 |
| $ | — |
| $ | — |
| $ | 78,179 |
Offsetting of Derivative Liabilities and Financial Liabilities
Following is a summary of net derivative liabilities and assets sold under agreements to repurchase and related netting amounts. Assets sold under agreements to repurchase do not qualify for netting.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| March 31, 2018 |
| December 31, 2017 | ||||||||||||||
|
|
|
|
|
| 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 | ||||||
|
| recognized |
| consolidated |
| consolidated |
| recognized |
| consolidated |
| consolidated | ||||||
|
| liabilities |
| balance sheet |
| balance sheet |
| liabilities |
| balance sheet |
| balance sheet | ||||||
|
| (in thousands) | ||||||||||||||||
Derivatives not subject to master netting arrangements – Interest rate lock commitments |
| $ | 2,599 |
| $ | — |
| $ | 2,599 |
| $ | 1,740 |
| $ | — |
| $ | 1,740 |
Derivatives subject to a master netting arrangement: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward purchase contracts |
|
| — |
|
| — |
|
| — |
|
| 1,272 |
|
| — |
|
| 1,272 |
Forward sale contracts |
|
| 19,276 |
|
| — |
|
| 19,276 |
|
| 7,031 |
|
| — |
|
| 7,031 |
Netting |
|
| — |
|
| (17,399) |
|
| (17,399) |
|
| — |
|
| (4,247) |
|
| (4,247) |
|
|
| 19,276 |
|
| (17,399) |
|
| 1,877 |
|
| 8,303 |
|
| (4,247) |
|
| 4,056 |
Total derivatives |
|
| 21,875 |
|
| (17,399) |
|
| 4,476 |
|
| 10,043 |
|
| (4,247) |
|
| 5,796 |
Mortgage loans sold under agreements to repurchase: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount outstanding |
|
| 1,813,463 |
|
| — |
|
| 1,813,463 |
|
| 2,380,866 |
|
| — |
|
| 2,380,866 |
Unamortized premiums and debt issuance costs, net |
|
| 819 |
|
| — |
|
| 819 |
|
| 672 |
|
| — |
|
| 672 |
|
|
| 1,814,282 |
|
| — |
|
| 1,814,282 |
|
| 2,381,538 |
|
| — |
|
| 2,381,538 |
|
| $ | 1,836,157 |
| $ | (17,399) |
| $ | 1,818,758 |
| $ | 2,391,581 |
| $ | (4,247) |
| $ | 2,387,334 |
39
Derivative Liabilities, Financial Instruments, and Collateral Held by Counterparty
The following table summarizes by significant counterparty the amount of derivative liabilities and assets sold under agreements to repurchase after considering master netting arrangements and financial instruments or cash pledged that do not qualify under the accounting guidance for netting. All assets sold under agreements to repurchase are secured by sufficient collateral or have fair value that exceeds the liability amount recorded on the consolidated balance sheets.
|
|
|
|
|
|
|
|
|
|
| Quarter ended March 31, 2016 | ||||||
|
| Balance |
|
|
|
|
| Balance |
|
| beginning of |
|
|
| Dispositions/ |
| end of |
Instrument |
| period |
| Additions |
| expirations |
| period |
|
| (in thousands) | ||||||
Forward purchase contracts |
| 5,254,293 |
| 30,812,375 |
| (26,602,198) |
| 9,464,470 |
Forward sale contracts |
| 6,230,811 |
| 39,396,426 |
| (35,208,331) |
| 10,418,906 |
MBS put options |
| 1,275,000 |
| 2,700,000 |
| (2,600,000) |
| 1,375,000 |
Put options on interest rate futures purchase contracts |
| 1,650,000 |
| 3,025,000 |
| (2,925,000) |
| 1,750,000 |
Call options on interest rate futures purchase contracts |
| 600,000 |
| 3,637,500 |
| (300,000) |
| 3,937,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| March 31, 2018 |
| December 31, 2017 | ||||||||||||||||||||
|
|
|
| Gross amounts |
|
|
|
|
| Gross amounts |
|
| ||||||||||||
|
|
|
| not offset in the |
|
|
|
|
| not offset in the |
|
| ||||||||||||
|
| Net amount |
| consolidated |
|
|
| Net amount |
| consolidated |
|
| ||||||||||||
|
| of liabilities |
| balance sheet |
|
|
| of liabilities |
| balance sheet |
|
| ||||||||||||
|
| in the |
|
|
| Cash |
|
|
| in the |
|
|
| Cash |
|
| ||||||||
|
| consolidated |
| Financial |
| collateral |
| Net |
| consolidated |
| Financial |
| collateral |
| Net | ||||||||
|
| balance sheet |
| instruments |
| pledged |
| amount |
| balance sheet |
| instruments |
| pledged |
| amount | ||||||||
|
| (in thousands) | ||||||||||||||||||||||
IRLCs |
| $ | 2,599 |
| $ | — |
| $ | — |
| $ | 2,599 |
| $ | 1,740 |
| $ | — |
| $ | — |
| $ | 1,740 |
Credit Suisse First Boston Mortgage Capital LLC |
|
| 618,639 |
|
| (618,639) |
|
| — |
|
| — |
|
| 1,010,562 |
|
| (1,010,320) |
|
| — |
|
| 242 |
Deutsche Bank |
|
| 720,504 |
|
| (720,504) |
|
| — |
|
| — |
|
| 593,864 |
|
| (593,864) |
|
| — |
|
| — |
Bank of America, N.A. |
|
| 246,356 |
|
| (246,356) |
|
| — |
|
| — |
|
| 406,787 |
|
| (406,355) |
|
| — |
|
| 432 |
JPMorgan Chase Bank, N.A. |
|
| 93,179 |
|
| (93,179) |
|
| — |
|
| — |
|
| 90,442 |
|
| (90,442) |
|
| — |
|
| — |
Morgan Stanley Bank, N.A. |
|
| 87,941 |
|
| (86,880) |
|
| — |
|
| 1,061 |
|
| 139,491 |
|
| (138,983) |
|
| — |
|
| 508 |
Royal Bank of Canada |
|
| 29,489 |
|
| (29,489) |
|
| — |
|
| — |
|
| 24,835 |
|
| (23,752) |
|
| — |
|
| 1,083 |
BNP Paribas |
|
| 13,026 |
|
| (12,463) |
|
| — |
|
| 563 |
|
| 87,753 |
|
| (87,753) |
|
| — |
|
| — |
Citibank, N.A. |
|
| 5,953 |
|
| (5,953) |
|
| — |
|
| — |
|
| 23,010 |
|
| (23,010) |
|
| — |
|
| — |
Barclays Capital |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 6,387 |
|
| (6,387) |
|
| — |
|
| — |
Others |
|
| 253 |
|
| — |
|
| — |
|
| 253 |
|
| 1,791 |
|
| — |
|
| — |
|
| 1,791 |
|
| $ | 1,817,939 |
| $ | (1,813,463) |
| $ | — |
| $ | 4,476 |
| $ | 2,386,662 |
| $ | (2,380,866) |
| $ | — |
| $ | 5,796 |
Following are the gains and (losses) recognized by the Company on derivative financial instruments and the income statement line items where such gains and losses are included:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Quarter ended March 31, |
|
|
| Quarter ended March 31, |
| ||||||||
Hedged item |
| Income statement line |
| 2017 |
| 2016 | |||||||||||
Derivative activity |
| Income statement line |
| 2018 |
| 2017 |
| ||||||||||
|
|
|
| (in thousands) |
|
|
| (in thousands) |
| ||||||||
Repurchase agreement derivative |
| Interest expense |
| $ | (426) |
| $ | — |
| ||||||||
Hedged item: |
|
|
|
|
|
|
|
|
| ||||||||
Interest rate lock commitments and mortgage loans held for sale |
| Net gains on mortgage loans held for sale |
| $ | 1,708 |
| $ | (69,177) |
| Net gains on mortgage loans held for sale |
| $ | 87,747 |
| $ | 1,708 |
|
Mortgage servicing rights |
| Net mortgage loan servicing fees - Amortization, impairment and change in fair value of mortgage servicing rights and mortgage servicing liabilities |
| $ | (22,166) |
| $ | 58,720 |
| Net mortgage loan servicing fees–Amortization, impairment and change in fair value of mortgage servicing rights and mortgage servicing liabilities |
| $ | (103,593) |
| $ | (22,166) |
|
Note 10—Mortgage Servicing Rights
Carried at Fair Value
The activity in MSRs carried at fair value is as follows:
|
|
|
|
|
|
|
|
| Quarter ended March 31, | ||||
|
| 2017 |
| 2016 | ||
|
| (in thousands) | ||||
Balance at beginning of period |
| $ | 515,925 |
| $ | 660,247 |
Additions: |
|
|
|
|
|
|
Purchases |
|
| 203 |
|
| 11 |
Mortgage servicing rights resulting from mortgage loan sales |
|
| 5,984 |
|
| 4,468 |
|
|
| 6,187 |
|
| 4,479 |
|
|
|
|
|
|
|
Change in fair value due to: |
|
|
|
|
|
|
Changes in valuation inputs used in valuation model (1) |
|
| 1,992 |
|
| (48,876) |
Other changes in fair value (2) |
|
| (17,188) |
|
| (21,447) |
Total change in fair value |
|
| (15,196) |
|
| (70,323) |
Balance at end of period |
| $ | 506,916 |
| $ | 594,403 |
|
|
|
|
|
|
|
|
| March 31, |
| December 31, | ||
|
| 2017 |
| 2016 | ||
|
| (in thousands) | ||||
Fair value of mortgage servicing rights pledged to secure assets sold under agreements to repurchase and note payable |
| $ | 506,860 |
| $ | 509,847 |
|
|
|
|
40
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, | ||||
|
| 2017 |
| 2016 | ||
|
| (in thousands) | ||||
Amortized cost: |
|
|
|
|
|
|
Balance at beginning of period |
| $ | 1,206,694 |
| $ | 798,925 |
Mortgage servicing rights resulting from mortgage loan sales |
|
| 130,218 |
|
| 96,314 |
Amortization |
|
| (37,819) |
|
| (28,250) |
Balance at end of period |
|
| 1,299,093 |
|
| 866,989 |
|
|
|
|
|
|
|
Valuation allowance: |
|
|
|
|
|
|
Balance at beginning of period |
|
| (94,947) |
|
| (47,237) |
Reductions (additions) |
|
| 13,999 |
|
| (77,073) |
Balance at end of period |
|
| (80,948) |
|
| (124,310) |
Mortgage servicing rights, net at end of period |
| $ | 1,218,145 |
| $ | 742,679 |
|
|
|
|
|
|
|
Fair value of mortgage servicing rights at beginning of period |
| $ | 1,112,302 |
| $ | 766,345 |
Fair value of mortgage servicing rights at end of period |
| $ | 1,227,077 |
| $ | 743,062 |
|
|
|
|
|
|
|
|
| March 31, |
| December 31, | ||
|
| 2017 |
| 2016 | ||
|
| (in thousands) | ||||
Fair value of mortgage servicing rights pledged to secure assets sold under agreements to repurchase and note payable |
| $ | 1,213,257 |
| $ | 1,107,824 |
The following table summarizes the Company’s estimate of future amortization of its existing MSRs. This estimate was developed with the inputs applicable to the March 31, 2017 valuation of MSRs. The inputs 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 | |
Twelve month period ending March 31, |
| amortization | |
|
| (in thousands) | |
2018 |
| $ | 144,768 |
2019 |
|
| 132,343 |
2020 |
|
| 120,158 |
2021 |
|
| 108,839 |
2022 |
|
| 98,127 |
Thereafter |
|
| 694,858 |
|
| $ | 1,299,093 |
41
Mortgage Servicing Liabilities Carried at Fair Value
The activity in mortgage servicing liabilities carried at fair value is summarized below:
|
|
|
|
|
|
|
|
| Quarter ended March 31, | ||||
|
| 2017 |
| 2016 | ||
|
| (in thousands) | ||||
Balance at beginning of period |
| $ | 15,192 |
| $ | 1,399 |
Mortgage servicing liabilities resulting from mortgage loan sales |
|
| 4,059 |
|
| 5,409 |
Changes in fair value due to: |
|
|
|
|
|
|
Changes in valuation inputs used in valuation model (1) |
|
| 3,290 |
|
| 2,960 |
Other changes in fair value (2) |
|
| (6,547) |
|
| (3,021) |
Total change in fair value |
|
| (3,257) |
|
| (61) |
Balance at end of period |
| $ | 15,994 |
| $ | 6,747 |
|
|
|
|
Servicing fees relating to MSRs and MSLs are recorded in Net mortgage loan servicing fees—Loan servicing fees—From non-affiliates on the consolidated statements of income; late charges and other ancillary fees relating to MSRs and MSLs are recorded in Net servicing fees—Loan servicing fees—Ancillary and other fees on the Company’s consolidated statements of income. Such amounts are summarized below:
|
|
|
|
|
|
|
|
| Quarter ended March 31, | ||||
|
| 2017 |
| 2016 | ||
|
| (in thousands) | ||||
Contractual servicing fees |
| $ | 106,467 |
| $ | 91,327 |
Ancillary and other fees: |
|
|
|
|
|
|
Late charges |
|
| 6,684 |
|
| 1,620 |
Other |
|
| 925 |
|
| 395 |
|
| $ | 114,076 |
| $ | 93,342 |
Note 11—9—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, | ||||
|
| 2017 |
| 2016 | ||
|
| (in thousands) | ||||
Balance at beginning of period |
| $ | 70,906 |
| $ | 69,926 |
Carried Interest recognized during the period |
|
| (128) |
|
| 593 |
Balance at end of period |
| $ | 70,778 |
| $ | 70,519 |
|
|
|
|
|
|
|
|
|
| Quarter ended March 31, |
| ||||
|
| 2018 |
| 2017 |
| ||
|
| (in thousands) |
| ||||
Balance at beginning of quarter |
| $ | 8,552 |
| $ | 70,906 |
|
Carried Interest recognized during the quarter |
|
| (180) |
|
| (128) |
|
Cash received during the quarter |
|
| (7,834) |
|
| — |
|
Balance at end of quarter |
| $ | 538 |
| $ | 70,778 |
|
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 is based on the cash flows that would be produced assuming termination of the Investment Funds at period end and may be reduced in future 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 be limited to the amounts previously recognized.
Management expectsIn 2017 and though the Carried Interest to be collected by the Company whenquarter ended March 31, 2018, the Investment Funds liquidate.sold or liquidated all of their remaining investments. The Company has since collected most of its Carried Interest and expects to collect the remaining balance, adjusted for intervening income or losses through the date of liquidation of the Investment Funds, will continueduring 2018.
41
Note 10—Mortgage Servicing Rights and Mortgage Servicing Liabilities
Mortgage Servicing Rights Carried at Fair Value
The activity in existence through December 31, 2017,MSRs carried at fair value is as a result of PCM’s election to exercise the first of three one-year extensions provided in their limited liability company and limited partnership agreements.follows:
|
|
|
|
|
|
|
|
|
| Quarter ended March 31, |
| ||||
|
| 2018 |
| 2017 |
| ||
|
| (in thousands) |
| ||||
Balance at beginning of quarter |
| $ | 638,010 |
| $ | 515,925 |
|
Reclassification of mortgage servicing rights previously accounted for under the amortization method pursuant to a change in accounting principle |
|
| 1,482,426 |
|
| — |
|
Balance after reclassification |
|
| 2,120,436 |
|
| 515,925 |
|
Additions: |
|
|
|
|
|
|
|
Purchases |
|
| 27,606 |
|
| 203 |
|
Mortgage servicing rights resulting from mortgage loan sales |
|
| 143,910 |
|
| 5,984 |
|
|
|
| 171,516 |
|
| 6,187 |
|
Change in fair value due to: |
|
|
|
|
|
|
|
Changes in valuation inputs used in valuation model (1) |
|
| 130,449 |
|
| 1,992 |
|
Other changes in fair value (2) |
|
| (67,912) |
|
| (17,188) |
|
Total change in fair value |
|
| 62,537 |
|
| (15,196) |
|
Balance at end of quarter |
| $ | 2,354,489 |
| $ | 506,916 |
|
|
|
|
|
|
|
|
|
|
| March 31, |
| December 31, |
| ||
|
| 2018 |
| 2017 |
| ||
|
| (in thousands) |
| ||||
Fair value of mortgage servicing rights pledged to secure Assets sold under agreements to repurchase and Notes payable |
| $ | 2,178,536 |
| $ | 630,711 |
|
(1) | Principally reflects changes in discount rate and prepayment speed inputs, primarily due to changes in market interest rates, and changes in expected borrower performance and servicer losses given default. |
(2) | Represents changes due to realization of cash flows. |
42
Mortgage Servicing Rights 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, |
| ||||
|
| 2018 |
| 2017 |
| ||
|
| (in thousands) | |||||
Amortized cost: |
|
|
|
|
|
|
|
Balance at beginning of quarter |
| $ | 1,583,378 |
| $ | 1,206,694 |
|
Transfer of mortgage servicing rights to mortgage servicing rights carried at fair value pursuant to a change in accounting principle |
|
| (1,583,378) |
|
| — |
|
Balance after reclassification |
|
| — |
|
| 1,206,694 |
|
Mortgage servicing rights resulting from mortgage loan sales |
|
| — |
|
| 130,218 |
|
Amortization |
|
| — |
|
| (37,819) |
|
Balance at end of quarter |
|
| — |
|
| 1,299,093 |
|
|
|
|
|
|
|
|
|
Valuation allowance: |
|
|
|
|
|
|
|
Balance at beginning of quarter |
|
| (101,800) |
|
| (94,947) |
|
Reduction resulting from transfer of mortgage servicing rights to mortgage servicing rights carried at fair value pursuant to a change in accounting principle |
|
| 101,800 |
|
| — |
|
Balance after reclassification |
|
| — |
|
| (94,947) |
|
Reduction of valuation allowance |
|
| — |
|
| 13,999 |
|
Balance at end of quarter |
|
| — |
|
| (80,948) |
|
Mortgage servicing rights, net at end of quarter |
| $ | — |
| $ | 1,218,145 |
|
Fair value of mortgage servicing rights at: |
|
|
|
|
|
|
|
Beginning of quarter |
|
|
|
| $ | 1,112,302 |
|
End of quarter |
|
|
|
| $ | 1,227,077 |
|
|
|
|
|
|
|
|
|
|
|
|
| December 31, |
| ||
|
|
|
| 2017 |
| ||
|
|
|
|
| (in thousands) |
| |
Fair value of mortgage servicing rights pledged to secure assets sold under agreements to repurchase and note payable |
|
|
|
| $ | 1,467,356 |
|
Mortgage Servicing Liabilities Carried at Fair Value
The activity in MSLs carried at fair value is summarized below:
|
|
|
|
|
|
|
|
| Quarter ended March 31, | ||||
|
| 2018 |
| 2017 | ||
|
| (in thousands) | ||||
Balance at beginning of quarter |
| $ | 14,120 |
| $ | 15,192 |
Mortgage servicing liabilities resulting from mortgage loan sales |
|
| 2,037 |
|
| 4,059 |
Changes in fair value due to: |
|
|
|
|
|
|
Changes in valuation inputs used in valuation model (1) |
|
| 2,643 |
|
| 3,290 |
Other changes in fair value (2) |
|
| (6,737) |
|
| (6,547) |
Total change in fair value |
|
| (4,094) |
|
| (3,257) |
Balance at end of quarter |
| $ | 12,063 |
| $ | 15,994 |
(1) | Principally reflects changes in expected borrower performance and servicer losses given default. |
(2) | Represents changes due to realization of cash flows. |
43
Servicing fees relating to MSRs and MSLs are recorded in Net mortgage loan servicing fees—Loan servicing fees—From non-affiliates on the consolidated statements of income; late charges and other ancillary fees relating to MSRs and MSLs are recorded in Net mortgage loan servicing fees—Loan servicing fees—Ancillary and other fees on the Company’s consolidated statements of income. Such amounts are summarized below:
|
|
|
|
|
|
|
|
|
| Quarter ended March 31, |
| ||||
|
| 2018 |
| 2017 |
| ||
|
| (in thousands) |
| ||||
Contractual servicing fees |
| $ | 135,483 |
| $ | 106,467 |
|
Ancillary and other fees: |
|
|
|
|
|
|
|
Late charges |
|
| 7,459 |
|
| 6,684 |
|
Other |
|
| 1,562 |
|
| 925 |
|
|
| $ | 144,504 |
| $ | 114,076 |
|
Note 12—11—Borrowings
The borrowing facilities described throughout this Note 1211 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 covenants as of March 31, 2017.2018.
Assets Sold Under Agreement to Repurchase
The Company has multiple borrowing facilities in the form of asset sales under agreements to repurchase. These borrowing facilities are secured by mortgage loans held for sale at fair value or participation certificates backed by MSRs. Eligible mortgage loans and participation certificates backed by MSRs and servicing advances are sold at advance rates based on the fair value of the assets sold. Interest is charged at a rate based on the buyer’s overnight cost of funds rate or on LIBOR depending on the terms of the respective agreement.agreements. Mortgage loans and MSRs financed under these agreements may be re-pledged by the lenders.
44
Assets sold under agreements to repurchase are summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Quarter ended March 31, |
|
| Quarter ended March 31, |
|
|
| ||||||||
|
| 2017 |
| 2016 |
|
| 2018 |
| 2017 |
|
|
| ||||
|
| (dollars in thousands) |
| (dollars in thousands) |
|
| ||||||||||
Average balance of assets sold under agreements to repurchase |
| $ | 1,516,480 |
| $ | 1,039,573 |
|
| $ | 1,643,443 |
| $ | 1,516,480 |
|
|
|
Weighted average interest rate (1) |
|
| 3.08 | % |
| 2.61 | % |
|
| 3.59 | % |
| 3.08 | % |
|
|
Total interest expense |
| $ | 13,955 |
| $ | 8,660 |
|
| $ | 6,732 |
| $ | 13,955 |
|
|
|
Maximum daily amount outstanding |
| $ | 2,093,542 |
| $ | 1,688,605 |
|
| $ | 2,380,121 |
| $ | 2,093,542 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| March 31, |
|
| December 31, |
|
|
| March 31, |
|
| December 31, |
|
|
|
| 2017 |
| 2016 |
|
| 2018 |
| 2017 |
|
| ||||
|
| (dollars in thousands) |
|
| (dollars in thousands) |
|
| ||||||||
Carrying value: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unpaid principal balance |
| $ | 2,036,366 |
| $ | 1,736,922 |
|
| $ | 1,813,463 |
| $ | 2,380,866 |
|
|
Unamortized debt issuance costs |
|
| (1,558) |
|
| (1,808) |
| ||||||||
Unamortized premiums and debt issuance costs, net |
|
| 819 |
|
| 672 |
|
| |||||||
|
| $ | 2,034,808 |
| $ | 1,735,114 |
|
| $ | 1,814,282 |
| $ | 2,381,538 |
|
|
Weighted average interest rate |
|
| 2.91 | % |
| 3.02 | % |
|
| 3.73 | % |
| 3.24 | % |
|
Available borrowing capacity (2): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Committed |
| $ | 97,539 |
| $ | 347,487 |
|
| $ | 536,576 |
| $ | 316,503 |
|
|
Uncommitted |
|
| 828,095 |
|
| 857,591 |
|
|
| 2,434,961 |
|
| 2,257,631 |
|
|
|
| $ | 925,634 |
| $ | 1,205,078 |
|
| $ | 2,971,537 |
| $ | 2,574,134 |
|
|
Fair value of assets securing repurchase agreements: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans held for sale |
| $ | 2,000,112 |
| $ | 1,422,255 |
|
| $ | 2,036,895 |
| $ | 2,530,299 |
|
|
Mortgage servicing rights |
| $ | 1,182,293 |
| $ | 1,479,322 |
| ||||||||
Servicing advances |
| $ | 66,130 |
| $ | 81,306 |
| ||||||||
Servicing advances (3) |
| $ | 104,685 |
| $ | 114,643 |
|
| |||||||
Mortgage servicing rights (3) |
| $ | 2,178,536 |
| $ | 2,098,067 |
|
| |||||||
Assets purchased from PennyMac Mortgage Investment Trust under agreements to resell |
| $ | 150,000 |
| $ | 150,000 |
|
| $ | 142,938 |
| $ | 144,128 |
|
|
Margin deposits placed with counterparties |
| $ | 3,000 |
| $ | 3,000 |
|
| $ | 3,750 |
| $ | 3,750 |
|
|
(1) | Excludes the effect of amortization of |
(2) | The amount the Company is able to borrow under asset repurchase agreements is tied to the fair value of unencumbered assets eligible to secure those agreements and the Company’s ability to fund the agreements’ margin requirements relating to the assets |
(3) | Beneficial interests in the Ginnie Mae MSRs and servicing advances are pledged to the Issuer Trust and together serve as the collateral backing the VFN, 2017-GT2 Notes and 2018-GT1 Notes. Financing of the VFN is included in Assets sold under agreements to repurchase and 2017-GT2 Notes and 2018-GT1 Notes are included in Notes payable on the Company's consolidated balance sheet. |
(4) | Margin deposits are included in Other assets on the Company’s consolidated balance sheet. |
43
Following is a summary of maturities of outstanding advances under repurchase agreements by maturity date:
|
|
|
|
|
|
|
Remaining maturity at March 31, 2017 |
| Balance | ||||
Remaining maturity at March 31, 2018 |
| Balance | ||||
|
| (dollars in thousands) |
| (dollars in thousands) | ||
Within 30 days |
| $ | 356,154 |
| $ | 525,442 |
Over 30 to 90 days |
|
| 1,448,212 |
|
| 1,288,021 |
Over 180 days to one year |
|
| 232,000 | |||
Total loans sold under agreements to repurchase |
| $ | 2,036,366 | |||
Total assets sold under agreements to repurchase |
| $ | 1,813,463 | |||
Weighted average maturity (in months) |
|
| 2.6 |
|
| 1.7 |
45
The amount at risk (the fair value of the assets pledged plus the related margin deposit, less the amount advanced by the counterparty and interest payable) relating to the Company’s assets sold under agreements to repurchase is summarized by counterparty below as of March 31, 2017:2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Weighted average |
|
|
|
|
|
| Weighted average |
|
|
|
|
|
|
| maturity of advances |
|
|
|
|
|
| maturity of advances |
|
|
|
|
|
|
| under repurchase |
|
|
|
|
|
| under repurchase |
|
|
Counterparty |
| Amount at risk |
| agreement |
| Facility maturity |
| Amount at risk |
| agreement |
| Facility maturity | ||
|
| (in thousands) |
|
|
|
|
| (in thousands) |
|
|
|
| ||
Credit Suisse First Boston Mortgage Capital LLC |
| $ | 87,945 |
| April 28, 2017 |
| April 28, 2017 |
| $ | 266,554 |
| April 27, 2018 |
| April 27, 2018 |
Credit Suisse First Boston Mortgage Capital LLC |
| $ | 303,009 |
| December 19, 2017 |
| December 19, 2017 |
| $ | 188,287 |
| April 21, 2018 |
| April 27, 2018 |
Deutsche Bank AG |
| $ | 99,415 |
| June 18, 2018 |
| September 30, 2018 | |||||||
Bank of America, N.A. |
| $ | 47,347 |
| May 26, 2017 |
| May 26, 2017 |
| $ | 19,246 |
| May 6, 2018 |
| May 25, 2018 |
JP Morgan Chase Bank, N.A. |
| $ | 7,313 |
| May 21, 2018 |
| October 12, 2018 | |||||||
Morgan Stanley Bank, N.A. |
| $ | 22,255 |
| May 20, 2017 |
| August 25, 2017 |
| $ | 5,823 |
| June 15, 2018 |
| August 24, 2018 |
JP Morgan Chase Bank, N.A. |
| $ | 17,060 |
| May 22, 2017 |
| August 18, 2017 | |||||||
Royal Bank of Canada |
| $ | 1,907 |
| June 13, 2018 |
| June 29, 2018 | |||||||
BNP Paribas |
| $ | 615 |
| May 14, 2018 |
| November 16, 2018 | |||||||
Citibank, N.A. |
| $ | 12,329 |
| June 17, 2017 |
| March 2, 2018 |
| $ | 277 |
| April 26, 2018 |
| May 1, 2018 |
Barclays Bank PLC |
| $ | 96,522 |
| June 17, 2017 |
| December 1, 2017 | |||||||
Royal Bank of Canada |
| $ | 4,011 |
| June 12, 2017 |
| September 18, 2017 |
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 assets securing those agreements decreases.
Mortgage Loan Participation Purchase and Sale Agreements
Certain of the borrowing facilities secured by mortgage loans held for sale are in the form of mortgage loan participation purchase and sale agreements. 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. The holdback amount 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 purchase and sale agreements are summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Quarter ended March 31, |
|
| Quarter ended March 31, |
|
| ||||||||
|
| 2017 |
| 2016 |
|
| 2018 |
| 2017 |
|
| ||||
|
| (dollars in thousands) |
|
| (dollars in thousands) |
|
| ||||||||
Average balance |
| $ | 205,820 |
| $ | 167,556 |
|
| $ | 215,614 |
| $ | 205,820 |
|
|
Weighted average interest rate (1) |
|
| 1.95 | % |
| 1.66 | % |
|
| 2.89 | % |
| 1.95 | % |
|
Total interest expense |
| $ | 1,132 |
| $ | 781 |
|
| $ | 1,727 |
| $ | 1,132 |
|
|
Maximum daily amount outstanding |
| $ | 719,434 |
| $ | 246,636 |
|
| $ | 527,706 |
| $ | 719,434 |
|
|
(1) | Excludes the effect of amortization of facility fees totaling |
4446
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| March 31, |
| December 31, |
|
| March 31, |
| December 31, |
|
| ||||
|
| 2017 |
| 2016 |
|
| 2018 |
| 2017 |
|
| ||||
|
| (dollars in thousands) |
|
| (dollars in thousands) |
|
| ||||||||
Carrying value: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unpaid principal balance |
| $ | 241,723 |
| $ | 671,562 |
|
| $ | 510,583 |
| $ | 527,706 |
|
|
Unamortized debt issuance costs |
|
| (85) |
|
| (136) |
|
|
| (140) |
|
| (311) |
|
|
|
| $ | 241,638 |
| $ | 671,426 |
|
| $ | 510,443 |
| $ | 527,395 |
|
|
Weighted average interest rate |
|
| 2.23 | % |
| 2.02 | % |
|
| 3.14 | % |
| 2.81 | % |
|
Fair value of mortgage loans pledged to secure mortgage loan participation and sale agreements |
| $ | 252,605 |
| $ | 702,919 |
| ||||||||
Fair value of mortgage loans pledged to secure mortgage loan participation purchase and sale agreements |
| $ | 532,294 |
| $ | 551,688 |
|
|
Notes Payable
Term Notes
On February 16, 2017, the Company, through the Issuer Trust, issued an aggregate principal amount of $400 million in Term Notes (the “2017-GT1 Notes”) to qualified institutional buyers under Rule 144A of the Securities Act of 1933, as amended.amended (the “Securities Act”). The Term2017-GT1 Notes bearbore interest at a rate equal to one-month LIBOR plus 4.75% per annum. The Term2017-GT1 Notes willwere scheduled to mature on February 25, 2020 or, if extended pursuant to the terms of the related indenture supplement, February 25, 2021 (unless earlier redeemed in accordance with their terms).
On August 10, 2017, the Company, through the Issuer Trust, issued an aggregate principal amount of $500 million in Term Notes (the “2017-GT2 Notes”) to qualified institutional buyers under Rule 144A of the Securities Act. The 2017-GT2 Notes bear interest at a rate equal to one-month LIBOR plus 4.0% per annum. The 2017-GT2 Notes will mature on August 25, 2022 or, if extended pursuant to the terms of the related indenture supplement, August 25, 2023 (unless earlier redeemed in accordance with their terms).
On February 28, 2018, the Company, through the Issuer Trust, issued an aggregate principal amount of $650 million in Term Notes)Notes (the “2018-GT1 Notes”) to qualified institutional buyers under Rule 144A of the Securities Act. The 2018-GT1 Notes bear interest at a rate equal to one-month LIBOR plus 2.85% per annum. The 2018-GT1 Notes will mature on February 25, 2023 or, if extended pursuant to the terms of the related indenture supplement, February 25, 2025 (unless earlier redeemed in accordance with their terms).
On February 28, 2018, in connection with its issuance of the 2018-GT1 Notes, the Company also redeemed all of the 2017-GT1 Notes previously issued by the Issuer Trust. The redemption amount for the 2017-GT1 Notes was $400 million plus all accrued and unpaid interest.
All of the Term Notes rank pari passu with each other and with the VFN issued by the Issuer Trust to PLS and are secured by certain participation certificates relating to Ginnie Mae MSRs and ESS that are financed pursuant to the GNMA MSR Facility.
Revolving Credit Agreement
The Company entered into a revolving credit agreement dated as of December 30, 2015, pursuant to which the lenders agreed to make revolving loans in an amount not to exceed $100 million. On November 18, 2016, the credit agreement was amended and restated. Pursuant to the amended and restated credit agreement, the lenders have agreed to make revolving loans in an amount not to exceed $150 million. The proceeds of the loans are to be used solely for working capital and general corporate purposes of the Company and its subsidiaries. Interest on the loans shall accrueaccrues at a per annum rate of interest equal to, at an election of the Company, either LIBOR plus the applicable margin or an alternate base rate (as defined in the credit agreement). During the existence of certain events of default, interest shall accrueaccrues at a higher rate. The maturity date of the loans is 364 days following the date of the credit agreement.November 16, 2018.
During December 2015, the Company entered into a note payable which is secured by MSRs relating to certain mortgage loans in the Company’s servicing portfolio. Interest is charged at a rate based on LIBOR plus the applicable contract margin.
47
Notes payable are summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Quarter ended March 31, |
|
| Quarter ended March 31, |
|
|
| ||||||||
|
| 2017 |
| 2016 |
|
| 2018 |
| 2017 |
|
|
| ||||
|
| (dollars in thousands) |
| (dollars in thousands) |
|
| ||||||||||
Average balance |
| $ | 294,992 |
| $ | 85,167 |
|
| $ | 979,868 |
| $ | 294,992 |
|
|
|
Weighted average interest rate (1) |
|
| 5.51 | % |
| 4.40 | % |
|
| 5.63 | % |
| 5.51 | % |
|
|
Total interest expense |
| $ | 4,930 |
| $ | 1,598 |
|
| $ | 18,222 |
| $ | 4,930 |
|
|
|
Maximum daily amount outstanding |
| $ | 511,725 |
| $ | 128,849 |
|
| $ | 1,150,000 |
| $ | 511,725 |
|
|
|
(1) | Excluding the effect of amortization of debt issuance costs totaling $ |
45
|
|
|
|
|
|
|
|
|
|
| March 31, |
| December 31, |
|
| ||
|
| 2018 |
| 2017 |
|
| ||
|
| (dollars in thousands) |
|
| ||||
Carrying value: |
|
|
|
|
|
|
|
|
Unpaid principal balance |
| $ | 1,150,000 |
| $ | 900,006 |
|
|
Unamortized debt issuance costs |
|
| (9,978) |
|
| (8,501) |
|
|
|
| $ | 1,140,022 |
| $ | 891,505 |
|
|
Weighted average interest rate |
|
| 4.97 | % |
| 5.66 | % |
|
Unused amount |
| $ | 150,000 |
| $ | 280,000 |
|
|
Assets pledged to secure notes payable: |
|
|
|
|
|
|
|
|
Cash |
| $ | 116,570 |
| $ | 20,765 |
|
|
Carried Interest |
| $ | 538 |
| $ | 8,552 |
|
|
Servicing advances (1) |
| $ | 104,685 |
| $ | 114,643 |
|
|
Mortgage servicing rights (1) |
| $ | 2,178,536 |
| $ | 2,098,067 |
|
|
(1) | Beneficial interests in the Ginnie Mae MSRs and servicing advances are pledged to the Issuer Trust and together serve as the collateral backing the VFN, 2017-GT2 Notes and 2018-GT1 Notes. Financing of the VFN is included in Assets sold under agreements to repurchase and 2017-GT2 Notes and 2018-GT1 Notes are included in Notes payable on the Company's consolidated balance sheet. |
|
|
|
|
|
|
|
|
|
| March 31, |
| December 31, |
| ||
|
| 2017 |
| 2016 |
| ||
|
| (dollars in thousands) |
| ||||
Carrying value: |
|
|
|
|
|
|
|
Unpaid principal balance |
| $ | 441,302 |
| $ | 151,935 |
|
Unamortized debt issuance costs |
|
| (4,577) |
|
| (993) |
|
|
| $ | 436,725 |
| $ | 150,942 |
|
Weighted average interest rate |
|
| 4.86 | % |
| 4.67 | % |
Unused amount |
| $ | 188,698 |
| $ | 98,065 |
|
Assets pledged to secure notes payable: |
|
|
|
|
|
|
|
Cash |
| $ | 60,835 |
| $ | 91,788 |
|
Carried Interest |
| $ | 70,778 |
| $ | 70,906 |
|
Mortgage servicing rights |
| $ | 537,824 |
| $ | 138,349 |
|
Obligations under Capital Lease
In December 2015, the Company entered into a capital lease transaction secured by certain fixed assets and capitalized software. The capital lease matures on November 3, 2019March 23, 2020 and bears interest at a spread over one monthone-month LIBOR.
Obligations under capital lease are summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Quarter ended March 31, |
|
| Quarter ended March 31, |
|
| ||||||||
|
| 2017 |
| 2016 |
|
| 2018 |
| 2017 |
|
| ||||
|
| (dollars in thousands) |
|
| (dollars in thousands) |
| |||||||||
Average balance |
| $ | 24,176 |
| $ | 12,825 |
|
| $ | 18,703 |
| $ | 24,176 |
|
|
Weighted average interest rate |
|
| 2.81 | % |
| 2.44 | % |
|
| 3.64 | % |
| 2.81 | % |
|
Total interest expense |
| $ | 159 |
| $ | 63 |
|
| $ | 170 |
| $ | 159 |
|
|
Maximum daily amount outstanding |
| $ | 31,178 |
| $ | 13,596 |
|
| $ | 20,971 |
| $ | 31,178 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| March 31, |
| December 31, |
|
| March 31, |
| December 31, |
| ||||
|
| 2017 |
| 2016 |
|
| 2018 |
| 2017 |
| ||||
|
| (in thousands) |
|
| (in thousands) |
| ||||||||
Unpaid principal balance |
| $ | 31,178 |
| $ | 23,424 |
|
| $ | 16,435 |
| $ | 20,971 |
|
Weighted average interest rate |
|
| 2.82 | % |
| 2.48 | % |
|
| 3.79 | % |
| 3.26 | % |
Assets pledged to secure obligations under capital lease: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Furniture, fixtures and equipment |
| $ | 29,665 |
| $ | 25,134 |
|
| $ | 22,250 |
| $ | 23,915 |
|
Capitalized software |
| $ | 1,919 |
| $ | 515 |
|
| $ | 1,457 |
| $ | 1,568 |
|
48
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 with PMT. 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.loans. The Company continues to be the servicer of the mortgage loans and retains all servicing obligations, including responsibility to make servicing advances. The agreements are treated as financings and are carried at fair value with changes in fair value recognized in current period income.
46
Following is a summary of ESS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Quarter ended March 31, |
| Quarter ended March 31, |
| ||||||||
|
| 2017 |
| 2016 |
| 2018 |
| 2017 |
| ||||
|
| (in thousands) |
| (in thousands) |
| ||||||||
Balance at beginning of period |
| $ | 288,669 |
| $ | 412,425 | |||||||
Balance at beginning of quarter |
| $ | 236,534 |
| $ | 288,669 |
| ||||||
Issuances of excess servicing spread to PennyMac Mortgage Investment Trust |
|
| 1,573 |
|
| 1,911 |
|
| 904 |
|
| 1,573 |
|
Accrual of interest |
|
| 4,647 |
|
| 7,015 |
|
| 3,934 |
|
| 4,647 |
|
Repayment |
|
| (14,632) |
|
| (20,881) |
|
| (12,291) |
|
| (14,632) |
|
Settlement (1) |
|
| — |
|
| (59,045) | |||||||
Change in fair value |
|
| (2,773) |
|
| (19,449) |
|
| 6,921 |
|
| (2,773) |
|
Balance at end of period |
| $ | 277,484 |
| $ | 321,976 | |||||||
Balance at end of quarter |
| $ | 236,002 |
| $ | 277,484 |
|
|
|
Note 13—12—Liability for Losses Under Representations and Warranties
Following is a summary of the Company’s liability for losses under representations and warranties:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Quarter ended March 31, |
| Quarter ended March 31, |
| ||||||||
|
| 2017 |
| 2016 |
| 2018 |
| 2017 |
| ||||
|
| (in thousands) |
| (in thousands) |
| ||||||||
Balance at beginning of period |
| $ | 19,067 |
| $ | 20,611 | |||||||
Balance at beginning of quarter |
| $ | 20,053 |
| $ | 19,067 |
| ||||||
Provision for losses on mortgage loans sold: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Resulting from sales of mortgage loans |
|
| 1,402 |
|
| 2,082 |
|
| 1,492 |
|
| 1,402 |
|
Reduction in liability due to change in estimate |
|
| (872) |
|
| — |
|
| (1,113) |
|
| (872) |
|
Incurred losses |
|
| (161) |
|
| (484) |
|
| (3) |
|
| (161) |
|
Balance at end of period |
| $ | 19,436 |
| $ | 22,209 | |||||||
Unpaid principal balance of mortgage loans subject to representations and warranties at end of period |
| $ | 98,569,346 |
| $ | 63,806,614 | |||||||
Balance at end of quarter |
| $ | 20,429 |
| $ | 19,436 |
| ||||||
Unpaid principal balance of mortgage loans subject to representations and warranties at end of quarter |
| $ | 127,056,220 |
| $ | 98,569,346 |
|
Note 14—13—Income Taxes
The Company’s effective income tax rates were 12.3%8.3% and 11.9%12.3% for the quarters ended March 31, 2018 and 2017, respectively. The lower effective tax rate for 2018 reflects the effect of the change in the federal statutory tax rate from 35% to 21%, resulting from the December 22, 2017 enactment of H.R.1, known as the Tax Cuts and 2016, respectively.Jobs Act (the “Tax Act”). 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,Class A common stock and the Company’s ownership units in PennyMac is increased through vesting of equity awards, the 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 the Company’s effective income tax rate. The repurchase of Company shares under the Repurchase Program as described in Note 15–Stockholders’ Equity has the opposite effect and results in a corresponding redemption of PennyMac units from the Company pursuant to the PennyMac Limited Liability Agreement.
47
Note 15—Noncontrolling Interest
Net income attributable to the Company’s common stockholders and the effects of changes in noncontrolling ownership interest in PennyMac are summarized below:
|
|
|
|
|
|
|
|
|
|
|
| Quarter ended March 31, |
|
|
| ||||
|
| 2017 |
| 2016 |
|
|
| ||
|
| (in thousands) |
|
|
| ||||
Net income attributable to PennyMac Financial Services, Inc. common stockholders |
| $ | 10,879 |
| $ | 5,175 |
|
|
|
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 common stock of PennyMac Financial Services, Inc. |
| $ | 8,763 |
| $ | 601 |
|
|
|
Shares of Class A common stock of PennyMac Financial Services, Inc. issued pursuant to exchange of Class A units of Private National Mortgage Acceptance Company, LLC |
|
| 329 |
|
| 3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| March 31, |
| December 31, |
|
| ||
|
| 2017 |
| 2016 |
|
| ||
Percentage of noncontrolling interest in Private National Mortgage Acceptance Company, LLC |
|
| 70.0 | % |
| 70.6 | % |
|
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, |
| ||||
|
| 2017 |
| 2016 |
| ||
|
| (in thousands) |
| ||||
Cash (loss) gain: |
|
|
|
|
|
|
|
Mortgage loans |
| $ | (58,681) |
| $ | 21,401 |
|
Hedging activities |
|
| 1,107 |
|
| (72,541) |
|
|
|
| (57,574) |
|
| (51,140) |
|
Non-cash gain: |
|
|
|
|
|
|
|
From non-affiliates: |
|
|
|
|
|
|
|
Mortgage servicing rights and mortgage servicing liabilities resulting from mortgage loan sales |
|
| 132,143 |
|
| 95,373 |
|
Provision for losses relating to representations and warranties: |
|
|
|
|
|
|
|
Pursuant to mortgage loan sales |
|
| (1,402) |
|
| (2,082) |
|
Reduction in liability due to change in estimate |
|
| 872 |
|
| — |
|
Change in fair value relating to mortgage loans and hedging derivatives held at period end: |
|
|
|
|
|
|
|
Interest rate lock commitments |
|
| 6,615 |
|
| 28,112 |
|
Mortgage loans |
|
| 7,396 |
|
| 19,848 |
|
Hedging derivatives |
|
| 601 |
|
| 3,365 |
|
|
|
| 88,651 |
|
| 93,476 |
|
Recapture payable to PennyMac Mortgage Investment Trust |
|
| (1,695) |
|
| (1,952) |
|
|
| $ | 86,956 |
| $ | 91,524 |
|
|
|
|
|
|
|
|
|
48
Note 17—Net Interest Expense
Net interest expense is summarized below:
|
|
|
|
|
|
|
|
|
| Quarter ended March 31, |
| ||||
|
| 2017 |
| 2016 |
| ||
|
| (in thousands) |
| ||||
Interest income: |
|
|
|
|
|
|
|
From non-affiliates: |
|
|
|
|
|
|
|
Short-term investments |
| $ | 337 |
| $ | 172 |
|
Mortgage loans held for sale at fair value |
|
| 16,615 |
|
| 10,481 |
|
Placement fees relating to custodial funds |
|
| 5,102 |
|
| 1,274 |
|
|
|
| 22,054 |
|
| 11,927 |
|
From PennyMac Mortgage Investment Trust—Financings receivable |
|
| 1,805 |
|
| 1,602 |
|
|
|
| 23,859 |
|
| 13,529 |
|
|
|
|
|
|
|
|
|
Interest expense: |
|
|
|
|
|
|
|
To non-affiliates: |
|
|
|
|
|
|
|
Assets sold under agreements to repurchase |
|
| 13,955 |
|
| 8,660 |
|
Mortgage loan participation and sale agreements |
|
| 1,132 |
|
| 781 |
|
Notes payable |
|
| 4,930 |
|
| 1,598 |
|
Obligations under capital lease |
|
| 159 |
|
| 63 |
|
Interest shortfall on repayments of mortgage loans serviced for Agency securitizations |
|
| 3,623 |
|
| 2,105 |
|
Interest on mortgage loan impound deposits |
|
| 1,028 |
|
| 765 |
|
|
|
| 24,827 |
|
| 13,972 |
|
To PennyMac Mortgage Investment Trust—Excess servicing spread financing at fair value |
|
| 4,647 |
|
| 7,015 |
|
|
|
| 29,474 |
|
| 20,987 |
|
|
| $ | (5,615) |
| $ | (7,458) |
|
Note 18—Stock-based Compensation
Following is a summary of the stock-based compensation expense by type of instrument awarded:
|
|
|
|
|
|
|
|
|
| Quarter ended March 31, |
| ||||
|
| 2017 |
| 2016 |
| ||
|
| (in thousands) |
| ||||
Performance-based RSUs |
| $ | 3,304 |
| $ | 2,788 |
|
Stock options |
|
| 1,276 |
|
| 1,080 |
|
Time-based RSUs |
|
| 945 |
|
| 708 |
|
Exchangeable PNMAC units |
|
| — |
|
| 25 |
|
|
| $ | 5,525 |
| $ | 4,601 |
|
Following is a summary of equity award activity:
|
|
|
|
|
|
|
|
|
|
|
|
| Quarter ended March 31, 2017 |
| |||||||
|
| Performance- |
| Stock |
| Time-based |
| |||
|
| based RSUs |
| options |
| RSUs |
| |||
|
| (in thousands) |
| |||||||
December 31, 2016 |
|
| 2,475 |
|
| 2,738 |
|
| 382 |
|
Granted |
|
| 694 |
|
| 861 |
|
| 405 |
|
Vested units and exercised options |
|
| — |
|
| (20) |
|
| (139) |
|
Forfeited or canceled |
|
| (9) |
|
| (8) |
|
| (2) |
|
March 31, 2017 |
|
| 3,160 |
|
| 3,571 |
|
| 646 |
|
49
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Quarter ended March 31, 2016 |
| ||||||||||
|
| Performance- |
| Stock |
| Time-based |
| Exchangeable |
| ||||
|
| based RSUs |
| options |
| RSUs |
| PNMAC units |
| ||||
|
| (in thousands) |
| ||||||||||
December 31, 2015 |
|
| 2,351 |
|
| 1,845 |
|
| 271 |
|
| 132 |
|
Granted |
|
| 813 |
|
| 962 |
|
| 251 |
|
| — |
|
Vested units and exercised options |
|
| — |
|
| — |
|
| (66) |
|
| (132) |
|
Forfeited or canceled |
|
| (478) |
|
| (8) |
|
| (2) |
|
| — |
|
March 31, 2016 |
|
| 2,686 |
|
| 2,799 |
|
| 454 |
|
| — |
|
Note 19—Supplemental Cash Flow Information
|
|
|
|
|
|
|
|
|
| Quarter ended March 31, |
| ||||
|
| 2017 |
| 2016 |
| ||
|
| (in thousands) |
| ||||
Cash paid for interest |
| $ | 34,050 |
| $ | 21,781 |
|
Cash paid for income taxes |
| $ | 16 |
| $ | 25 |
|
Non-cash investing activity: |
|
|
|
|
|
|
|
Mortgage servicing rights resulting from mortgage loan sales |
| $ | 136,202 |
| $ | 100,782 |
|
Mortgage servicing liabilities resulting from mortgage loan sales |
| $ | 4,059 |
| $ | 5,409 |
|
Non-cash financing activity: |
|
|
|
|
|
|
|
Transfer of excess servicing spread pursuant to a recapture agreement with PennyMac Mortgage Investment Trust |
| $ | 1,573 |
| $ | 1,911 |
|
Issuance of common stock in settlement of director fees |
| $ | 84 |
| $ | 74 |
|
Note 20—Regulatory Capital and Liquidity Requirements
The Company, through PLS and PennyMac, is required to maintain specified levels of capital and liquidity to remain a seller/servicer in good standing with the Agencies. Such requirements generally are tied to the size of the Company’s loan servicing portfolio or loan origination volume.
The Agencies’ capital and liquidity requirements, the calculations of which are specified by each Agency, are summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
|
| March 31, 2017 |
| December 31, 2016 |
| ||||||||
Agency–company subject to requirement |
| Actual (1) |
| Requirement |
| Actual (1) |
| Requirement |
| ||||
|
| (dollars in thousands) |
| ||||||||||
Capital |
|
|
|
|
|
|
|
|
|
|
|
|
|
Fannie Mae & Freddie Mac - PLS |
| $ | 1,345,228 |
| $ | 351,076 |
| $ | 1,289,464 |
| $ | 335,883 |
|
Ginnie Mae - PLS |
| $ | 1,137,321 |
| $ | 523,879 |
| $ | 1,085,549 |
| $ | 455,542 |
|
Ginnie Mae - PennyMac |
| $ | 1,322,056 |
| $ | 576,266 |
| $ | 1,261,565 |
| $ | 501,097 |
|
HUD - PLS |
| $ | 1,137,321 |
| $ | 2,500 |
| $ | 1,085,549 |
| $ | 2,500 |
|
Liquidity |
|
|
|
|
|
|
|
|
|
|
|
|
|
Fannie Mae & Freddie Mac - PLS |
| $ | 178,336 |
| $ | 48,037 |
| $ | 179,230 |
| $ | 45,930 |
|
Ginnie Mae - PLS |
| $ | 178,336 |
| $ | 121,561 |
| $ | 179,230 |
| $ | 115,304 |
|
Tangible net worth / Total assets ratio |
|
|
|
|
|
|
|
|
|
|
|
|
|
Fannie Mae and Freddie Mac – PLS |
|
| 26 | % |
| 6 | % |
| 26 | % |
| 6 | % |
|
|
Noncompliance with an Agency’s requirements can result in such Agency taking various remedial actions up to and including terminating PennyMac’s ability to sell loans to and service loans on behalf of the respective Agency.
50
Note 21—14—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, 2017,2018, 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.
Regulatory Matters
The Company and/or its subsidiaries are subject to various state and federal regulations related to its loan production and servicing operations, as well as regulations by various federal agencies, such as the Bureau of Consumer Financial Protection (“BCFP”), HUD, and the Federal Housing Administration. The Company and/or its subsidiaries are also subject to certain requirements by the Agencies to which it sells loans and for which it performs loan servicing activities. As the result, the Company may become involved in information-gathering requests, reviews, investigations and proceedings (both formal and informal) by the various federal, state and local regulatory bodies.
Commitments to Purchase and Fund Mortgage Loans
|
|
|
|
|
| March 31, 2017 | |
|
| (in thousands) | |
Commitments to purchase mortgage loans from PennyMac Mortgage Investment Trust |
| $ | 2,036,646 |
Commitments to fund mortgage loans |
|
| 1,690,795 |
|
| $ | 3,727,441 |
The Company’s commitments to purchase and fund mortgage loans totaled $4.3 billion as of March 31, 2018.
Leases
The Company leases office facilities. Rent expense duringwas $4.3 million and $3.4 million for the quarters ended March 31, 2018 and 2017, and 2016 was $3.4 million and $1.6 million, respectively.
The following table provides a summary of future minimum lease payments required under lease agreements which may also contain renewal options as of March 31, 2017:2018:
|
|
|
|
|
|
|
Twelve months ended March 31: |
| Future minimum lease payments | ||||
Twelve months ended March 31, |
| Future minimum lease payments | ||||
|
| (in thousands) |
| (in thousands) | ||
2018 |
| $ | 10,782 | |||
2019 |
|
| 13,296 |
| $ | 14,029 |
2020 |
|
| 13,766 |
|
| 14,879 |
2021 |
|
| 13,210 |
|
| 14,111 |
2022 |
|
| 11,325 |
|
| 11,635 |
2023 |
|
| 10,251 | |||
Thereafter |
|
| 39,496 |
|
| 30,011 |
|
| $ | 101,875 |
| $ | 94,916 |
Commitment to Make Distributions to PennyMac Owners
Under the terms of its Limited Liability Company Agreement, PennyMac is required to make cash distributions to the Company’s noncontrolling interest holders in amounts sufficient to allow such noncontrolling interest holders to pay federal and state taxes on their allocable share of PennyMac taxable income. Such distributions are calculated and, if required, made quarterly.
Note 15—Stockholders’ Equity
In June 2017, the Company’s board of directors authorized a stock repurchase program (“Repurchase Program”) under which the Company may repurchase up to $50 million of its outstanding Class A common stock. As of December 31, 2017, the Company had repurchased approximately 505,000 shares of Class A common stock at a cost of approximately $8.6 million. The shares of repurchased Class A common stock were canceled upon settlement of the
50
repurchase transactions and returned to the authorized but unissued common stock pool. The Company did not repurchase any Class A common stock during the quarter ended March 31, 2018.
Note 16—Noncontrolling Interest
Net income attributable to the Company’s common stockholders and the effects of changes in noncontrolling ownership interest in PennyMac are summarized below:
|
|
|
|
|
|
|
|
|
|
|
| Quarter ended March 31, |
|
|
| ||||
|
| 2018 |
| 2017 |
|
|
| ||
|
|
|
|
|
|
|
|
|
|
Net income attributable to PennyMac Financial Services, Inc. common stockholders |
| $ | 16,619 |
| $ | 10,879 |
|
|
|
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 common stock of PennyMac Financial Services, Inc. |
| $ | 14,859 |
| $ | 8,763 |
|
|
|
Shares of Class A common stock of PennyMac Financial Services, Inc. issued pursuant to exchange of Class A units of Private National Mortgage Acceptance Company, LLC |
|
| 748 |
|
| 329 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| March 31, |
| December 31, |
|
| ||
|
| 2018 |
| 2017 |
|
| ||
Percentage of noncontrolling interest in Private National Mortgage Acceptance Company, LLC |
|
| 68.4 | % |
| 69.2 | % |
|
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, |
|
| ||||
|
| 2018 |
| 2017 |
|
| ||
|
| (in thousands) |
| |||||
From non-affiliates: |
|
|
|
|
|
|
|
|
Cash (loss) gain: |
|
|
|
|
|
|
|
|
Mortgage loans |
| $ | (181,801) |
| $ | (58,681) |
|
|
Hedging activities |
|
| 104,396 |
|
| 1,107 |
|
|
|
|
| (77,405) |
|
| (57,574) |
|
|
Non-cash gain: |
|
|
|
|
|
|
|
|
Mortgage servicing rights and mortgage servicing liabilities resulting from mortgage loan sales |
|
| 141,873 |
|
| 132,143 |
|
|
Provision for losses relating to representations and warranties: |
|
|
|
|
|
|
|
|
Pursuant to mortgage loan sales |
|
| (1,492) |
|
| (1,402) |
|
|
Reduction in liability due to change in estimate |
|
| 1,113 |
|
| 872 |
|
|
Change in fair value relating to mortgage loans and hedging derivatives held at quarter end: |
|
|
|
|
|
|
|
|
Interest rate lock commitments |
|
| (7,376) |
|
| 6,615 |
|
|
Mortgage loans |
|
| 18,964 |
|
| 7,396 |
|
|
Hedging derivatives |
|
| (16,649) |
|
| 601 |
|
|
|
|
| 59,028 |
|
| 88,651 |
|
|
From PennyMac Mortgage Investment Trust |
|
| 12,386 |
|
| (1,695) |
|
|
|
| $ | 71,414 |
| $ | 86,956 |
|
|
|
|
|
|
|
|
|
|
|
51
Note 18—Net Interest Income (Expense)
Net interest expense is summarized below:
|
|
|
|
|
|
|
|
|
| Quarter ended March 31, |
| ||||
|
| 2018 |
| 2017 |
| ||
|
| (in thousands) |
| ||||
Interest income: |
|
|
|
|
|
|
|
From non-affiliates: |
|
|
|
|
|
|
|
Short-term investments |
| $ | 608 |
| $ | 337 |
|
Mortgage loans held for sale at fair value |
|
| 26,607 |
|
| 16,615 |
|
Placement fees relating to custodial funds |
|
| 13,424 |
|
| 5,102 |
|
|
|
| 40,639 |
|
| 22,054 |
|
From PennyMac Mortgage Investment Trust—Assets purchased from PennyMac Mortgage Investment Trust under agreements to resell |
|
| 1,976 |
|
| 1,805 |
|
|
|
| 42,615 |
|
| 23,859 |
|
|
|
|
|
|
|
|
|
Interest expense: |
|
|
|
|
|
|
|
To non-affiliates: |
|
|
|
|
|
|
|
Assets sold under agreements to repurchase (1) |
|
| 6,732 |
|
| 13,955 |
|
Mortgage loan participation purchase and sale agreements |
|
| 1,727 |
|
| 1,132 |
|
Notes payable |
|
| 18,222 |
|
| 4,930 |
|
Obligations under capital lease |
|
| 170 |
|
| 159 |
|
Interest shortfall on repayments of mortgage loans serviced for Agency securitizations |
|
| 4,830 |
|
| 3,623 |
|
Interest on mortgage loan impound deposits |
|
| 1,130 |
|
| 1,028 |
|
|
|
| 32,811 |
|
| 24,827 |
|
To PennyMac Mortgage Investment Trust—Excess servicing spread financing at fair value |
|
| 3,934 |
|
| 4,647 |
|
|
|
| 36,745 |
|
| 29,474 |
|
|
| $ | 5,870 |
| $ | (5,615) |
|
(1) | In 2017, the Company entered into a master repurchase agreement that provides the Company with incentives to finance mortgage loans approved for satisfying certain consumer relief characteristics as provided in the agreement. During the quarter ended March 31, 2018, the Company included $10.2 million of such incentives as a reduction in Interest expense. The master repurchase agreement has an initial term of six months and is renewable for three additional six-month terms at the option of the lender. On April 18, 2018, the Company renewed the master repurchase agreement for a six-month term. There can be no assurance that the lender will continue to renew this agreement upon its maturity. |
52
Note 19—Stock-based Compensation
As of March 31, 2018 and December 31, 2017, the Company had one stock-based compensation plan. Following is a summary of the stock-based compensation activity:
|
|
|
|
|
|
|
|
|
| Quarter ended March 31, |
| ||||
|
| 2018 |
| 2017 |
| ||
|
| (in thousands) |
| ||||
Grants: |
|
|
|
|
|
|
|
Units: |
|
|
|
|
|
|
|
Performance-based RSUs |
|
| 524 |
|
| 694 |
|
Stock options |
|
| 674 |
|
| 861 |
|
Time-based RSUs |
|
| 316 |
|
| 405 |
|
Grant date fair value: |
|
|
|
|
|
|
|
Performance-based RSUs |
| $ | 12,791 |
| $ | 12,512 |
|
Stock options |
|
| 6,147 |
|
| 5,772 |
|
Time-based RSUs |
|
| 7,703 |
|
| 7,302 |
|
Total |
| $ | 26,641 |
| $ | 25,586 |
|
Vestings and exercises: |
|
|
|
|
|
|
|
Performance-based RSUs vested |
|
| — |
|
| — |
|
Stock options exercised |
|
| 196 |
|
| 20 |
|
Time-based RSUs vested |
|
| 234 |
|
| 139 |
|
Compensation expense |
| $ | 6,171 |
| $ | 5,525 |
|
The performance-based RSUs provide for the issuance of shares of the Company’s Class A common stock based on the attainment of earnings per share and/or return on equity target performance goals and are subject to adjustment based on individual performance of the grantees. The satisfaction of the performance goals and issuance of shares are approved by the compensation committee of the Company’s board of directors. On April 2, 2018, the compensation committee of the board of directors determined that the performance goals for certain performance-based RSU awards with a performance period ended December 31, 2017 were satisfied, and 774,000 shares vested and were issued to the grantees pursuant to such performance-based RSUs.
Note 20—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 dilutive shares of common stock were issued.
Potentially dilutive shares of common stock include non-vested stock-based compensation awards and PennyMac Class A units. The Company applies the treasury stock method to determine the diluted weighted average shares of common stock outstanding represented by the non-vested stock-based compensation awards. The diluted earnings per share calculation includes an evaluation of whether the exchange of PennyMac Class A units for shares of common stock is dilutive. Accordingly, in this evaluation, 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 that would be applicable to such earnings.
53
The following table summarizes the basic and diluted earnings per share calculations:
|
|
|
|
|
|
|
|
|
| Quarter ended March 31, |
| ||||
|
| 2018 |
| 2017 |
| ||
|
| (in thousands, except per share amounts) |
| ||||
Basic earnings per share of common stock: |
|
|
|
|
|
|
|
Net income attributable to common stockholders |
| $ | 16,619 |
| $ | 10,879 |
|
Weighted average shares of common stock outstanding |
|
| 23,832 |
|
| 22,619 |
|
Basic earnings per share of common stock |
| $ | 0.70 |
| $ | 0.48 |
|
|
|
|
|
|
|
|
|
Diluted earnings per share of common stock: |
|
|
|
|
|
|
|
Net income attributable to common stockholders |
| $ | 16,619 |
| $ | 10,879 |
|
Net income attributable to dilutive stock-based compensation units |
|
| 1,400 |
|
| 244 |
|
Effect of net income attributable to PennyMac Class A units exchangeable to Class A common stock, net of income taxes |
|
| 35,449 |
|
| 25,306 |
|
Net income attributable to common stockholders for diluted earnings per share |
| $ | 53,468 |
| $ | 36,429 |
|
Weighted average shares of common stock outstanding applicable to basic earnings per share |
|
| 23,832 |
|
| 22,619 |
|
Effect of dilutive shares: |
|
|
|
|
|
|
|
Common shares issuable under stock-based compensation plan |
|
| 2,947 |
|
| 935 |
|
PennyMac Class A units exchangeable to Class A common stock |
|
| 52,682 |
|
| 53,589 |
|
Weighted average shares of common stock applicable to diluted earnings per share |
|
| 79,461 |
|
| 77,143 |
|
Diluted earnings per share of common stock |
| $ | 0.67 |
| $ | 0.47 |
|
Calculations of diluted earnings per share require certain potentially dilutive shares to be excluded when their inclusion in the diluted earnings per share calculation would be anti-dilutive. The following table summarizes weighted-average number of the anti-dilutive stock options, restricted stock units (“RSUs”) and exchangeable PennyMac Class A units excluded from the calculation of diluted earnings per share:
|
|
|
|
|
|
|
|
|
| Quarter ended March 31, |
| ||||
|
| 2018 |
| 2017 |
| ||
|
| (in thousands except for weighted-average exercise price) |
| ||||
Performance-based RSUs (1) |
|
| 134 |
|
| 1,763 |
|
Stock options (2) |
|
| 172 |
|
| 1,562 |
|
Total anti-dilutive stock-based compensation units |
|
| 306 |
|
| 3,325 |
|
Weighted average exercise price of anti-dilutive stock options (2) |
| $ | 24.40 |
| $ | 18.15 |
|
(1) | Certain performance-based RSUs were outstanding but not included in the computation of earnings per share because the performance thresholds included in such RSUs have not been achieved. |
(2) | Certain stock options were outstanding but not included in the computation of diluted earnings per share because the weighted-average exercise prices were above the average stock price during the quarter. |
54
Note 21—Supplemental Cash Flow Information
|
|
|
|
|
|
|
|
|
| Quarter ended March 31, |
| ||||
|
| 2018 |
| 2017 |
| ||
|
| (in thousands) |
| ||||
Cash paid for interest |
| $ | 40,227 |
| $ | 34,050 |
|
Cash paid for income taxes, net |
| $ | 2 |
| $ | 16 |
|
Non-cash investing activity: |
|
|
|
|
|
|
|
Mortgage servicing rights resulting from mortgage loan sales |
| $ | 143,910 |
| $ | 136,202 |
|
Mortgage servicing liabilities resulting from mortgage loan sales |
| $ | 2,037 |
| $ | 4,059 |
|
Unsettled portion of MSR acquisitions |
| $ | 62 |
| $ | — |
|
Non-cash financing activity: |
|
|
|
|
|
|
|
Transfer of Excess servicing spread payable to PennyMac Mortgage Investment Trust pursuant to a recapture agreement |
| $ | 904 |
| $ | 1,573 |
|
Issuance of Class A common stock in settlement of director fees |
| $ | 79 |
| $ | 84 |
|
Note 22—Regulatory Capital and Liquidity Requirements
The Company, through PLS and PennyMac, is required to maintain specified levels of equity and liquid assets to remain a seller/servicer in good standing with the Agencies. Such equity and liquid asset requirements generally are tied to the size of the Company’s loan servicing portfolio or loan origination volume.
The Company is subject to financial eligibility requirements for sellers/servicers eligible to sell or service mortgage loans with Fannie Mae and Freddie Mac. The eligibility requirements include tangible net worth of $2.5 million plus 25 basis points of the Company’s total 1-4 unit mortgage loan servicing portfolio, excluding mortgage loans subserviced for others and a liquidity requirement equal to 3.5 basis points of the aggregate UPB serviced for the Agencies plus 200 basis points of total nonperforming Agency servicing UPB in excess of 6.0%.
The Company is also subject to financial eligibility requirements for Ginnie Mae single-family issuers. The eligibility requirements include net worth of $2.5 million plus 35 basis points of PLS' outstanding Ginnie Mae single-family obligations and a liquidity requirement equal to the greater of $1.0 million or 10 basis points of PLS' outstanding Ginnie Mae single-family securities.
The Agencies’ capital and liquidity requirements, the calculations of which are specified by each Agency, are summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
|
| March 31, 2018 |
| December 31, 2017 |
| ||||||||
Agency–company subject to requirement |
| Actual (1) |
| Requirement (1) |
| Actual (1) |
| Requirement (1) |
| ||||
|
| (dollars in thousands) |
| ||||||||||
Capital |
|
|
|
|
|
|
|
|
|
|
|
|
|
Fannie Mae & Freddie Mac – PLS |
| $ | 1,626,355 |
| $ | 446,916 |
| $ | 1,561,977 |
| $ | 429,671 |
|
Ginnie Mae – PLS |
| $ | 1,376,610 |
| $ | 698,890 |
| $ | 1,307,580 |
| $ | 674,133 |
|
Ginnie Mae – PennyMac |
| $ | 1,592,883 |
| $ | 768,779 |
| $ | 1,511,201 |
| $ | 741,574 |
|
HUD – PLS |
| $ | 1,376,610 |
| $ | 2,500 |
| $ | 1,307,580 |
| $ | 2,500 |
|
Liquidity |
|
|
|
|
|
|
|
|
|
|
|
|
|
Fannie Mae & Freddie Mac – PLS |
| $ | 228,961 |
| $ | 61,339 |
| $ | 196,415 |
| $ | 58,754 |
|
Ginnie Mae – PLS |
| $ | 228,961 |
| $ | 160,856 |
| $ | 196,415 |
| $ | 153,431 |
|
Tangible net worth / Total assets ratio |
|
|
|
|
|
|
|
|
|
|
|
|
|
Fannie Mae & Freddie Mac – PLS |
|
| 24 | % |
| 6 | % |
| 21 | % |
| 6 | % |
(1) | Calculated in compliance with the respective Agency’s requirements. |
Noncompliance with an Agency’s requirements can result in such Agency taking various remedial actions up to and including terminating PennyMac’s ability to sell loans to and service loans on behalf of the respective Agency.
55
Note 23—Segments and Related Information
The Company operates in three segments: loan production, loan servicing and investment management.
Two of the segments are in the mortgage banking business: loan production and loan servicing. The loan production segment performs mortgage loan origination, acquisition and sale activities. The loan servicing segment performs servicing of newly originated mortgage loans, execution and management of early buyout transactions and servicing of mortgage loans sourced and managed by the investment management segment for the Advised Entities, including executing the loan resolution strategy identified by the investment management segment relating to distressed mortgage loans.
51
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 production activities for PMT and managing the acquired assets for the Advised Entities.
Financial performance and results by segment are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Quarter ended March 31, 2017 |
|
| Quarter ended March 31, 2018 |
| ||||||||||||||||||||||||||
|
| Mortgage Banking |
| Investment |
|
|
|
|
| Mortgage Banking |
| Investment |
|
|
|
| ||||||||||||||||
|
| Production |
| Servicing |
| Total |
| Management |
| Total |
|
| Production |
| Servicing |
| Total |
| Management |
| Total |
| ||||||||||
|
| (in thousands) |
|
| (in thousands) |
| ||||||||||||||||||||||||||
Revenue: (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net gains on mortgage loans held for sale at fair value |
| $ | 62,837 |
| $ | 24,119 |
| $ | 86,956 |
| $ | — |
| $ | 86,956 |
|
| $ | 36,198 |
| $ | 35,216 |
| $ | 71,414 |
| $ | — |
| $ | 71,414 |
|
Mortgage loan origination fees |
|
| 25,574 |
|
| — |
|
| 25,574 |
|
| — |
|
| 25,574 |
|
|
| 24,563 |
|
| — |
|
| 24,563 |
|
| — |
|
| 24,563 |
|
Fulfillment fees from PennyMac Mortgage Investment Trust |
|
| 16,570 |
|
| — |
|
| 16,570 |
|
| — |
|
| 16,570 |
|
|
| 11,944 |
|
| — |
|
| 11,944 |
|
| — |
|
| 11,944 |
|
Net mortgage loan servicing fees |
|
| — |
|
| 74,163 |
|
| 74,163 |
|
| — |
|
| 74,163 |
|
|
| — |
|
| 116,789 |
|
| 116,789 |
|
| — |
|
| 116,789 |
|
Management fees |
|
| — |
|
| — |
|
| — |
|
| 5,374 |
|
| 5,374 |
|
|
| — |
|
| — |
|
| — |
|
| 5,775 |
|
| 5,775 |
|
Carried Interest from Investment Funds |
|
| — |
|
| — |
|
| — |
|
| (128) |
|
| (128) |
|
|
| — |
|
| — |
|
| — |
|
| (180) |
|
| (180) |
|
Net interest income (expense): |
|
| — |
|
| — |
|
| — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
| 12,936 |
|
| 10,923 |
|
| 23,859 |
|
| — |
|
| 23,859 |
|
|
| 14,248 |
|
| 28,367 |
|
| 42,615 |
|
| — |
|
| 42,615 |
|
Interest expense |
|
| 8,822 |
|
| 20,641 |
|
| 29,463 |
|
| 11 |
|
| 29,474 |
|
|
| 2,102 |
|
| 34,627 |
|
| 36,729 |
|
| 16 |
|
| 36,745 |
|
|
|
| 4,114 |
|
| (9,718) |
|
| (5,604) |
|
| (11) |
|
| (5,615) |
|
|
| 12,146 |
|
| (6,260) |
|
| 5,886 |
|
| (16) |
|
| 5,870 |
|
Other |
|
| 945 |
|
| 471 |
|
| 1,416 |
|
| 163 |
|
| 1,579 |
|
|
| 316 |
|
| 395 |
|
| 711 |
|
| 1,315 |
|
| 2,026 |
|
Total net revenue |
|
| 110,040 |
|
| 89,035 |
|
| 199,075 |
|
| 5,398 |
|
| 204,473 |
|
|
| 85,167 |
|
| 146,140 |
|
| 231,307 |
|
| 6,894 |
|
| 238,201 |
|
Expenses |
|
| 62,536 |
|
| 75,619 |
|
| 138,155 |
|
| 4,286 |
|
| 142,441 |
|
|
| 67,997 |
|
| 91,265 |
|
| 159,262 |
|
| 5,943 |
|
| 165,205 |
|
Income before provision for income taxes |
| $ | 47,504 |
| $ | 13,416 |
| $ | 60,920 |
| $ | 1,112 |
| $ | 62,032 |
|
| $ | 17,170 |
| $ | 54,875 |
| $ | 72,045 |
| $ | 951 |
| $ | 72,996 |
|
Segment assets at period end (2) |
| $ | 2,054,302 |
| $ | 3,096,709 |
| $ | 5,151,011 |
| $ | 91,316 |
| $ | 5,242,327 |
| ||||||||||||||||
Segment assets at quarter end (2) |
| $ | 2,251,354 |
| $ | 4,630,946 |
| $ | 6,882,300 |
| $ | 11,877 |
| $ | 6,894,177 |
|
(1) | All revenues are from external customers. |
(2) | Excludes parent |
5256
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Quarter ended March 31, 2016 |
|
| Quarter ended March 31, 2017 |
| ||||||||||||||||||||||||||
|
| Mortgage Banking |
| Investment |
|
|
|
|
| Mortgage Banking |
| Investment |
|
|
|
| ||||||||||||||||
|
| Production |
| Servicing |
| Total |
| Management |
| Total |
|
| Production |
| Servicing |
| Total |
| Management |
| Total |
| ||||||||||
|
| (in thousands) |
|
| (in thousands) |
| ||||||||||||||||||||||||||
Revenue: (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net gains on mortgage loans held for sale at fair value |
| $ | 78,214 |
| $ | 13,310 |
| $ | 91,524 |
| $ | — |
| $ | 91,524 |
|
| $ | 62,837 |
| $ | 24,119 |
| $ | 86,956 |
| $ | — |
| $ | 86,956 |
|
Mortgage loan origination fees |
|
| 22,434 |
|
| — |
|
| 22,434 |
|
| — |
|
| 22,434 |
|
|
| 25,574 |
|
| — |
|
| 25,574 |
|
| — |
|
| 25,574 |
|
Fulfillment fees from PennyMac Mortgage Investment Trust |
|
| 12,935 |
|
| — |
|
| 12,935 |
|
| — |
|
| 12,935 |
|
|
| 16,570 |
|
| — |
|
| 16,570 |
|
| — |
|
| 16,570 |
|
Net mortgage loan servicing fees |
|
| — |
|
| 17,519 |
|
| 17,519 |
|
| — |
|
| 17,519 |
|
|
| — |
|
| 74,163 |
|
| 74,163 |
|
| — |
|
| 74,163 |
|
Management fees |
|
| — |
|
| — |
|
| — |
|
| 5,912 |
|
| 5,912 |
|
|
| — |
|
| — |
|
| — |
|
| 5,374 |
|
| 5,374 |
|
Carried Interest from Investment Funds |
|
| — |
|
| — |
|
| — |
|
| 593 |
|
| 593 |
|
|
| — |
|
| — |
|
| — |
|
| (128) |
|
| (128) |
|
Net interest income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
| 8,377 |
|
| 5,151 |
|
| 13,528 |
|
| 1 |
|
| 13,529 |
|
|
| 12,936 |
|
| 10,923 |
|
| 23,859 |
|
| — |
|
| 23,859 |
|
Interest expense |
|
| 4,883 |
|
| 16,144 |
|
| 21,027 |
|
| 10 |
|
| 21,037 |
|
|
| 8,822 |
|
| 20,641 |
|
| 29,463 |
|
| 11 |
|
| 29,474 |
|
|
|
| 3,494 |
|
| (10,993) |
|
| (7,499) |
|
| (9) |
|
| (7,508) |
|
|
| 4,114 |
|
| (9,718) |
|
| (5,604) |
|
| (11) |
|
| (5,615) |
|
Other |
|
| 239 |
|
| (232) |
|
| 7 |
|
| (64) |
|
| (57) |
|
|
| 945 |
|
| 471 |
|
| 1,416 |
|
| 163 |
|
| 1,579 |
|
Total net revenue |
|
| 117,316 |
|
| 19,604 |
|
| 136,920 |
|
| 6,432 |
|
| 143,352 |
|
|
| 110,040 |
|
| 89,035 |
|
| 199,075 |
|
| 5,398 |
|
| 204,473 |
|
Expenses |
|
| 48,908 |
|
| 59,066 |
|
| 107,974 |
|
| 5,288 |
|
| 113,262 |
|
|
| 62,536 |
|
| 75,619 |
|
| 138,155 |
|
| 4,286 |
|
| 142,441 |
|
Income (loss) before provision for income taxes |
|
| 68,408 |
|
| (39,462) |
|
| 28,946 |
|
| 1,144 |
|
| 30,090 |
|
| $ | 47,504 |
| $ | 13,416 |
| $ | 60,920 |
| $ | 1,112 |
| $ | 62,032 |
|
Non-segment activities (2) |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 49 |
| ||||||||||||||||
Income (loss) before provision for income taxes |
| $ | 68,408 |
| $ | (39,462) |
| $ | 28,946 |
| $ | 1,144 |
| $ | 30,139 |
| ||||||||||||||||
Segment assets at period end (3) |
| $ | 1,751,604 |
| $ | 2,118,587 |
| $ | 3,870,191 |
| $ | 91,980 |
| $ | 3,962,171 |
| ||||||||||||||||
Segment assets at quarter end (2) |
| $ | 2,054,302 |
| $ | 3,096,709 |
| $ | 5,151,011 |
| $ | 91,316 |
| $ | 5,242,327 |
|
(1) | All revenues are from external |
(2) |
|
(3)Excludes parent company assets, which consist primarily of Deferred tax asset of $14.6 million and working capital of $4.5 million.
Note 23—24—Recently Issued Accounting Pronouncements
In May 2014, the FASB issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers (Subtopic 606) (“ASU 2014-09”), which supersedes the guidance in the Revenue Recognition topic of the ASC. ASU 2014-09 clarifies the principles for recognizing revenue in order to improve comparability of revenue recognition practices across entities and industries with certain scope exceptions including financial instruments, leases, and guarantees. ASU 2014-09 provides guidance intended to assist in the identification of contracts with customers and separate performance obligations within those contracts, the determination and allocation of the transaction price to those identified performance obligations and the recognition of revenue when a performance obligation has been satisfied. ASU 2014-09 also requires disclosures regarding the nature, amount, timing, and uncertainty of revenues and cash flows from contracts with customers.
Upon adoption, ASU 2014-09 provides for transition through either a full retrospective approach requiring the restatement of all presented prior periods or a modified retrospective approach, which allows the new recognition standard to be applied to only those contracts that are not completed at the date of transition. If the modified retrospective approach is adopted, a cumulative-effect adjustment to retained earnings is performed with additional disclosures required including the amount by which each line item is affected by the transition as compared to the guidance in effect before adoption and an explanation of the reasons for significant changes in these amounts.
53
The FASB has issued several amendments to the new revenue standard ASU 2014-09, including:
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54
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|
|
|
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|
The Company expects that upon adoption, the guidance currently applied by the Company to its Carried Interest may be affected. The Company’s Carried Interest arrangements with the Investment Funds represent capital allocations to the Company. The Company is currently evaluating whether the nature and substance of its Carried Interest arrangements are within the scope of ASU 2014-09, or whether such Carried Interest should be accounted for under the equity method of accounting under the Investments – Equity Method and Joint Ventures topic of the ASC.
If the Company concludes the Carried Interest should be accounted for under the equity method of accounting, Carried Interest would be accounted for as a financial instrument and the amount recognized by the Company would not change significantly. The Company is still determining the potential additional effects of ASU 2014-09 on its financial statements for other arrangements that may be within the scope of ASU 2014-09.
In January 2016, the FASB issued ASU 2016-01, Financial Instruments–Overall: Recognition and Measurement of Financial Assets and Financial Liabilities (“ASU 2016-01”). ASU 2016-01 affects the accounting for equity investments, financial liabilities under the fair value option, the presentation and disclosure requirements for financial instruments, and the valuation allowance assessment when recognizing deferred tax assets resulting from unrealized losses on available-for-sale debt securities.
ASU 2016-01 requires that:
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55
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|
The classification and measurement guidance will be effective for public business entities in fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption of the provision to record fair value changes for financial liabilities under the fair value option resulting from instrument-specific credit risk in other comprehensive income is permitted and can be elected for all financial statements of fiscal years and interim periods that have not yet been issued or that have not yet been made available for issuance. The adoption of ASU 2016-01 had no effect on the Company’s consolidated financial statements.
In February 2016, the FASB issued ASU No. 2016-02,, Leases (Topic 842)(“ (“ASU 2016-02”). ASU 2016-02 sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e. lessees and lessors) and supersedes previous leasing standards. ASU 2016-02 requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether the lease is effectively a financed purchase of the leased asset by the lessee. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification.
ASU 2016-02 is effective for the Company for reporting periods beginning after December 15, 2018, with early adoption permitted. The Company is currently assessing the potential impacteffect that the adoption of ASU 2016-02 will have on its consolidated financial statements. As shown in Note 21 -14 –Commitments and Contingencies, the Company had approximately $101.9$94.9 million in future minimum lease payment commitments as of March 31, 2017.2018. Were the Company to adopt ASU 2016-02 as of March 31, 2017,2018, it would be required to recognize a right-of-use asset and a corresponding liability based on the present value of such obligation as of March 31, 2017.2018. The Company does not expect to recognize a significant cumulative effect adjustment to its stockholders’ equity as a result of adopting ASU 2016-02.
Note 25—Subsequent Events
In March 2016,Management has evaluated all events and transactions through the FASBdate the Company issued ASU 2016-09, Compensation—Stock Compensation(Topic 718): Improvements to Employee Share-Based Payment Accounting (“ASU 2016-09”). ASU 2016-09 simplifies several aspects of the accounting for share-based payment award transactions, including:these consolidated financial statements. During this period:
· |
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56
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|
|
ASU 2016-09 is effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Early adoption is permitted for any organization in any interim or annual period. The adoption of ASU 2016-09 did not have a significant effect on the Company’s consolidated financial statements.
Note 24—Subsequent Events
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|
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57
|
|
58
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Cautionary Statement Regarding Forward-Looking Statements
The following discussion and analysis of financial condition and results of operations should be read 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 PFSI.
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. mortgage market. We believe that our operating capabilities, specialized expertise, access to long-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 our executive leadership team and two strategic partners, BlackRock Mortgage Ventures, LLC 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. PLS is a seller/servicer for the Federal National Mortgage Association (“Fannie Mae”) and the Federal Home Loan Mortgage Corporation (“Freddie Mac”), each of which is a government-sponsoredgovernment sponsored entity (“GSE”). ItPLS is also an approved issuer of securities guaranteed by the Government National Mortgage Association (“Ginnie Mae”), a lender of the Federal Housing Administration (“FHA”), a lender/servicer of the Veterans Administration (“VA”) and the U.S. Department of Agriculture (“USDA”), and a servicer for the Home Affordable Modification Program (“HAMP”).Program. We refer to each of Fannie Mae, Freddie Mac, Ginnie Mae, FHA, VA and USDA as an “Agency” and collectively as the “Agencies.” PLS is able to service loans in all 50 states, the District of Columbia, Guam and the U.S. Virgin Islands, and originate loans in 49 states and the District of Columbia, either because PLS is properly licensed in a particular jurisdiction or exempt or otherwise not required to be licensed in that jurisdiction.
Our investment management subsidiary is PNMAC Capital Management, LLC (“PCM”), is a Delaware limited liability company registered with the Securities and Exchange Commission (“SEC”) as an investment adviser under the Investment AdvisorsAdvisers Act of 1940, as amended. 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,PMT. PCM also manages PNMAC Mortgage Opportunity Fund, LLC and PNMAC Mortgage Opportunity Fund, LP, both registered under the Investment
59
Company Act of 1940 (“Investment Company Act”), as amended, an affiliate of these Fundsfunds and
58
PNMAC Mortgage Opportunity Fund Investors, LLC. We refer to these funds collectively as our “Investment Funds” and, together with PMT, as our “Advised Entities.” In 2017 through the quarter ended March 31, 2018, the Investment Funds sold or liquidated all of their remaining investments. We expect to complete liquidation of the Investment Funds during 2018.
We conduct our business in three segments: production, servicing (together, production and servicing comprise our mortgage banking activities) and investment management.
· | The production segment performs mortgage loan origination, acquisition and sale activities. |
· | The servicing segment performs mortgage loan servicing for both newly originated loans and loans we service for others, including for the Advised Entities. |
· | The investment management segment represents our investment management activities, which include the activities associated with investment asset acquisitions and dispositions such as sourcing, due diligence, negotiation and settlement; managing correspondent production activities for PMT; and managing the acquired investments for the Advised Entities. |
Results of Operations
Our results of operations are summarized below:
|
|
|
|
|
|
|
|
|
| Quarter ended March 31, |
| ||||
|
| 2017 |
| 2016 |
| ||
|
| (in thousands) |
| ||||
Revenues: |
|
|
|
|
|
|
|
Net gains on mortgage loans held for sale at fair value |
| $ | 86,956 |
| $ | 91,524 |
|
Mortgage loan origination fees |
|
| 25,574 |
|
| 22,434 |
|
Fulfillment fees from PennyMac Mortgage Investment Trust |
|
| 16,570 |
|
| 12,935 |
|
Net mortgage loan servicing fees |
|
| 74,163 |
|
| 17,519 |
|
Management fees & Carried Interest |
|
| 5,246 |
|
| 6,505 |
|
Net interest expense |
|
| (5,615) |
|
| (7,458) |
|
Other |
|
| 1,579 |
|
| (58) |
|
Total net revenue |
|
| 204,473 |
|
| 143,401 |
|
Expenses |
|
| 142,441 |
|
| 113,262 |
|
Provision for income taxes |
|
| 7,646 |
|
| 3,596 |
|
Net income |
| $ | 54,386 |
| $ | 26,543 |
|
|
|
|
|
|
|
|
|
Income before provision for income taxes by segment: |
|
|
|
|
|
|
|
Mortgage banking: |
|
|
|
|
|
|
|
Production |
| $ | 47,504 |
| $ | 68,408 |
|
Servicing |
|
| 13,416 |
|
| (39,462) |
|
Total mortgage banking |
|
| 60,920 |
|
| 28,946 |
|
Investment management |
|
| 1,112 |
|
| 1,144 |
|
Non-segment activities (1) |
|
| — |
|
| 49 |
|
|
| $ | 62,032 |
| $ | 30,139 |
|
During the period: |
|
|
|
|
|
|
|
Interest rate lock commitments issued |
| $ | 11,105,899 |
| $ | 8,740,418 |
|
Fair value of mortgage loans purchased and originated for sale: |
|
|
|
|
|
|
|
Government-insured or guaranteed loans acquired from PennyMac Mortgage Investment Trust |
| $ | 10,016,788 |
| $ | 6,850,276 |
|
Mortgage loans originated through consumer direct channel |
|
| 1,061,212 |
|
| 1,222,763 |
|
|
| $ | 11,078,000 |
| $ | 8,073,039 |
|
Unpaid principal balance of mortgage loans fulfilled for PennyMac Mortgage Investment Trust |
| $ | 4,631,906 |
| $ | 3,259,363 |
|
|
|
|
|
|
|
|
|
Unpaid principal balance of mortgage loan servicing portfolio: |
|
|
|
|
|
|
|
Owned: |
|
|
|
|
|
|
|
Mortgage servicing rights |
| $ | 135,349,287 |
| $ | 112,836,878 |
|
Mortgage servicing liabilities |
|
| 1,900,493 |
|
| 926,756 |
|
Mortgage loans held for sale |
|
| 2,180,760 |
|
| 1,561,006 |
|
|
|
| 139,430,540 |
|
| 115,324,640 |
|
Subserviced for Advised Entities |
|
| 63,452,796 |
|
| 49,581,955 |
|
|
| $ | 202,883,336 |
| $ | 164,906,595 |
|
Net assets of Advised Entities: |
|
|
|
|
|
|
|
PennyMac Mortgage Investment Trust |
| $ | 1,458,590 |
| $ | 1,414,503 |
|
Investment Funds |
|
| 97,551 |
|
| 207,706 |
|
|
| $ | 1,556,141 |
| $ | 1,622,209 |
|
|
|
|
|
|
|
|
|
|
|
|
| Quarter ended March 31, |
| ||||
|
| 2018 |
| 2017 |
| ||
|
| (in thousands) |
| ||||
Revenues: |
|
|
|
|
|
|
|
Net gains on mortgage loans held for sale at fair value |
| $ | 71,414 |
| $ | 86,956 |
|
Mortgage loan origination fees |
|
| 24,563 |
|
| 25,574 |
|
Fulfillment fees from PennyMac Mortgage Investment Trust |
|
| 11,944 |
|
| 16,570 |
|
Net mortgage loan servicing fees |
|
| 116,789 |
|
| 74,163 |
|
Management fees & Carried Interest |
|
| 5,595 |
|
| 5,246 |
|
Net interest income (expense) |
|
| 5,870 |
|
| (5,615) |
|
Other |
|
| 2,026 |
|
| 1,579 |
|
Total net revenue |
|
| 238,201 |
|
| 204,473 |
|
Expenses |
|
| 165,205 |
|
| 142,441 |
|
Provision for income taxes |
|
| 6,070 |
|
| 7,646 |
|
Net income |
| $ | 66,926 |
| $ | 54,386 |
|
|
|
|
|
|
|
|
|
Income before provision for income taxes by segment: |
|
|
|
|
|
|
|
Mortgage banking: |
|
|
|
|
|
|
|
Production |
| $ | 17,170 |
| $ | 47,504 |
|
Servicing |
|
| 54,875 |
|
| 13,416 |
|
Total mortgage banking |
|
| 72,045 |
|
| 60,920 |
|
Investment management |
|
| 951 |
|
| 1,112 |
|
|
| $ | 72,996 |
| $ | 62,032 |
|
During the quarter: |
|
|
|
|
|
|
|
Interest rate lock commitments issued |
| $ | 10,857,635 |
| $ | 11,105,899 |
|
Unpaid principal balance of mortgage loans fulfilled for PMT subject to fulfillment fees |
| $ | 4,225,631 |
| $ | 4,631,906 |
|
At quarter end: |
|
|
|
|
|
|
|
Unpaid principal balance of mortgage loan servicing portfolio: |
|
|
|
|
|
|
|
Owned: |
|
|
|
|
|
|
|
Mortgage servicing rights |
| $ | 173,487,165 |
| $ | 135,349,287 |
|
Mortgage servicing liabilities |
|
| 1,766,722 |
|
| 1,900,493 |
|
Mortgage loans held for sale |
|
| 2,512,546 |
|
| 2,180,760 |
|
|
|
| 177,766,433 |
|
| 139,430,540 |
|
Subserviced for Advised Entities |
|
| 77,539,438 |
|
| 63,452,796 |
|
|
| $ | 255,305,871 |
| $ | 202,883,336 |
|
Net assets of Advised Entities: |
|
|
|
|
|
|
|
PennyMac Mortgage Investment Trust |
| $ | 1,542,258 |
| $ | 1,458,590 |
|
Investment Funds |
|
| 2,668 |
|
| 97,551 |
|
|
| $ | 1,544,926 |
| $ | 1,556,141 |
|
Net income increased $27.8$12.5 million during the quarter ended March 31, 20172018 compared to the same period in 2016. These changes reflect the effects on our mortgage banking activities of higher market interest rates during the quarter ended March 31, 2017 compared to the same period in 2016.2017. The increase was primarily due to an increase in Net mortgage loan servicing fees resulting from lower amortization,which reflects both growth in our servicing portfolio and losses in change inimproved fair value of MSRs due to less adverse interest rate movements along withrelated adjustments, and an increase in mortgage loan servicing fees from a larger servicing portfolio that was partially offset by an increase in expenses due to the larger scale of our business.net interest income, which reflect
6059
the effect of incentives we received for financing mortgage loans held for sale approved for satisfying certain customer relief characteristics. The increase was partially offset by decreases in Net gains on mortgage loans held for sale at fair value, Fulfillment fees from PennyMac Mortgage Investment Trust and Mortgage loan origination fees.
Net Gains on Mortgage Loans Held for Sale at Fair Value
Most of our mortgage loan production is centered in government-insured or guaranteed mortgage loans. Over recent periods, the margins on correspondentconsists of 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.
Wethat we source the majority of our government-insured or guaranteed mortgage loan productionprimarily through PMT. PMT is not approved by Ginnie Mae as an issuer of Ginnie Mae-guaranteed securities which are backed by government-insured or guaranteed mortgage loans. We purchase the government-insured or guaranteedsuch mortgage loans that PMT acquires through its correspondent lendingproduction activities and pay PMT a sourcing fee ranging from two to three and one-half basis points on the UPB of such mortgage loans.
During the quarter ended March 31, 2017,2018, we recognized Net gains on mortgage loans held for sale at fair value totaling $87.0$71.4 million, a decrease of $4.6$15.5 million fromcompared to the same period in 2016.2017. The decrease was primarily due to decreases in profit margins reflecting the generally rising interest rates in the mortgage market, which has a decreasenegative influence on demand for mortgage lending. Reduced demand negatively influences profit margins by causing increased price competition in our profit margin onthe acquisition and origination of mortgage loan production partially offset by growth in our mortgage loan production volume.loans.
Our net gains on mortgage loans held for sale are summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
| Quarter ended March 31, |
|
|
| Quarter ended March 31, |
|
| ||||||||
|
| 2017 |
| 2016 |
|
|
| 2018 |
| 2017 |
|
| ||||
|
| (in thousands) |
|
|
| (in thousands) |
|
| ||||||||
From non affiliates: |
|
|
|
|
|
|
| |||||||||
Cash (loss) gain: |
|
|
|
|
|
| ||||||||||
From non-affiliates: |
|
|
|
|
|
|
| |||||||||
Cash loss: |
|
|
|
|
|
| ||||||||||
Mortgage loans |
| $ | (58,681) |
| $ | 21,401 |
|
|
| $ | (181,801) |
| $ | (58,681) |
|
|
Hedging activities |
|
| 1,107 |
|
| (72,541) |
|
|
|
| 104,396 |
|
| 1,107 |
|
|
|
|
| (57,574) |
|
| (51,140) |
|
|
|
| (77,405) |
|
| (57,574) |
|
|
Non-cash gain: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Mortgage servicing rights and mortgage servicing liabilities resulting from mortgage loan sales |
|
| 132,143 |
| 95,373 |
|
|
|
| 141,873 |
| 132,143 |
|
| ||
Provision for losses relating to representations and warranties: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Pursuant to mortgage loan sales |
|
| (1,402) |
| (2,082) |
|
|
|
| (1,492) |
| (1,402) |
|
| ||
Reduction in liability due to change in estimate |
|
| 872 |
| — |
|
|
|
| 1,113 |
| 872 |
|
| ||
Change in fair value of mortgage loans and derivative financial instruments outstanding at period end: |
|
|
|
|
|
|
| |||||||||
Change in fair value of mortgage loans and derivative financial instruments outstanding at quarter end: |
|
|
|
|
|
|
| |||||||||
Interest rate lock commitments |
|
| 6,615 |
| 28,112 |
|
|
|
| (7,376) |
| 6,615 |
|
| ||
Mortgage loans |
|
| 7,396 |
| 19,848 |
|
|
|
| 18,964 |
| 7,396 |
|
| ||
Hedging derivatives |
|
| 601 |
|
| 3,365 |
|
|
|
| (16,649) |
|
| 601 |
|
|
|
|
| 88,651 |
|
| 93,476 |
|
|
|
| 59,028 |
|
| 88,651 |
|
|
From PennyMac Mortgage Investment Trust - Recapture payable |
|
| (1,695) |
|
| (1,952) |
|
| ||||||||
From PennyMac Mortgage Investment Trust |
|
| 12,386 |
|
| (1,695) |
|
| ||||||||
|
| $ | 86,956 |
| $ | 91,524 |
|
|
| $ | 71,414 |
| $ | 86,956 |
|
|
During the period: |
|
|
|
|
|
| ||||||||||
Unpaid principal balance of mortgage loans sold |
| $ | 11,456,809 |
| $ | 7,615,057 |
|
| ||||||||
During the quarter: |
|
|
|
|
|
| ||||||||||
Interest rate lock commitments issued: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Conventional mortgage loans |
| $ | 668,585 |
| $ | 547,317 |
|
|
| $ | 1,102,197 |
| $ | 668,585 |
|
|
Government-insured or guaranteed mortgage loans |
|
| 10,437,314 |
|
| 8,193,101 |
|
|
|
| 9,755,438 |
|
| 10,437,314 |
|
|
|
| $ | 11,105,899 |
| $ | 8,740,418 |
|
|
| $ | 10,857,635 |
| $ | 11,105,899 |
|
|
At period end: |
|
|
|
|
|
| ||||||||||
At quarter end: |
|
|
|
|
|
| ||||||||||
Mortgage loans held for sale at fair value |
| $ | 2,277,751 |
| $ | 1,653,963 |
|
|
| $ | 2,584,236 |
| $ | 2,277,751 |
|
|
Commitments to fund and purchase mortgage loans |
| $ | 3,727,441 |
| $ | 3,477,022 |
|
|
| $ | 4,275,126 |
| $ | 3,727,441 |
|
|
Provision for Losses on Representations and Warranties
We record our estimate of the losses that we expect to incur in the future as a result of claims against us made in connection with the representations and warranties we provideprovided to the purchasers and insurers of the mortgage loans we
61
sell sold in our Net gains on sale of mortgage loans held for sale at fair value. Our agreements with the purchasers and insurers include representations and warranties related to the mortgage loans we sell to purchasers. The representations and
60
warranties require adherence to purchaser and insurer origination and underwriting guidelines, including but not limited to the validity of the lien securing the mortgage 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 purchaser or insurer against future credit losses.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 originators that sold such mortgage loans to us 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 seller.
The method we useused to estimate our losses on representations and warranties is a function of our estimate of future defaults, mortgage loan repurchase rates, the severity of loss in the event of defaultsdefault, if applicable, and the probability of reimbursement by the correspondent mortgage loan seller. We establish a liability at the time mortgage loans are sold and review our liability estimate on a periodic basis.
We recorded provisions for losses under representations and warranties relating to current mortgage loan sales as a component of Net gains on mortgage loans held for sale at fair value totaling $530,000 during the quarter ended March 31, 2017 compared to $2.1$1.5 million during the quarter ended March 31, 2016. The decrease2018 compared to $1.4 million during the same period in provision for losses under representations and warranties2017. We also recorded reductions in the liability of $1.1 million during the quarter ended March 31, 20172018 compared to $872,000 during the same period in 2016 was primarily due to an $872,000 reduction2017. The reductions in the liability estimate resultingresulted from changes in estimatesreductions relating to mortgage loans meeting previously announced limitations on pursuit by the Agencies of claims on mortgage loans with certain performance histories, partially offset by increased loan sale volume.histories.
Following is a summary of mortgage loan repurchase activity and the UPB of mortgage loans subject to representations and warranties:
|
|
|
|
|
|
|
|
| ||||
|
| Quarter ended March 31, |
| Quarter ended March 31, | ||||||||
|
| 2017 |
| 2016 |
| 2018 |
| 2017 | ||||
|
| (in thousands) |
| (in thousands) | ||||||||
During the period: |
|
|
|
| ||||||||
During the quarter: |
|
|
|
|
| |||||||
Indemnification activity |
|
|
|
|
|
|
|
|
| |||
Mortgage loans indemnified by PFSI at beginning of period |
| $ | 5,599 |
| $ | 3,470 | ||||||
Mortgage loans indemnified by PFSI at beginning of quarter |
| $ | 7,579 |
| $ | 5,599 | ||||||
New indemnifications |
| 689 |
| 139 |
|
| 2,632 |
| 689 | |||
Indemnified mortgage loans repaid or refinanced |
|
| — |
|
| (69) | ||||||
Mortgage loans indemnified by PFSI at end of period |
| $ | 6,288 |
| $ | 3,540 | ||||||
Less: |
|
|
|
|
| |||||||
Indemnified mortgage loans sold, repaid or refinanced |
|
| 210 |
|
| — | ||||||
Mortgage loans indemnified by PFSI at end of quarter |
| $ | 10,001 |
| $ | 6,288 | ||||||
Repurchase activity |
|
|
|
|
|
|
|
|
| |||
Total mortgage loans repurchased by PFSI |
| $ | 5,303 |
| $ | 6,913 |
| $ | 6,313 |
| $ | 5,303 |
Less: |
|
|
|
|
|
|
|
|
| |||
Mortgage loans repurchased by correspondent lenders |
| 2,583 |
| 3,265 |
|
| 6,646 |
| 2,583 | |||
Mortgage loans repaid by borrowers or resold with defects resolved |
|
| 3,219 |
|
| 327 |
|
| 116 |
|
| 3,219 |
Net mortgage loans (repaid or resold) repurchased by PFSI with losses chargeable to liability for representations and warranties |
| $ | (499) |
| $ | 3,321 | ||||||
Net mortgage loans resold or repaid with losses chargeable to liability for representations and warranties |
| $ | (449) |
| $ | (499) | ||||||
Net losses charged to liability for representations and warranties |
| $ | 161 |
| $ | 484 |
| $ | 3 |
| $ | 161 |
|
|
|
|
|
|
|
|
|
| |||
At period end: |
|
|
|
| ||||||||
At quarter end: |
|
|
|
| ||||||||
Unpaid principal balance of mortgage loans subject to representations and warranties |
| $ | 98,569,346 |
| $ | 63,806,614 |
| $ | 127,056,220 |
| $ | 98,569,346 |
Liability for representations and warranties |
| $ | 19,436 |
| $ | 22,209 |
| $ | 20,429 |
| $ | 19,436 |
During the quarter ended March 31, 2017,2018, we repurchased mortgage loans totaling $5.3$6.3 million in UPB. We recorded losses of $161,000$3,000 net of recoveries from correspondent sellers as a result of these repurchases.repurchases during the quarter ended March 31, 2018. 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 that the level of repurchase activity may 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,
62
purchaser or insurer loss mitigation strategies, and other external conditions that may change over the lives of the
61
underlying mortgage loans. Our estimate of the liability for representations and warranties is developed by our credit administration staff and approved by our senior management credit committee which includes our senior executives and senior management in our loan production, loan servicing and credit risk management areas.
Our representations and warranties are generally not subject to stated limits of exposure. However, we believe that the current UPB of mortgage loans sold by us to date represents the maximum exposure to repurchases related to representations and warranties.
Other mortgage loan production-related revenues
Mortgage loan origination fees increased $3.1decreased $1.0 million during the quarter ended March 31, 2017,2018 compared to the same period in 20162017. The decrease was primarily due to growtha decrease in the volume of correspondent purchases in our loan production activities.mortgage loans we produced.
Fulfillment fees from PMT which represent fees we collect for services we perform on behalf of PMT in connection with itsthe acquisition, packaging and sale of mortgage loans,loans. The fulfillment fees are calculated as a percentage of the UPB of the mortgage loans we fulfill for PMT.
Fulfillment fees increased $3.6decreased $4.6 million during the quarter ended March 31, 20172018 compared to the same period in 2016.2017. The effect of the increase in volume of mortgage loans we fulfilled for PMT was partially offset bydecrease is primarily due to a reduction in the averagelower fulfillment fee rate we charged during 2017 as comparedpursuant to 2016.an amendment to our mortgage banking services agreement with PMT.
Summarized below are our fulfillment fees:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
| Quarter ended March 31, |
|
| Quarter ended March 31, | |||||||||
|
| 2017 |
| 2016 |
|
|
| 2018 |
| 2017 | ||||
|
| (in thousands) |
|
| (in thousands) | |||||||||
Fulfillment fee revenue |
| $ | 16,570 |
| $ | 12,935 |
|
| $ | 11,944 |
| $ | 16,570 | |
Unpaid principal balance of mortgage loans fulfilled |
| $ | 4,631,906 |
| $ | 3,259,363 |
| |||||||
Unpaid principal balance of mortgage loans fulfilled subject to fulfillment fees |
| $ | 4,225,631 |
| $ | 4,631,906 | ||||||||
Average fulfillment fee rate (in basis points) |
|
| 36 |
|
| 40 |
|
|
| 28 |
|
| 36 |
Net mortgage loan servicing fees
OurFollowing is a summary of our net mortgage loan servicing fees are summarized below:fees:
|
|
|
|
|
|
|
|
|
|
| ||||
|
| Quarter ended March 31, |
|
|
| Quarter ended March 31, | ||||||||
|
| 2017 |
| 2016 |
|
|
| 2018 |
| 2017 | ||||
|
| (in thousands) |
|
| (in thousands) | |||||||||
Net mortgage loan servicing fees: |
|
|
|
|
|
|
|
|
|
| ||||
Mortgage loan servicing fees: |
|
|
|
|
|
|
|
|
|
| ||||
From non-affiliates |
| $ | 106,467 |
| $ | 91,327 |
|
|
| $ | 135,483 |
| $ | 106,467 |
From PennyMac Mortgage Investment Trust |
|
| 10,486 |
| 11,453 |
|
|
|
| 11,019 |
| 10,486 | ||
From Investment Funds |
|
| 496 |
| 701 |
|
|
|
| — |
| 496 | ||
Ancillary and other fees |
|
| 11,866 |
|
| 11,452 |
|
|
|
| 14,171 |
|
| 11,866 |
|
| 129,315 |
| 114,933 |
|
|
| 160,673 |
| 129,315 | ||||
Amortization, impairment and change in fair value of mortgage servicing rights and excess servicing spread financing |
|
| (55,152) |
|
| (97,414) |
|
| ||||||
Amortization, impairment and change in fair value of mortgage servicing rights and excess servicing spread financing net of hedging results |
|
| (43,884) |
|
| (55,152) | ||||||||
Net mortgage loan servicing fees |
| $ | 74,163 |
| $ | 17,519 |
|
|
| $ | 116,789 |
| $ | 74,163 |
Average mortgage loan servicing portfolio |
| $ | 198,646,419 |
| $ | 162,734,071 |
|
|
| $ | 249,833,285 |
| $ | 198,646,419 |
6362
Amortization, impairment and change in fair value of mortgage servicing rights and mortgageexcess servicing liabilitiesspread are summarized below:
|
|
|
|
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
| Quarter ended March 31, |
|
|
| Quarter ended March 31, | ||||||||
|
| 2017 |
| 2016 |
|
|
| 2018 |
| 2017 | ||||
|
| (in thousands) |
|
| (in thousands) | |||||||||
Amortization and realization of cash flows |
| $ | (48,460) |
| $ | (46,675) |
|
|
| $ | (61,176) |
| $ | (48,460) |
Other changes, in fair value of, and reversal of (provision for) impairment of mortgage servicing rights and mortgage servicing liabilities |
|
| 12,701 |
|
| (128,908) |
|
| ||||||
Other changes in fair value of, and provision for impairment of, mortgage servicing rights and mortgage servicing liabilities |
|
| 127,806 |
|
| 12,701 | ||||||||
Change in fair value of excess servicing spread |
|
| 2,773 |
|
| 19,449 |
|
|
|
| (6,921) |
|
| 2,773 |
Hedging results |
|
| (22,166) |
|
| 58,720 |
|
|
|
| (103,593) |
|
| (22,166) |
Total fair value adjustments, net of hedging results |
|
| (6,692) |
|
| (50,739) |
|
|
|
| 17,292 |
|
| (6,692) |
Total amortization, impairment and change in fair value of mortgage servicing rights, mortgage servicing liabilities and excess servicing spread |
| $ | (55,152) |
| $ | (97,414) |
|
|
| $ | (43,884) |
| $ | (55,152) |
Average mortgage servicing rights balances: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carried at fair value |
| $ | 2,265,744 |
| $ | 556,658 | ||||||||
Carried at lower of amortized cost or fair value |
| $ | 891,887 |
| $ | 741,686 |
|
|
|
| — |
|
| 891,887 |
Carried at fair value |
|
| 556,658 |
|
| 618,992 |
|
| ||||||
|
| $ | 1,448,545 |
| $ | 1,360,678 |
|
|
| $ | 2,265,744 |
| $ | 1,448,545 |
Average mortgage servicing liabilities |
| $ | 15,155 |
| $ | 3,628 |
|
|
| $ | 12,063 |
| $ | 15,155 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage servicing rights at period end: |
|
|
|
|
|
|
|
| ||||||
Mortgage servicing rights at quarter end: |
|
|
|
|
|
| ||||||||
Carried at fair value |
| $ | 2,354,489 |
| $ | 506,916 | ||||||||
Carried at lower of amortized cost or fair value |
| $ | 1,218,145 |
| $ | 742,679 |
|
|
|
| — |
|
| 1,218,145 |
Carried at fair value |
|
| 506,916 |
|
| 594,403 |
|
| ||||||
|
| $ | 1,725,061 |
| $ | 1,337,082 |
|
|
| $ | 2,354,489 |
| $ | 1,725,061 |
Mortgage servicing liabilities at period end |
| $ | 15,994 |
| $ | 6,747 |
|
| ||||||
Mortgage servicing liabilities at quarter end |
| $ | 12,063 |
| $ | 15,994 |
Following is a summary of our mortgage loan servicing portfolio in UPB:portfolio:
|
|
|
|
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
| March 31, |
| December 31, |
|
| March 31, |
| December 31, |
| ||||
|
| 2017 |
| 2016 |
|
| 2018 |
| 2017 |
| ||||
|
| (in thousands) |
|
| (in thousands) |
| ||||||||
Mortgage loans serviced |
|
|
|
|
|
|
|
|
|
|
|
| ||
Prime servicing: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owned: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage servicing rights |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Originated |
| $ | 97,505,384 |
| $ | 89,516,155 |
|
| $ | 125,643,312 |
| $ | 119,673,403 |
|
Acquired |
|
| 37,843,903 |
|
| 39,660,951 |
|
|
| 47,843,853 |
|
| 46,575,834 |
|
|
|
| 135,349,287 |
|
| 129,177,106 |
|
|
| 173,487,165 |
|
| 166,249,237 |
|
Mortgage servicing liabilities |
|
| 1,900,493 |
|
| 2,074,896 |
|
|
| 1,766,722 |
|
| 1,620,609 |
|
Mortgage loans held for sale |
|
| 2,180,760 |
|
| 2,101,283 |
|
|
| 2,512,546 |
|
| 2,998,377 |
|
|
|
| 139,430,540 |
|
| 133,353,285 |
|
|
| 177,766,433 |
|
| 170,868,223 |
|
Subserviced for Advised Entities |
|
| 61,144,328 |
|
| 58,327,748 |
|
|
| 76,636,300 |
|
| 73,651,608 |
|
Total prime servicing |
|
| 200,574,868 |
|
| 191,681,033 |
|
|
| 254,402,733 |
|
| 244,519,831 |
|
Subserviced– Special servicing for Advised Entities |
|
| 2,308,468 |
|
| 2,558,969 |
| |||||||
Special servicing – Subserviced for Advised Entities |
|
| 903,138 |
|
| 1,328,660 |
| |||||||
Total mortgage loans serviced |
| $ | 202,883,336 |
| $ | 194,240,002 |
|
| $ | 255,305,871 |
| $ | 245,848,491 |
|
Net mortgage loan servicing fees increased $56.6$42.6 million during the quarter ended March 31, 2017,2018, compared to the same period in 2016.2017. The increase was due to a combination of increased mortgage loan servicing fees resulting from growth in our mortgage loan servicing portfolio and a net gain in fair value of MSRs, MSLs and ESS, net of hedging results, reflecting the effect of rising interest rates during the quarter ended March 31, 2018.
Mortgage loan servicing fees increased $31.4 million during the quarter ended March 31, 2018, compared to the same period in 2017 reflecting increases in our average servicing portfolio of 26% for the quarter ended March 31, 2018 compared to the same period in 2017. The decrease of $42.3$11.3 million in amortization, impairment and MSR, MSL and ESS valuation adjustments reflecting the effect of a less adverse change in interest rates during the quarter ended March 31, 2017,2018 compared to the same periodperiods in 2016, and a $14.4 million increase in servicing fees resulting from growth in our mortgage loan servicing portfolio from2017 reflect the first quarter of 2016 to the first quarter of 2017. The decrease in amortization and valuation adjustments reflects the change in the interest rate environment from 2016 to 2017. During the first quarter of 2016, interest rates decreased significantly, whereas during the first quarter of 2017, remained fairly stable. Decreasing interest rates make mortgage refinancing more attractive, increasing expectations of prepayment activities which decrease MSR fair values, causing fair value losses and impairment.
6463
effect of generally higher interest rates in the market during the quarter ended March 31, 2018. Higher interest rates discourage refinancings which extend the expected life of the servicing asset, thereby contributing to a smaller decline in the fair value of MSRs.
Management fees and Carried Interest
Management fees and Carried Interest are summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Quarter ended March 31, |
| Quarter ended March 31, | ||||||||
|
| 2017 |
| 2016 |
| 2018 |
| 2017 | ||||
|
| (in thousands) |
| (in thousands) | ||||||||
Management Fees: |
|
|
|
|
|
| ||||||
PennyMac Mortgage Investment Trust: |
|
|
|
|
|
|
|
|
|
|
|
|
Base management |
| $ | 5,008 |
| $ | 5,352 |
| $ | 5,696 |
| $ | 5,008 |
Performance incentive |
|
| — |
|
| — |
|
| — |
|
| — |
|
|
| 5,008 |
|
| 5,352 |
|
| 5,696 |
|
| 5,008 |
Investment Funds |
|
| 366 |
|
| 560 |
|
| 79 |
|
| 366 |
Total management fees |
|
| 5,374 |
|
| 5,912 |
|
| 5,775 |
|
| 5,374 |
Carried Interest |
|
| (128) |
|
| 593 |
|
| (180) |
|
| (128) |
Total management fees and Carried Interest |
| $ | 5,246 |
| $ | 6,505 |
| $ | 5,595 |
| $ | 5,246 |
|
|
|
|
|
|
| ||||||
Net assets of Advised Entities at period end: |
|
|
|
|
|
| ||||||
Net assets of Advised Entities at quarter end: |
|
|
|
|
|
| ||||||
PennyMac Mortgage Investment Trust |
| $ | 1,458,590 |
| $ | 1,414,503 |
| $ | 1,542,258 |
| $ | 1,458,590 |
Investment Funds |
|
| 97,551 |
|
| 207,706 |
|
| 2,668 |
|
| 97,551 |
|
| $ | 1,556,141 |
| $ | 1,622,209 |
| $ | 1,544,926 |
| $ | 1,556,141 |
Management fees from PMT decreased $344,000increased $688,000 during the quarter ended March 31, 2017,2018 compared to the same period in 2016.2017. The decreaseincrease was primarily due to a decreaseincreases in PMT’s average shareholders’ equity, upon which its base management fee is based.fees are calculated. The increase of PMT’s average shareholders’ equity during the quarter ended March 31, 2018 compared to the same period in 2017 was primarily due to the issuance of additional equity by PMT in the form of preferred shares in July 2017.
Management fees from the Investment Funds decreased $194,000$287,000 during the quarter ended March 31, 2017,2018, compared to the same period in 2016.2017. The decreasereduction of management fees was due to a reduction inanticipated as the Investment Funds’ net asset values as a resultFunds sold or liquidated all of continuedtheir investment assets in 2017 through the quarter ended March 31, 2018 and distributed most of the sale proceeds to the funds’ investors. We expect to complete liquidation of the Investment Funds and make final distributions to the Investment Funds’ investors following the end of the Investment Funds’ commitment period.
Carried Interest income from Investment Funds decreased $721,000 during the quarter ended March 31, 2017 compared to the same period in 2016. The decrease is due to a decline in the performance of the Funds compared to the same period in 2016, and to a shrinking investment base on which returns are generated.2018.
Other revenues
Net interest expense decreased $1.8income increased $11.5 million during the quarter ended March 31, 2017,2018 compared to the same period in 2016.2017. The decreaseincrease in net interest income is primarily due to an increase in interest income onrecognition of incentives that we received relating to our financing of certain mortgage loans heldsatisfying certain consumer relief characteristics. In September 2017, we entered into a master repurchase agreement that provides us with incentives to finance mortgage loans approved for salesatisfying certain consumer relief characteristics as provided in the agreement. We recorded $10.2 million of such incentives as a resultreduction of Interest expense for the quarter ended March 31, 2018. The master repurchase agreement has an increase in average mortgage loan inventory and an increase ininitial term of six months extendable for three additional six-month terms at the placement fees we receive relating tooption of the custodial fundslender. The lender extended the master repurchase agreement on April 18, 2018. There is no assurance that we manage, partially offset by an increase in interest expense incurred to fund the growth in our average inventorylender will exercise the remaining extension options upon the maturity of mortgage loans held for sale and to finance our MSRs.this agreement.
Change in fair value of investment in and dividends received from PMT, increased $225,000$43,000 during the quarter ended March 31, 2017,2018, compared to the same period in 2016 due to improved2017. The change reflects the increase in share price performance inof our investment in PMT. We held 75,000 common shares of PMT during each of the periods ended March 31, 20172018 and 2016,2017, with fair valuevalues of $1.3$1.4 million and $1.0$1.3 million, respectively, at the end of each period.March 31, 2018 and 2017.
6564
Expenses
Compensation
Our compensation expense is summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
|
| Quarter ended March 31, |
|
|
| Quarter ended March 31, |
|
| ||||||||
|
| 2017 |
| 2016 |
|
|
| 2018 |
| 2017 |
|
| ||||
|
| (in thousands) |
|
| (in thousands) |
| ||||||||||
Salaries and wages |
| $ | 56,903 |
| $ | 48,113 |
|
|
| $ | 63,380 |
| $ | 56,903 |
|
|
Incentive compensation |
|
| 11,528 |
|
| 6,330 |
|
|
|
| 19,576 |
|
| 11,528 |
|
|
Taxes and benefits |
|
| 11,284 |
|
| 8,882 |
|
|
|
| 12,886 |
|
| 11,284 |
|
|
Stock and unit-based compensation |
|
| 5,525 |
|
| 4,973 |
|
|
|
| 6,171 |
|
| 5,525 |
|
|
|
| $ | 85,240 |
| $ | 68,298 |
|
|
| $ | 102,013 |
| $ | 85,240 |
|
|
Head count: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Average |
|
| 2,956 |
|
| 2,590 |
|
|
| 3,233 |
| 2,956 |
|
| ||
Period end |
|
| 2,864 |
|
| 2,617 |
|
| ||||||||
Quarter end |
| 3,241 |
| 2,864 |
|
|
Compensation expense increased $16.9$16.8 million during the quarter ended March 31, 20172018 compared to the same period in 2016.2017. The increase in compensation expense was primarily due to an increase in incentive compensation reflecting our expectation of improved results of operations during 2018, as well as an increase in salaries and wages due to increased average head count resulting from the growth in our mortgage banking activities. Incentive compensation increased primarily due to higher attainment of profitability targets
Servicing
Servicing expense decreased $544,000 during the quarter ended March 31, 2017 compared to 2016.
Servicing
Servicing expense increased $6.0 million during the quarter ended March 31, 20172018 compared to the same period in 2016. 2017. The increasedecrease was primarily due to increased early buyoutsa decrease in provision for servicing advance losses reflecting improved credit performance in our portfolio of delinquentMSRs backed by government-insured or guaranteed mortgage loans, from Ginnie Mae guaranteed pools for the quarter ended March 31, 2017 as comparedpartially offset by an increase in other servicing expenses due to the same period endedgrowth in 2016. The early buyout program reduces the ultimate cost of servicing suchour mortgage loan pools when we purchase and either sell the defaulted mortgage loans to third-party investors or finance them with debt at interest rates below the Ginnie Mae MBS pass-through rate at which we would otherwise be required to advance. Such purchases accelerate loss recognition when the mortgage loans are purchased. However, anticipated losses relating to such servicing advances are contemplated in the valuation of our MSRs and therefore the early buyout of delinquent mortgage loans included in Ginnie Mae guaranteed pools has an offsetting positive effect on our MSR valuation.portfolio.
Technology
Technology expense increased $4.5$3.3 million during the quarter ended March 31, 2017,2018 compared to the same period in 20162017 primarily due to our continued investment in loan production and servicing infrastructure.
Occupancy and equipment
Occupancy and equipment expenses increased $1.3 million during the quarter ended March 31, 2018 compared to the same period in 2017. The increase was primarily attributable to expansion of our facilities made to accommodate our growth.
Marketing
Marketing expenses increased $425,000 during the year ended March 31, 2018 compared to the same period in 2017. The increase was primarily due to increased outsourced loan solicitation calling campaigns.
Expenses Allocated to PMT
We are reimbursed by PMT reimburses us for other expenses, including common overhead and personnel expenses we have incurred on PMT’sits behalf by us, in accordance with the terms of our management agreement with PMT. We presentadopted Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers (Subtopic 606) (“ASU 2014-09”) using the expense amountsmodified retrospective method effective January 1, 2018. Adoption of the ASU using the modified retrospective method required us to include those expenses in the consolidated statements of Other income net of these allocations.starting January 1, 2018.
Common overhead expense amounts allocated to PMT during the periods ended March 31, 2017 and 2016 are summarized below:
|
|
|
|
|
|
|
|
|
|
| Quarter ended March 31, |
|
| ||||
|
| 2017 |
| 2016 |
|
| ||
|
| (in thousands) |
| |||||
Technology |
| $ | 457 |
| $ | 1,145 |
|
|
Depreciation and amortization |
|
| 408 |
|
| 399 |
|
|
Occupancy |
|
| 379 |
|
| 573 |
|
|
Other |
|
| 190 |
|
| 444 |
|
|
Total expenses |
| $ | 1,434 |
| $ | 2,561 |
|
|
6665
The expense amounts presented in our income statement are net of these allocations during 2017 and a component of Other revenue during 2018. Common overhead and personnel expense amounts allocated to PMT are summarized below:
|
|
|
|
|
|
|
|
|
|
| Quarter ended March 31, |
|
| ||||
|
| 2018 |
| 2017 |
|
| ||
|
| (in thousands) |
| |||||
Technology |
| $ | 220 |
| $ | 457 |
|
|
Occupancy and equipment |
|
| 589 |
|
| 787 |
|
|
Compensation |
|
| 120 |
|
| — |
|
|
Other |
|
| 192 |
|
| 190 |
|
|
Total expenses |
| $ | 1,121 |
| $ | 1,434 |
|
|
Provision for Income Taxes
Our effective tax rates were 12.3%rate was 8.3% during the quarter ended March 31 2017,2018, compared to 11.9%12.3% during the same period in 2016.2017. The lower effective tax rate for 2018 reflects the effect of a reduction in the federal statutory rate from 35% to 21% under the Tax Act of 2017. 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 and our ownership in PennyMac is increased through vesting of equity awards, 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, |
| ||||
|
| 2017 |
| 2016 |
|
| 2018 |
| 2017 |
| ||||
|
| (in thousands) |
|
| (in thousands) |
| ||||||||
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and short-term investments |
| $ | 189,101 |
| $ | 185,331 |
|
| $ | 243,753 |
| $ | 207,805 |
|
Mortgage loans held for sale at fair value |
| 2,277,751 |
| 2,172,815 |
|
| 2,584,236 |
| 3,099,103 |
| ||||
Servicing advances, net |
| 317,513 |
| 348,306 |
|
| 284,145 |
| 318,066 |
| ||||
Investments in and advances to affiliates |
| 173,085 |
| 168,863 |
|
| 172,106 |
| 172,869 |
| ||||
Carried Interest due from Investment Funds |
| 70,778 |
| 70,906 |
|
| 538 |
| 8,552 |
| ||||
Mortgage servicing rights |
| 1,725,061 |
| 1,627,672 |
|
| 2,354,489 |
| 2,119,588 |
| ||||
Mortgage loans eligible for repurchase |
| 318,378 |
| 382,268 |
|
| 1,018,488 |
| 1,208,195 |
| ||||
Other |
|
| 179,710 |
|
| 177,741 |
|
|
| 245,136 |
|
| 233,915 |
|
Total assets |
| $ | 5,251,377 |
| $ | 5,133,902 |
|
| $ | 6,902,891 |
| $ | 7,368,093 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
LIABILITIES AND STOCKHOLDERS' EQUITY |
|
|
|
|
|
|
|
|
|
|
|
| ||
Borrowings |
| $ | 2,744,349 |
| $ | 2,580,906 |
|
| $ | 3,481,182 |
| $ | 3,821,409 |
|
Payable to affiliates |
| 539,295 |
| 555,052 |
|
| 400,052 |
| 419,970 |
| ||||
Liability for mortgage loans eligible for repurchase |
| 318,378 |
| 382,268 |
|
| 1,018,488 |
| 1,208,195 |
| ||||
Other |
|
| 191,760 |
|
| 216,320 |
|
|
| 208,970 |
|
| 198,845 |
|
Total liabilities |
|
| 3,793,782 |
| 3,734,546 |
|
|
| 5,108,692 |
| 5,648,419 |
| ||
Stockholders' equity |
|
| 1,457,595 |
|
| 1,399,356 |
|
|
| 1,794,199 |
|
| 1,719,674 |
|
Total liabilities and stockholders' equity |
| $ | 5,251,377 |
| $ | 5,133,902 |
|
| $ | 6,902,891 |
| $ | 7,368,093 |
|
Total assets increased $117.5decreased $465.2 million from $5.1$7.4 billion at December 31, 20162017 to $5.3$6.9 billion at March 31, 2017.2018. The increasedecrease was primarily due to an increasea decrease of $104.9$514.9 million in mortgage loans held for sale at fair value resulting from growtha reduction in our mortgage loan productionloans held for sale and a decrease of $189.7 million in mortgage loans eligible for repurchase, partially offset by an increase of $97.4$234.9 million in our investment in MSRs reflecting continued additions from our mortgage loan production activities partially offset by a $63.9and servicing portfolio acquisitions and an increase of $35.9 million decrease in mortgage loans eligible for repurchase, reflecting increased level of early buyout activities,cash and a $30.8 million decrease in servicing advances due to normal seasonal fluctuations.short-term investments.
66
Total liabilities increaseddecreased by $59.2$539.7 million from $3.7$5.6 billion as of December 31, 20162017 to $3.8$5.1 billion as of March 31, 2017.2018. The increasedecrease was primarily attributable to an increasea decrease in borrowings required to fund growth in ourfinance a smaller inventory of mortgage loans held for sale at fair value andMarch 31, 2018 as compared to finance our MSRs.December 31, 2017.
Cash Flows
Our cash flows for the quarters ended March 31, 20172018 and 20162017 are summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Quarter ended March 31, |
|
| Quarter ended March 31, |
| ||||||||||||||
|
| 2017 |
| 2016 |
| Change |
|
| 2018 |
| 2017 |
| Change |
| ||||||
|
| (in thousands) |
|
| (in thousands) |
| ||||||||||||||
Operating |
| $ | (111,345) |
| $ | (516,862) |
| $ | 405,517 |
|
| $ | 537,392 |
| $ | (111,292) |
| $ | 648,684 |
|
Investing |
|
| (60,354) |
|
| 41,755 |
|
| (102,109) |
|
|
| (81,263) |
|
| (60,354) |
|
| (20,909) |
|
Financing |
|
| 145,099 |
|
| 486,195 |
|
| (341,096) |
|
|
| (355,981) |
|
| 145,099 |
|
| (501,080) |
|
Net (decrease) increase in cash |
| $ | (26,600) |
| $ | 11,088 |
| $ | (37,688) |
| ||||||||||
Net increase (decrease) in cash and restricted cash |
| $ | 100,148 |
| $ | (26,547) |
| $ | 126,695 |
|
67
Our cash flows resulted in a net decreaseincrease in cash and restricted cash of $26.6$100.1 million during the quarter ended March 31, 20172018 as discussed below.
Operating activities
Net cash provided by operating activities totaled $537.4 million during the quarter ended March 31, 2018 and net cash used in operating activities totaled $111.3 million and $516.9 million during the quarters ended March 31, 2017 and 2016, respectively,same period in 2017. Our cash flows from operating activities are primarily due toinfluenced by changes in the growthlevels of our inventory of mortgage loans held for sale at fair value.as shown below:
|
|
|
|
|
|
|
|
| Quarter ended March 31, | ||||
|
| 2018 |
| 2017 | ||
|
| (in thousands) | ||||
Cash flows from: |
|
|
|
|
|
|
Mortgage loans held for sale at fair value |
| $ | 473,727 |
| $ | (138,588) |
Other operating sources |
|
| 63,665 |
|
| 27,296 |
|
| $ | 537,392 |
| $ | (111,292) |
|
|
|
|
|
|
|
Investing activities
Net cash used in investing activities during the quarter ended March 31, 2018 totaled $81.3 million primarily due to a $128.1 million net use of cash in net settlement of derivative financial instruments used to hedge our investment in MSRs and purchases of MSRs totaling $27.6 million, partially offset by a $64.2 million decrease in short-term investments. Net cash used in investing activities during the quarter ended March 31, 2017 totaled $60.4 million primarily due to a $30.4 million increase in short-term investments and $20.5 million in net settlements of derivative financial instruments used to hedge our investment in our hedging of MSRs.
Financing activities
Net cash provided by investingused in financing activities totaled $356.0 million during the quarter ended March 31, 2016 totaled $41.8 million2018, primarily due to $38.6 million in net settlementsrepurchases of derivative financial instruments receivedassets sold under agreements to repurchase, reflecting a reduction in our hedgingfinancing of MSRs and to an $18.1 million reduction in short-term investments.
Financing activities
mortgage loans held for sale. Net cash provided by financing activities totaled $145.1 million and $486.2 million during the quartersquarter ended March 31, 2017, and 2016, respectively, primarily to finance the growth in our inventory of mortgage loans held for sale at fair value and our investments in 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 and tax distributions to noncontrolling interest holders)on our MSR investments), fund new originations and purchases, and make investments as we identify them. We expect our primary sources of liquidity to be through cash
67
flows from business activities, proceeds from bank borrowings, proceeds from and issuance of ESS and/or additional equity or debt offerings. We believe that our liquidity is sufficient to meet our current liquidity needs.
Our current leverageborrowing 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 assets sold under agreements to repurchase, sales of mortgage loan participation certificates, ESS, notes payable (including a revolving credit agreement, ESSagreement) and a capital lease. While the GMSR term note, ESS and the capital lease have intermediate to long-term maturities, mostAll of our borrowings other than ESS, term notes payable and our obligation under capital lease have short-term maturities and provide for terms of approximately one year. We will continue to finance most of our assets on a short-term basis until longer-term financing becomes more available.Because a significant portion of our current debt facilities consists of short-term borrowings, we expect to renew these facilities in advance of their maturity dates in order to ensure our ongoing liquidity and access to capital or otherwise allow ourselves sufficient time to replace any necessary financing.
Our repurchase agreements represent the sales of assets together with agreements for us to buy back the respective assets at a later date. The table below presents the average outstanding, maximum and ending balances:
|
|
|
|
|
|
|
|
|
|
|
| ||
|
| Quarter ended March 31, |
|
| Quarter ended March 31, | ||||||||
|
| 2017 |
| 2016 |
|
| 2018 |
| 2017 | ||||
|
| (in thousands) |
|
| (in thousands) | ||||||||
Repurchase agreements outstanding: |
|
|
|
|
|
|
| ||||||
Average balance |
| $ | 1,516,480 |
| $ | 1,039,573 |
|
| $ | 1,643,443 |
| $ | 1,516,480 |
Maximum daily balance |
| $ | 2,093,542 |
| $ | 1,688,605 |
|
| $ | 2,380,121 |
| $ | 2,093,542 |
Balance at end of period |
| $ | 2,036,366 |
| $ | 1,658,728 |
| ||||||
Balance at quarter end |
| $ | 1,813,463 |
| $ | 2,036,366 |
The differences between the average and maximum daily balances on our repurchase agreements reflect the fluctuations throughout the month of our inventory as we fund and pool mortgage loans for sale in guaranteed mortgage securitizations.
Our secured financing agreements at PLS require us to comply with various financial covenants. The most significant financial covenants specific to PLS currently include the following:
· | positive net income during each calendar quarter; |
68
· | a minimum in unrestricted cash and cash equivalents of $40 million; |
· | a minimum tangible net worth of $500 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 that are similar to those being financed under |
With respect to servicing performed for PMT, PLS is also subject to certain covenants under itsPMT’s debt agreements. Covenants of PLS in PMT’s debt agreements are at least equal to,equally, or sometimes less, restrictive than the covenants described above.
In addition to the covenants noted above, ourPennyMac’s revolving credit agreement (classified as a note payable) and capital lease contain additional financial covenants specific to PennyMac including, but not limited to,
· | a minimum of cash and carried interest equal to the amount borrowed under the revolving credit agreement; |
· | a minimum of unrestricted cash and cash equivalents equal to $40 million; |
· | a minimum of tangible net worth of $500 million; |
· | a minimum asset coverage ratio (the ratio of the total asset amount to the total commitment) of 2.5; and |
· | a maximum ratio of total indebtedness to tangible net worth ratio of 5:1. |
68
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.
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 are also subject to liquidity and net worth requirements established by FHFA for Agency seller/servicers and Ginnie Mae for single-family issuers. FHFA and Ginnie Mae have established minimum liquidity requirements and revised their net worth requirements for their approved non-depository single-family sellers/servicers in the case of FHFA,Fannie Mae, Freddie Mac, and Ginnie Mae for its approved single-family issuers, in the case of Ginnie Mae, as summarized below:
· | FHFA liquidity requirement is equal to 0.035% (3.5 basis points) of total Agency servicing UPB plus an incremental 200 basis points of the amount by which total nonperforming Agency servicing UPB exceeds 6% of the applicable Agency servicing UPB; allowable assets to satisfy liquidity requirement include cash and cash equivalents (unrestricted), certain investment-grade securities that are available for sale or held for trading including Agency mortgage-backed securities, obligations of Fannie Mae or Freddie Mac, and U.S. Treasury obligations, and unused and available portions of committed servicing advance lines; |
· | FHFA net worth requirement is a minimum net worth of $2.5 million plus 25 basis points of UPB for total 1-4 unit residential mortgage loans serviced and a tangible net worth/total assets ratio greater than or equal to 6%; |
· | Ginnie Mae single-family issuer minimum liquidity requirement is equal to the greater of $1.0 million or 0.10% (10 basis points) of the issuer’s outstanding Ginnie Mae single-family securities, which must be met with cash and cash equivalents; and |
69
· | Ginnie Mae net worth requirement is equal to $2.5 million plus 0.35% (35 basis points) of the issuer’s outstanding Ginnie Mae single-family obligations. |
We believe that we are currently in compliance with the applicable Agency requirements.
We have purchased portfolios of MSRs and have financed them in part through the sale to PMT of the right to receive ESS. The outstanding amount of the ESS financing is based on the current valuation of such ESS and amounts received on the underlying mortgage loans.
Our Board approved stock repurchase program allows us to repurchase up to $50 million of our Class A common stock using open market stock purchases or privately negotiated transactions in accordance with applicable rules and regulations. The stock repurchase program does not have an expiration date and the authorization does not obligate us to acquire any particular amount of Class A common stock. We intend to finance the stock repurchase program through cash on hand.
We continue to explore a variety of means of financing our continued growth, including debt financing through bank warehouse lines of credit, bank loans, repurchase agreements, securitization transactions 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.
69
Off-Balance Sheet Arrangements and Aggregate Contractual Obligations
Off-Balance Sheet Arrangements and Guarantees
As of March 31, 2017,2018, we have not entered into any off-balance sheet arrangements or guarantees.arrangements.
Contractual Obligations
As of March 31, 2017,2018 we had contractual obligations aggregating $7.1$8.5 billion, comprised of borrowings, commitments to purchase and originate mortgage loans and a payable to exchanged Private National Mortgage Acceptance Company, LLC unitholders under a tax receivable agreement, and anticipated payments related to excess servicing spread financing.agreement. We also lease our office facilities and license certain software to support our loan servicing operations.
All agreements to repurchase assets and mortgage loan participation purchase and sale agreements that matured between March 31, 20172018 and the date of this Report have been renewed, extended or repaid and are described in Note 12—11—Borrowings in the accompanying consolidated financial statements.
Payment obligations under these agreements are summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Payments due by period |
| |||||||||||||
|
|
|
| Less than |
| 1-3 |
| 3-5 |
| More than |
| |||||
Contractual obligations |
| Total |
| 1 year |
| years |
| years |
| 5 years |
| |||||
|
| (in thousands) |
| |||||||||||||
Commitments to purchase and originate mortgage loans |
| $ | 3,727,441 |
| $ | 3,727,441 |
| $ | — |
| $ | — |
| $ | — |
|
Assets sold under agreements to repurchase |
|
| 2,036,366 |
|
| 2,036,366 |
|
| — |
|
| — |
|
| — |
|
Mortgage loan participation and sale agreements |
|
| 241,723 |
|
| 241,723 |
|
| — |
|
| — |
|
| — |
|
Notes payable |
|
| 441,302 |
|
| 41,302 |
|
| 400,000 |
|
| — |
|
| — |
|
Obligations under capital lease |
|
| 31,178 |
|
| 13,609 |
|
| 17,569 |
|
| — |
|
| — |
|
Excess servicing spread financing at fair value payable to PennyMac Mortgage Investment Trust (1) |
|
| 277,484 |
|
| — |
|
| — |
|
| — |
|
| 277,484 |
|
Payable to exchanged Private National Mortgage Acceptance Company, LLC unitholders under tax receivable agreement |
|
| 78,712 |
|
| 7,299 |
|
| 12,855 |
|
| 10,433 |
|
| 48,125 |
|
Anticipated interest payments related to excess servicing spread financing at fair value |
|
| 112,004 |
|
| 16,729 |
|
| 27,180 |
|
| 20,480 |
|
| 47,615 |
|
Software licenses (2) |
|
| 37,781 |
|
| 14,625 |
|
| 23,156 |
|
| — |
|
| — |
|
Office leases |
|
| 101,875 |
|
| 10,782 |
|
| 27,062 |
|
| 24,535 |
|
| 39,496 |
|
Total |
| $ | 7,085,866 |
| $ | 6,109,876 |
| $ | 507,822 |
| $ | 55,448 |
| $ | 412,720 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Payments due by year |
| |||||||||||||
|
|
|
| Less than |
| 1-3 |
| 3-5 |
| More than |
| |||||
Contractual obligations |
| Total |
| 1 year |
| years |
| years |
| 5 years |
| |||||
|
| (in thousands) |
| |||||||||||||
Commitments to purchase and originate mortgage loans |
| $ | 4,275,126 |
| $ | 4,275,126 |
| $ | — |
| $ | — |
| $ | — |
|
Short-term debt |
|
| 2,324,046 |
|
| 2,324,046 |
|
| — |
|
| — |
|
| — |
|
Long-term debt |
|
| 1,402,969 |
|
| 12,101 |
|
| 4,334 |
|
| 1,150,000 |
|
| 236,534 |
|
Interest on long-term debt |
|
| 356,851 |
|
| 71,007 |
|
| 194,466 |
|
| 54,555 |
|
| 36,823 |
|
Payable to exchanged Private National Mortgage Acceptance Company, LLC unitholders under tax receivable agreement |
|
| 46,037 |
|
| — |
|
| 12,763 |
|
| 7,681 |
|
| 25,593 |
|
Software licenses (1) |
|
| 30,102 |
|
| 17,250 |
|
| 12,852 |
|
| — |
|
| — |
|
Office leases |
|
| 94,916 |
|
| 14,029 |
|
| 28,990 |
|
| 21,886 |
|
| 30,011 |
|
Total |
| $ | 8,530,047 |
| $ | 6,713,559 |
| $ | 253,405 |
| $ | 1,234,122 |
| $ | 328,961 |
|
(1) |
|
70
| 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 |
70
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, 2017:2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Weighted average |
|
|
|
|
|
| Weighted average |
|
|
|
|
|
|
| maturity of |
|
|
|
|
|
| maturity of |
|
|
|
|
|
|
| advances under |
|
|
|
|
|
| advances under |
|
|
Counterparty |
| Amount at risk |
| repurchase agreement |
| Facility Maturity |
| Amount at risk |
| repurchase agreement |
| Facility Maturity | ||
|
| (in thousands) |
|
|
|
|
| (in thousands) |
|
|
|
| ||
Credit Suisse First Boston Mortgage Capital LLC |
| $ | 87,945 |
| April 28, 2017 |
| April 28, 2017 |
| $ | 266,554 |
| April 27, 2018 |
| April 27, 2018 |
Credit Suisse First Boston Mortgage Capital LLC |
| $ | 303,009 |
| December 19, 2017 |
| December 19, 2017 |
| $ | 188,287 |
| April 21, 2018 |
| April 27, 2018 |
Deutsche Bank AG |
| $ | 99,415 |
| June 18, 2018 |
| September 30, 2018 | |||||||
Bank of America, N.A. |
| $ | 47,347 |
| May 26, 2017 |
| May 26, 2017 |
| $ | 19,246 |
| May 6, 2018 |
| May 25, 2018 |
JP Morgan Chase Bank, N.A. |
| $ | 7,313 |
| May 21, 2018 |
| October 12, 2018 | |||||||
Morgan Stanley Bank, N.A. |
| $ | 22,255 |
| May 20, 2017 |
| August 25, 2017 |
| $ | 5,823 |
| June 15, 2018 |
| August 24, 2018 |
JP Morgan Chase Bank, N.A. |
| $ | 17,060 |
| May 22, 2017 |
| August 18, 2017 | |||||||
Royal Bank of Canada |
| $ | 1,907 |
| June 13, 2018 |
| June 29, 2018 | |||||||
BNP Paribas |
| $ | 615 |
| May 14, 2018 |
| November 16, 2018 | |||||||
Citibank, N.A. |
| $ | 12,329 |
| June 17, 2017 |
| March 2, 2018 |
| $ | 277 |
| April 26, 2018 |
| May 1, 2018 |
Barclays Bank PLC |
| $ | 96,522 |
| June 17, 2017 |
| December 1, 2017 | |||||||
Royal Bank of Canada |
| $ | 4,011 |
| June 12, 2017 |
| September 18, 2017 |
(1) | The borrowing facility with Credit Suisse First Boston Mortgage Capital LLC is in the form of a sale of a variable funding note under an agreement to repurchase. |
(2) | The borrowing facility with Credit Suisse First Boston Mortgage Capital LLC is in the form of an asset sale under agreement to repurchase. |
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 assets under agreements to repurchase, mortgage loan participation purchase and sale agreements, twothree notes payable, ESS and a capital lease. The borrower under each of these facilities is PLS with the exception of the revolving credit agreement,Credit Agreement, which is classified as a note payable, and the capital lease, in each case where the borrower is PennyMac. All PLS obligations as previously noted are guaranteed by PennyMac.
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, 2017,2018, 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.
71
The borrowings have maturities as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
| Outstanding |
| Total |
| Committed |
|
|
| Outstanding |
| Total |
| Committed |
|
| ||||||
Lender |
| indebtedness (1) |
| facility size (2) |
| facility (2) |
| Maturity date (2) |
| indebtedness (1) |
| facility size (2) |
| facility (2) |
| Maturity date (2) | ||||||
|
| (dollar amounts in thousands) |
|
|
| (dollar amounts in thousands) |
|
| ||||||||||||||
Assets sold under agreements to repurchase |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Credit Suisse First Boston Mortgage Capital LLC |
| $ | 650,127 |
| $ | 1,093,000 |
| $ | 293,000 |
| April 27, 2018 |
| $ | 518,639 |
| $ | 1,100,000 |
| $ | 300,000 |
| April 27, 2018 |
Credit Suisse First Boston Mortgage Capital LLC (3) |
| $ | 232,000 |
| $ | 407,000 |
| $ | 407,000 |
| December 19, 2017 |
| $ | 100,000 |
| $ | 400,000 |
| $ | 400,000 |
| April 27, 2018 |
Deutsche Bank AG |
| $ | 720,504 |
| $ | 750,000 |
| $ | — |
| November 9, 2018 | |||||||||||
Bank of America, N.A. |
| $ | 444,148 |
| $ | 500,000 |
| $ | 225,000 |
| May 26, 2017 |
| $ | 246,356 |
| $ | 500,000 |
| $ | 225,000 |
| May 25, 2018 |
JPMorgan Chase Bank, N.A. |
| $ | 93,179 |
| $ | 500,000 |
| $ | 50,000 |
| October 12, 2018 | |||||||||||
Morgan Stanley Bank, N.A. |
| $ | 280,735 |
| $ | 300,000 |
| $ | 175,000 |
| August 25, 2017 |
| $ | 86,880 |
| $ | 500,000 |
| $ | 175,000 |
| August 24, 2018 |
JP Morgan Chase Bank, N.A. |
| $ | 197,692 |
| $ | 200,000 |
| $ | 50,000 |
| August 18, 2017 | |||||||||||
Royal Bank of Canada |
| $ | 29,489 |
| $ | 135,000 |
| $ | 40,000 |
| June 29, 2018 | |||||||||||
BNP Paribas |
| $ | 12,463 |
| $ | 200,000 |
| $ | 100,000 |
| November 16, 2018 | |||||||||||
Citibank, N.A. |
| $ | 127,980 |
| $ | 400,000 |
| $ | 200,000 |
| March 2, 2018 |
| $ | 5,953 |
| $ | 700,000 |
| $ | 275,000 |
| May 1, 2018 |
Barclays Bank PLC (4) |
| $ | 54,203 |
| $ | 220,000 |
| $ | — |
| December 1, 2017 | |||||||||||
Royal Bank of Canada |
| $ | 49,481 |
| $ | 135,000 |
| $ | 75,000 |
| September 18, 2017 | |||||||||||
Mortgage loan participation and sale agreements |
|
|
|
|
|
|
|
|
| |||||||||||||
Mortgage loan participation purchase and sale agreements |
|
|
|
|
|
|
|
|
| |||||||||||||
Bank of America, N.A. |
| $ | 241,723 |
| $ | 250,000 |
| $ | — |
| May 26, 2017 |
| $ | 510,583 |
| $ | 550,000 |
| $ | — |
| May 25, 2018 |
JP Morgan Chase Bank, N.A. |
| $ | — |
|
| 500,000 |
| $ | — |
| October 31, 2017 | |||||||||||
Notes payable |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
GMSR 2017-GT Term Note |
| $ | 400,000 |
| $ | 400,000 |
| $ | — |
| February 25, 2020 | |||||||||||
Barclays Bank PLC (4) |
| $ | 41,302 |
| $ | 80,000 |
| $ | 80,000 |
| December 1, 2017 | |||||||||||
GMSR 2017-GT2 Term Note |
| $ | 500,000 |
| $ | 500,000 |
| $ | — |
| August 25, 2022 | |||||||||||
GMSR 2018-GT1 Term Note |
| $ | 650,000 |
| $ | 650,000 |
| $ | — |
| February 25, 2023 | |||||||||||
Credit Suisse AG |
| $ | — |
| $ | 150,000 |
| $ | 150,000 |
| November 17, 2017 |
| $ | — |
| $ | 150,000 |
| $ | 150,000 |
| November 16, 2018 |
Obligations under capital lease |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Banc of America Leasing and Capital LLC |
| $ | 31,178 |
| $ | — |
| $ | — |
| March 23, 2020 |
| $ | 16,435 |
| $ | 35,000 |
| $ | — |
| March 23, 2020 |
(1) | Outstanding indebtedness as of March 31, |
(2) | Total facility size, committed facility and maturity date include contractual changes through the date of this Report. |
(3) | The borrowing of |
All debt financing arrangements that matured between March 31, 2018 and the date of this Report have been renewed or extended. |
|
|
Item 3. Quantitative and Qualitative Disclosures About 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 based risks. The primary market risks that we are exposed to are credit risk, interest rate risk, prepayment risk, inflation risk and marketfair value risk.
The following 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 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 earnings forecasts.
72
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, 2017, 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 |
| $ | 1,336,728 |
| $ | 1,279,601 |
| $ | 1,252,797 |
| $ | 1,202,382 |
| $ | 1,178,655 |
| $ | 1,133,899 |
|
Change in fair value: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
| $ | 109,651 |
| $ | 52,524 |
| $ | 25,719 |
| $ | (24,695) |
| $ | (48,422) |
| $ | (93,179) |
|
% |
|
| 8.9 | % |
| 4.3 | % |
| 2.1 | % |
| (2.0) | % |
| (3.9) | % |
| (7.6) | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepayment speed shift in % |
| -20% |
| -10% |
| -5% |
| +5% |
| +10% |
| +20% |
| ||||||
|
| (dollar amounts in thousands) |
| ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value |
| $ | 1,305,931 |
| $ | 1,265,196 |
| $ | 1,245,826 |
| $ | 1,208,919 |
| $ | 1,191,324 |
| $ | 1,157,718 |
|
Change in fair value: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
| $ | 78,854 |
| $ | 38,119 |
| $ | 18,749 |
| $ | (18,158) |
| $ | (35,753) |
| $ | (69,359) |
|
% |
|
| 6.4 | % |
| 3.1 | % |
| 1.5 | % |
| (1.5) | % |
| (2.9) | % |
| (5.7) | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per-loan servicing cost shift in % |
| -20% |
| -10% |
| -5% |
| +5% |
| +10% |
| +20% |
| ||||||
|
| (dollar amounts in thousands) |
| ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value |
| $ | 1,264,922 |
| $ | 1,246,000 |
| $ | 1,236,538 |
| $ | 1,217,616 |
| $ | 1,208,155 |
| $ | 1,189,232 |
|
Change in fair value: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
| $ | 37,845 |
| $ | 18,923 |
| $ | 9,461 |
| $ | (9,461) |
| $ | (18,923) |
| $ | (37,845) |
|
% |
|
| 3.1 | % |
| 1.5 | % |
| 0.8 | % |
| (0.8) | % |
| (1.5) | % |
| (3.1) | % |
The following tables summarize the estimated change in fair value of MSRs accounted for using the fair value method as of March 31, 2017,2018, 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 |
| $ | 546,081 |
| $ | 525,758 |
| $ | 516,161 |
| $ | 498,002 |
| $ | 489,405 |
| $ | 473,097 |
|
| $ | 2,543,382 |
| $ | 2,445,291 |
| $ | 2,399,027 |
| $ | 2,311,585 |
| $ | 2,270,233 |
| $ | 2,191,875 |
|
Change in fair value: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
| $ | 39,166 |
| $ | 18,843 |
| $ | 9,246 |
| $ | (8,913) |
| $ | (17,510) |
| $ | (33,818) |
|
| $ | 188,893 |
| $ | 90,802 |
| $ | 44,539 |
| $ | (42,903) |
| $ | (84,255) |
| $ | (162,614) |
|
% |
|
| 7.7 | % |
| 3.7 | % |
| 1.8 | % |
| (1.8) | % |
| (3.5) | % |
| (6.7) | % |
|
| 8.0 | % |
| 3.9 | % |
| 1.9 | % |
| (1.8) | % |
| (3.6) | % |
| (6.9) | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
| $ | 544,091 |
| $ | 524,830 |
| $ | 515,714 |
| $ | 498,419 |
| $ | 490,209 |
| $ | 474,594 |
|
| $ | 2,500,450 |
| $ | 2,424,940 |
| $ | 2,389,115 |
| $ | 2,321,000 |
| $ | 2,288,592 |
| $ | 2,226,813 |
|
Change in fair value: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
| $ | 37,176 |
| $ | 17,915 |
| $ | 8,798 |
| $ | (8,496) |
| $ | (16,706) |
| $ | (32,321) |
|
| $ | 145,962 |
| $ | 70,451 |
| $ | 34,626 |
| $ | (33,489) |
| $ | (65,896) |
| $ | (127,676) |
|
% |
|
| 7.3 | % |
| 3.5 | % |
| 1.7 | % |
| (1.7) | % |
| (3.3) | % |
| (6.4) | % |
|
| 6.2 | % |
| 3.0 | % |
| 1.5 | % |
| (1.4) | % |
| (2.8) | % |
| (5.4) | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per-loan servicing cost shift in % |
| -20% |
| -10% |
| -5% |
| +5% |
| +10% |
| +20% |
|
| -20% |
| -10% |
| -5% |
| +5% |
| +10% |
| +20% |
| ||||||||||||
|
| (dollar amounts in thousands) |
|
| (dollar amounts in thousands) |
| ||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value |
| $ | 528,395 |
| $ | 517,655 |
| $ | 512,285 |
| $ | 501,545 |
| $ | 496,175 |
| $ | 485,436 |
|
| $ | 2,430,008 |
| $ | 2,392,248 |
| $ | 2,373,369 |
| $ | 2,335,609 |
| $ | 2,316,729 |
| $ | 2,278,969 |
|
Change in fair value: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
| $ | 21,479 |
| $ | 10,740 |
| $ | 5,370 |
| $ | (5,370) |
| $ | (10,740) |
| $ | (21,479) |
|
| $ | 75,520 |
| $ | 37,760 |
| $ | 18,880 |
| $ | (18,880) |
| $ | (37,760) |
| $ | (75,520) |
|
% |
|
| 4.2 | % |
| 2.1 | % |
| 1.1 | % |
| (1.1) | % |
| (2.1) | % |
| (4.2) | % |
|
| 3.2 | % |
| 1.6 | % |
| 0.8 | % |
| (0.8) | % |
| (1.6) | % |
| (3.2) | % |
73
Excess Servicing Spread Financing
The following tables summarize the estimated change in fair value of our ESS accounted for using the fair value method as of March 31, 2017,2018, given several shifts in pricing spreads and prepayment speed (decrease in the liabilities’ values increases net income):
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pricing spread shift in % |
| -20% |
| -10% |
| -5% |
| +5% |
| +10% |
| +20% |
|
| -20% |
| -10% |
| -5% |
| +5% |
| +10% |
| +20% |
| ||||||||||||
|
| (dollar amounts in thousands) |
|
| (dollar amounts in thousands) |
| ||||||||||||||||||||||||||||||||
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|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
Fair value |
| $ | 288,543 |
| $ | 282,908 |
| $ | 280,171 |
| $ | 274,848 |
| $ | 272,261 |
| $ | 267,227 |
|
| $ | 243,968 |
| $ | 239,922 |
| $ | 237,946 |
| $ | 234,088 |
| $ | 232,204 |
| $ | 228,523 |
|
Change in fair value: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
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|
|
|
|
|
$ |
| $ | 11,059 |
| $ | 5,424 |
| $ | 2,686 |
| $ | (2,636) |
| $ | (5,224) |
| $ | (10,257) |
|
| $ | 7,967 |
| $ | 3,920 |
| $ | 1,944 |
| $ | (1,914) |
| $ | (3,798) |
| $ | (7,479) |
|
% |
|
| 4.0 | % |
| 2.0 | % |
| 1.0 | % |
| (1.0) | % |
| (1.9) | % |
| (3.7) | % |
|
| 3.4 | % |
| 1.7 | % |
| 0.8 | % |
| (0.8) | % |
| (1.6) | % |
| (3.2) | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepayment speed shift in % |
| -20% |
| -10% |
| -5% |
| +5% |
| +10% |
| +20% |
| ||||||
|
| (dollar amounts in thousands) |
| ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value |
| $ | 304,369 |
| $ | 290,355 |
| $ | 283,786 |
| $ | 271,436 |
| $ | 265,625 |
| $ | 254,668 |
|
Change in fair value: |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
| $ | 26,884 |
| $ | 12,871 |
| $ | 6,301 |
| $ | (6,049) |
| $ | (11,859) |
| $ | (22,817) |
|
% |
|
| 9.7 | % |
| 4.6 | % |
| 2.3 | % |
| (2.2) | % |
| (4.3) | % |
| (8.2) | % |
73
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|
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|
|
|
|
|
|
Prepayment speed shift in % |
| -20% |
| -10% |
| -5% |
| +5% |
| +10% |
| +20% |
| ||||||
|
| (dollar amounts in thousands) |
| ||||||||||||||||
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|
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|
|
|
|
|
|
|
Fair value |
| $ | 257,841 |
| $ | 246,468 |
| $ | 241,128 |
| $ | 231,077 |
| $ | 226,343 |
| $ | 217,403 |
|
Change in fair value: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
| $ | 21,839 |
| $ | 10,466 |
| $ | 5,126 |
| $ | (4,925) |
| $ | (9,659) |
| $ | (18,599) |
|
% |
|
| 9.3 | % |
| 4.4 | % |
| 2.2 | % |
| (2.1) | % |
| (4.1) | % |
| (7.9) | % |
Item 3. Quantitative and Qualitative Disclosures About Market Risk
In response to this Item 3, the information set forth on pages 73 to 74 of this Report is incorporated herein by reference.
Item 4. Controls and Procedures
Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to 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 the end of the period covered by this Report as required by paragraph (b) of Rule 13a-15 under the Exchange Act. Based on our evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective, as of 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.
Changes in Internal Control over Financial Reporting
There has been no change in our internal control over financial reporting during the quarter ended March 31, 20172018 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
74
From time to time, we may be involved in various legal actions, claims and proceedings arising in the ordinary course of business. As of March 31, 2017,2018, 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 have been 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, 2016,2017, filed with the SEC on March 9, 20172018 and our Quarterly Reports on Form 10-Q filed thereafter.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.There were no sales of unregistered equity securities during the quarter ended March 31, 2018.
Repurchases of our Common Stock
The following table summarizes the stock repurchase activity since the stock repurchase program was approved:
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| Total number |
|
|
| Total number of shares purchased as part of publicly announced plans or program (1) |
| Approximate dollar value of shares that may yet be purchased under the plans or program (1) | ||||
July 1, 2017 – July 31, 2017 |
|
| — |
| $ | — |
|
| — |
| $ | 50,000,000 |
August 1, 2017 – August 31, 2017 |
|
| 270,905 |
| $ | 17.06 |
|
| 270,905 |
| $ | 45,379,288 |
September 1, 2017 – September 30, 2017 |
|
| 233,911 |
| $ | 17.01 |
|
| 233,911 |
| $ | 41,401,192 |
October 1, 2017 – December 31, 2017 |
|
| — |
| $ | — |
|
| — |
| $ | 41,401,192 |
January 1, 2018 – March 31, 2018 |
|
| — |
|
| — |
|
| — |
| $ | 41,401,192 |
Total |
|
| 504,816 |
| $ | 17.03 |
|
| 504,816 |
| $ | 41,401,192 |
(1) | As disclosed in our current report on Form 8-K filed on June 21, 2017, our Board of Directors approved a stock repurchase program authorizing us to repurchase up to $50.0 million of our outstanding Class A common stock. The stock repurchase program does not require us to purchase a specific number of shares, and the timing and amount of any shares repurchased are based on market conditions and other factors, including price, regulatory requirements and capital availability. Stock repurchases may be effected through negotiated transactions or open market purchases, including pursuant to a trading plan implemented pursuant to Rule 10b5-1 of the Securities Exchange Act of 1934, as amended. The stock repurchase program does not have an expiration date but may be suspended, modified or discontinued at any time without prior notice. |
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
None.
75
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Incorporated by Reference from | ||||||
Exhibit |
| Exhibit Description | Form | Filing Date | ||
3.1 |
| 8-K | May 14, | |||
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3.2 |
| 8-K | March 6, 2018 | |||
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10.1 |
| 8-K | February 7, 2018 | |||
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10.2 |
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76
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77
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78
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79
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| |
80
|
| |||||
| Third Amended and Restated Master Repurchase Agreement, dated as of | 8-K | February 7, 2018 | |||
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81
|
| |
| Amendment No. 1 to | |
|
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| |
| Second Amended and Restated | |
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82
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83
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| Base Indenture, dated as of | 8-K | March 6, 2018 | |||
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|
| 8-K | March 6, 2018 | |||
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10.5 | 8-K | March | ||||
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84
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| 8-K | March 6, 2018 | |||
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10.7 | * | |||||
|
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| ||||
10.8 | * | |||||
10.9 | * |
8576
Incorporated by Reference from | ||||||
Exhibit No. | Exhibit Description | Form | Filing Date | |||
10.10 | * |
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10.11 | * | |||||
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10.12 | * | |||||
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31.1 |
| * | ||||
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31.2 |
| * | ||||
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32.1 | ** | |||||
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32.2 | ** | |||||
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101 |
| Interactive data files pursuant to Rule 405 of Regulation S-T: (i) the Consolidated Balance Sheets as of March 31, | ||||
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*Filed herewith
**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 it be deemed incorporated by reference in any filing under the Securities Act of 1933, except as shall be expressly set forth by specific reference in such filing.
8677
SIGNATURES
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.
| PENNYMAC FINANCIAL SERVICES, INC. | |
| (Registrant) | |
|
|
|
Dated: May | By: | /s/ DAVID A. SPECTOR |
|
| David A. Spector |
|
| President and Chief Executive Officer |
|
|
|
Dated: May | By: | /s/ ANDREW S. CHANG |
|
| Andrew S. Chang |
|
| Chief Financial Officer |
8778