PennyMac Financial Services, Inc. (NYSE: PFSI) today reported net income of $123.9 million for the fourth quarter of 2017, on revenue of $298.6 million. Net income attributable to PFSI common stockholders was $62.3 million, or $2.44 per diluted share. Book value per share increased to $19.95, from $17.20 at September 30, 2017.

Fourth Quarter 2017 Highlights
  • Pretax income was $121.8 million; includes $32.0 million benefit related to remeasurement of tax-related items as a result of the newly enacted federal tax law
    • Diluted earnings per share of $2.44 includes a benefit of $1.79 from the remeasurement of tax-related items
    • Fourth quarter results reflect strong earnings contributions from both the production and servicing segments
  • Production segment pretax income was $55.3 million, down 20 percent from the prior quarter and down 41 percent from the fourth quarter of 2016
    • Total loan production activity of $17.0 billion in unpaid principal balance (UPB), down 10 percent from the prior quarter and 23 percent from the fourth quarter of 2016
    • $15.4 billion in UPB of correspondent production, down 12 percent from the prior quarter and 23 percent from the fourth quarter of 2016
    • $1.6 billion in UPB of consumer direct originations, up 8 percent from the prior quarter and down 20 percent from the fourth quarter of 2016
    • Interest rate lock commitments (IRLCs) on correspondent government and consumer direct loans totaled $11.8 billion, down 11 percent from the prior quarter and 20 percent from the fourth quarter of 2016
  • Servicing segment pretax income was $32.0 million, up 31 percent from the prior quarter and down 9 percent from the fourth quarter of 2016
    • Servicing segment pretax income excluding valuation-related changes was $28.2 million, down 24 percent from the prior quarter and up 15 percent from the fourth quarter of 2016 1
    • Servicing portfolio grew to $245.8 billion in UPB, up 3 percent from September 30, 2017, and 27 percent from December 31, 2016
    • Entered into an agreement to acquire a bulk portfolio of Ginnie Mae and conventional conforming mortgage servicing rights (MSRs) with a UPB of approximately $3.6 billion 2
  • Investment Management segment pretax income was $1.5 million, up from $0.7 million in the prior quarter and $0.4 million in the fourth quarter of 2016
    • Net assets under management were $1.6 billion, down 4 percent from September 30, 2017 and up 2 percent from December 31, 2016

Full-Year 2017 Highlights
  • Pretax income was $335.9 million; includes $32.0 million benefit related to remeasurement of tax-related items
    • Diluted earnings per share of $4.03 includes a benefit of $1.83 resulting from the remeasurement of tax-related items
  • Total net revenue of $955.5 million, up 3 percent from the prior year
  • Loan production totaled $68.5 billion in UPB, a decrease of 2 percent from record levels in the prior year
  • Servicing portfolio reached $245.8 billion in UPB, up 27 percent from December 31, 2016

"PennyMac Financial closed out the year with a very strong fourth quarter, with growth in book value per share to nearly $20. Earnings were excellent and further benefited from the remeasurement of tax-related items," said President and CEO David Spector. "Our production and servicing segments delivered solid earnings. Servicing is contributing an increasingly meaningful portion of earnings, and we expect this segment to continue performing well as our portfolio grows and interest rates rise. In correspondent production, we continued to generate strong results through our market-leading franchise."

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

 
 
  Mortgage Banking  

Investment
 
Production   Servicing   Total

Management
Total
(in thousands)
Revenue
Net gains on mortgage loans held for sale at fair value $ 68,716 $ 29,905 $ 98,621 $ - $ 98,621
Loan origination fees 30,267 - 30,267 - 30,267
Fulfillment fees from PMT 19,175 - 19,175 - 19,175
Net servicing fees - 106,902 106,902 - 106,902
Management fees - - - 5,988 5,988
Carried Interest from Investment Funds - - - 5 5
Net interest income (expense): - -
Interest income 15,329 24,576 39,905 - 39,905
Interest expense   2,852   32,813     35,665   12     35,677
12,477 (8,237 ) 4,240 (12 ) 4,228
Other   291   268     559   (51 )   508
Total net revenue   130,926   128,838     259,764   5,930     265,694
Expenses   75,586   96,840     172,426   4,435     176,861
Income before provision for income taxes and

non-segment activities
55,340 31,998 87,338 1,495 88,833
Non-segment activities (1)   32,940
Pretax income $ 55,340 $ 31,998   $ 87,338 $ 1,495   $ 121,773

(1)
   

Includes repricing of Payable to exchanged Private National Mortgage Acceptance Company, LLC unitholders under a tax receivable agreement
 

The new federal tax law resulted in the remeasurement of tax-related items during the fourth quarter, primarily a deferred tax liability that results from deferred gains related to originated MSRs and a deferred tax asset that relates to the step up in basis on exchange of Private National Mortgage Acceptance Company, LLC unitholders for PFSI Class A common stock. In addition, the tax rate change required a remeasurement of amounts payable to exchanged Private National Mortgage Acceptance Company, LLC unitholders under the tax receivable agreement. The remeasurement of these items resulted in an increase in total net revenue of $32.0 million from repricing the tax receivable agreement liability and an income tax benefit of $13.6 million from repricing the net deferred tax liability, and contributed $1.79 to diluted earnings per share for the quarter.

PFSI's tax provision rate for 2018 was decreased to 27.4 percent from 40.5 percent.

Production Segment

Production includes the correspondent acquisition of newly originated government-insured mortgage loans for PennyMac Financial's own account, fulfillment services on behalf of PennyMac Mortgage Investment Trust (NYSE: PMT) and consumer direct lending.

PennyMac Financial's loan production activity for the quarter totaled $17.0 billion in UPB, of which $11.1 billion in UPB was for its own account, and $5.9 billion in UPB was fee-based fulfillment activity for PMT. IRLCs on correspondent government and consumer direct loans totaled $11.8 billion in UPB.

Production segment pretax income was $55.3 million, a decrease of 20 percent from the prior quarter and a decrease of 41 percent from the fourth quarter of 2016. Production revenue totaled $130.9 million, a decrease of 8 percent from the prior quarter and a decrease of 25 percent from the fourth quarter of 2016. The quarter-over-quarter decrease primarily resulted from an $11.3 million decrease in net gains on mortgage loans held for sale driven by a decline in production volume resulting from increased competition and seasonal factors, partially offset by a $7.2 million increase in net interest income driven by the optimization of financing arrangements.

The components of net gains on mortgage loans held for sale are detailed in the following table:
 
Quarter ended
December 31,   September 30,   December 31,
2017 2017 2016
(in thousands)
Receipt of MSRs in loan sale transactions $ 143,904 $ 154,763 $ 190,735

Mortgage servicing rights recapture payable to PennyMac Mortgage Investment Trust

 
(1,553 ) (1,495 ) (2,535 )
Provision for representations and warranties, net (381 ) (402 ) (845 )
Cash investment (1) (69,001 ) (43,943 ) 29,038

Fair value changes of pipeline, inventory and hedges
  25,652     (787 )   (88,461 )
Net gains on mortgage loans held for sale $ 98,621   $ 108,136   $ 127,932  
 

Net gains on mortgage loans held for sale by segment:
Production $ 68,716   $ 79,983   $ 103,413  
Servicing $ 29,905   $ 28,153   $ 24,519  
(1)     Net of cash hedge expense
 

PennyMac Financial performs fulfillment services for conventional conforming loans acquired by PMT in its correspondent production business. These services include, but are not limited to: marketing; relationship management; the approval of correspondent sellers and the ongoing monitoring of their performance; reviewing loan data, documentation and appraisals to assess loan quality and risk; pricing; hedging and activities related to the subsequent sale and securitization of loans in the secondary mortgage markets for PMT. Fees earned from fulfillment of correspondent loans on behalf of PMT totaled $19.2 million in the fourth quarter, down 18 percent from the prior quarter and down 29 percent from the fourth quarter of 2016. The decrease in fulfillment fee revenue was driven by lower acquisition volumes by PMT and a reduction in the weighted average fulfillment fee. The weighted average fulfillment fee rate reflects discretionary reductions to facilitate the successful completion of certain loan transactions by PMT. For the fourth quarter, the weighted average fulfillment fee rate was 33 basis points, down from 36 basis points in the prior quarter.

Production segment expenses were $75.6 million, a 3 percent increase from the prior quarter and a 7 percent decrease from the fourth quarter of 2016. The quarter-over-quarter increase was driven by an increase in allocated incentive-based compensation.

Servicing Segment

Servicing includes income from owned MSRs, subservicing and special servicing activities. Servicing segment pretax income was $32.0 million compared with $24.5 million in the prior quarter and $35.1 million in the fourth quarter of 2016. Servicing segment revenues totaled $128.8 million, a 25 percent increase from the prior quarter and a 19 percent increase from the fourth quarter of 2016. The quarter-over-quarter increase was primarily due to an increase in net loan servicing fees, driven by portfolio growth and MSR fair value changes net of hedge results.

Net loan servicing fees totaled $106.9 million and included $162.0 million in servicing fees reduced by $66.9 million of amortization and realization of MSR cash flows. Valuation-related gains totaled $11.8 million, which includes MSR fair value gains and reversal of impairment for MSRs carried at the lower of amortized cost or fair value of $28.0 million, changes in fair value of the excess servicing spread (ESS) liability resulting in a $4.6 million gain and related hedging losses of $20.8 million. The MSR fair value gains and the reversal of impairment resulted from higher mortgage rates and reduced discount rates on government MSRs, reflecting improved market liquidity for Ginnie Mae MSRs and a reduced risk profile of our MSR portfolio resulting from the early buyout (EBO) of severely delinquent loans.

The following table presents a breakdown of net loan servicing fees:
  Quarter ended
December 31,   September 30,   December 31,
2017 2017 2016
(in thousands)
Servicing fees (1) $ 162,008 $ 153,782 $ 127,483
Effect of MSRs:
Amortization and realization of cash flows (66,891 ) (65,751 ) (50,204 )

Change in fair value and provision for/reversal of impairment of MSRs carried at lower of amortized cost or fair value
28,029 (21,952 ) 151,599
Change in fair value of excess servicing spread

financing
4,593 4,828 (17,061 )
Hedging gains (losses)   (20,837 )   7,174     (116,289 )

Total amortization, impairment and change in fair value of MSRs
  (55,106 )   (75,701 )   (31,955 )
Net loan servicing fees $ 106,902   $ 78,081   $ 95,528  
(1)     Includes contractually-specified servicing fees
 

Servicing segment revenue also included $29.9 million in net gains on mortgage loans held for sale from the securitization of reperforming government-insured and guaranteed loans, compared with $28.2 million in the prior quarter and $24.5 million in the fourth quarter of 2016. These loans were previously purchased out of Ginnie Mae securitizations as EBOs and brought back to performing status through PennyMac Financial's successful servicing efforts, primarily with the use of loan modifications. Net interest expense totaled $8.2 million, a 147 percent increase from the prior quarter and a 33 percent decrease from the fourth quarter of 2016. Interest income decreased by $2.2 million from the prior quarter, driven by a reduction in modification activity on EBO loans. Interest expense increased by $2.7 million from the prior quarter, driven by the second Ginnie Mae MSR term note issued during the third quarter and higher short-term interest rates.

Servicing segment expenses totaled $96.8 million, a 23 percent increase from the prior quarter and a 33 percent increase from the fourth quarter of 2016. The increase was driven by temporary increases in staffing costs to assist borrowers affected by natural disasters and higher EBO transaction-related expenses from a significant increase in buyout volumes during the quarter. The buyout transactions are expected to benefit future period income through reduced costs and gains on redelivery of performing loans.

The total servicing portfolio reached $245.8 billion in UPB at December 31, 2017, an increase of 3 percent from the prior quarter end and 27 percent from a year earlier. Servicing portfolio growth during the quarter was driven by the company's loan production activities. Of the total servicing portfolio, prime servicing was $244.5 billion in UPB and special servicing was $1.3 billion in UPB. PennyMac Financial subservices and conducts special servicing for $75.0 billion in UPB, an increase of 5 percent from September 30, 2017. PennyMac Financial's owned MSR portfolio grew to $166.2 billion in UPB, an increase of 2 percent from the prior quarter end.

The table below details PennyMac Financial's servicing portfolio UPB:
     
December 31, September 30, December 31,
2017 2017 2016
(in thousands)
Loans serviced at period end:
Prime servicing:
Owned
Mortgage servicing rights
Originated $ 119,673,403 $ 113,590,527 $ 89,493,817
Acquisitions   46,575,834   49,209,050   39,660,951
166,249,237 162,799,577 129,154,768
Mortgage servicing liabilities 1,620,609 1,512,632 2,097,234
Mortgage loans held for sale   2,998,377   2,858,642   2,101,283
170,868,223 167,170,851 133,353,285
Subserviced for Advised Entities   73,651,608   69,498,140   58,327,748
Total prime servicing   244,519,831   236,668,991   191,681,033
Special servicing:
Subserviced for Advised Entities   1,328,660   1,703,817   2,558,969
Total loans serviced $ 245,848,491 $ 238,372,808 $ 194,240,002
 
Mortgage loans serviced:
Owned
Mortgage servicing rights $ 166,249,237 $ 162,799,577 $ 129,154,768
Mortgage servicing liabilities 1,620,609 1,512,632 2,074,896
Mortgage loans held for sale   2,998,377   2,858,642   2,101,283
170,868,223 167,170,851 133,330,947
Subserviced   74,980,268   71,201,957   60,886,717
Total mortgage loans serviced $ 245,848,491 $ 238,372,808 $ 194,217,664
 

Investment Management Segment

PennyMac Financial manages PMT and two private Investment Funds for which it earns base management fees and may earn incentive compensation. Net assets under management were $1.6 billion as of December 31, 2017, down 4 percent from September 30, 2017 and up 2 percent from December 31, 2016. During and after the quarter, PMT repurchased approximately 5.2 million common shares at a cost of $83 million 3. The repurchase program allows PMT to acquire its common shares at a discount to book value and enhance equity returns, which we believe aids PMT's long-run success.

Pretax income for the Investment Management segment was $1.5 million, compared with $0.7 million in the prior quarter and $0.4 million in the fourth quarter of 2016. Management fees, which include base management fees from PMT and the private Investment Funds, decreased 4 percent from the prior quarter and increased 7 percent from the fourth quarter of 2016. No incentive fee was paid by PMT during the quarter, consistent with the prior quarter and the fourth quarter of 2016.

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

 
Quarter ended
December 31,   September 30,   December 31,
2017 2017 2016
(in thousands)
Management fees:
PennyMac Mortgage Investment Trust
Base $ 5,900 $ 6,038 $ 5,081
Performance incentive   -   -     -
5,900 6,038 5,081
Investment Funds   88   178     502
Total management fees   5,988   6,216     5,583
Carried Interest   5   (1,158 )   36
Total management fees and Carried Interest $ 5,993 $ 5,058   $ 5,619
 
Net assets of Advised Entities:
PennyMac Mortgage Investment Trust $

1,544,585
$ 1,610,565 $ 1,351,114
Investment Funds   29,329   29,955     197,550
$

1,573,914
$ 1,640,520   $ 1,548,664
 

Investment Management segment expenses totaled $4.4 million, a 3 percent increase from the prior quarter and a 16 percent decrease from the fourth quarter of 2016.

Consolidated Expenses

Total expenses for the fourth quarter were $176.9 million, a 13 percent increase from the prior quarter and an 11 percent increase from the fourth quarter of 2016. The quarter-over-quarter increase was driven by higher servicing costs, in addition to higher compensation expense resulting from an increase in incentive-based compensation.

Executive Chairman Stanford L. Kurland concluded, "We remain focused on long-term initiatives to help ensure PennyMac Financial's growth and success. We continue to make progress on process redesigns in our production businesses that will benefit our consumer direct and broker direct channels, while in our servicing business we have made technology investments and are rolling out new modules to drive workflows and increased efficiency. We also launched our Broker Direct channel which gives us access to an additional 10 percent of the U.S. mortgage market. While the effects of different aspects of the new tax law are uncertain, we believe a strong economy and the stimulus provided by the tax bill bode well for housing and PennyMac Financial's businesses."

Management's slide presentation will be available in the Investor Relations section of the Company's website at www.ir.pennymacfinancial.com beginning at 1:30 p.m. (Pacific Standard Time) on Thursday, February 8, 2018.

About PennyMac Financial Services, Inc.

PennyMac Financial Services, Inc. is a specialty financial services firm with a comprehensive mortgage platform and integrated business focused on the production and servicing of U.S. mortgage loans and the management of investments related to the U.S. mortgage market. PennyMac Financial Services, Inc. trades on the New York Stock Exchange under the symbol "PFSI." Additional information about PennyMac Financial Services, Inc. is available at www.ir.pennymacfinancial.com.
   
1 Excludes changes in the fair value of MSRs, the ESS liability, and gains/(losses) on hedging derivatives which were $28.0 million, $4.6 million, and $(20.8) million, respectively, and a provision for credit losses on active loans of $(8.8) million in the fourth quarter of 2017.
 
2 This transaction is subject to continuing due diligence and customary closing conditions. There can be no assurance regarding the size of the transaction or that the transaction will be completed at all.
 

3

November 6, 2017 through January 5, 2018. PFSI net assets under management of $1.6 billion at December 31, 2017 does not reflect PMT's common share buyback activity between January 2, 2018 and January 5, 2018.
 

This press release contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, regarding management's beliefs, estimates, projections and assumptions with respect to, among other things, the Company's financial results, future operations, business plans and investment strategies, as well as industry and market conditions, all of which are subject to change. Words like "believe," "expect," "anticipate," "promise," "plan," and other expressions or words of similar meanings, as well as future or conditional verbs such as "will," "would," "should," "could," or "may" are generally intended to identify forward-looking statements. Actual results and operations for any future period may vary materially from those projected herein and from past results discussed herein. Factors which could cause actual results to differ materially from historical results or those anticipated include, but are not limited to: the continually changing federal, state and local laws and regulations applicable to the highly regulated industry in which we operate; lawsuits or governmental actions that may result from any noncompliance with the laws and regulations applicable to our businesses; the mortgage lending and servicing-related regulations promulgated by the Consumer Financial Protection Bureau and its enforcement of these regulations; our dependence on U.S. government-sponsored entities and changes in their current roles or their guarantees or guidelines; changes to government mortgage modification programs; the licensing and operational requirements of states and other jurisdictions applicable to the Company's businesses, to which our bank competitors are not subject; foreclosure delays and changes in foreclosure practices; certain banking regulations that may limit our business activities; our dependence on the multifamily and commercial real estate sectors for future originations of commercial mortgage loans and other commercial real estate related loans; changes in macroeconomic and U.S. real estate market conditions; difficulties inherent in growing loan production volume; difficulties inherent in adjusting the size of our operations to reflect changes in business levels; purchase opportunities for mortgage servicing rights and our success in winning bids; changes in prevailing interest rates; increases in loan delinquencies and defaults; our reliance on PennyMac Mortgage Investment Trust (NYSE: PMT) as a significant source of financing for, and revenue related to, our mortgage banking business; any required additional capital and liquidity to support business growth that may not be available on acceptable terms, if at all; our obligation to indemnify third-party purchasers or repurchase loans if loans that we originate, acquire, service or assist in the fulfillment of, fail to meet certain criteria or characteristics or under other circumstances; our obligation to indemnify PMT and the Investment Funds if its services fail to meet certain criteria or characteristics or under other circumstances; decreases in the returns on the assets that we select and manage for our clients, and our resulting management and incentive fees; the extensive amount of regulation applicable to our investment management segment; conflicts of interest in allocating our services and investment opportunities among us and our advised entities; the effect of public opinion on our reputation; our recent growth; our ability to effectively identify, manage, monitor and mitigate financial risks; our initiation of new business activities or investment strategies or expansion of existing business activities or investment strategies; our ability to detect misconduct and fraud; our ability to mitigate cybersecurity risks and cyber incidents; our exposure to risks of loss with real estate investments resulting from adverse weather conditions and man-made or natural disasters; and our organizational structure and certain requirements in our charter documents. You should not place undue reliance on any forward- looking statement and should consider all of the uncertainties and risks described above, as well as those more fully discussed in reports and other documents filed by the Company with the Securities and Exchange Commission from time to time. The Company undertakes no obligation to publicly update or revise any forward-looking statements or any other information contained herein, and the statements made in this press release are current as of the date of this release only.
 
PENNYMAC FINANCIAL SERVICES, INC.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
 
  December 31,   September 30,   December 31,
2017 2017 2016
(in thousands, except share amounts)
ASSETS
Cash $ 37,725 $ 67,708 $ 99,367
Short-term investments at fair value 170,080 136,217 85,964
Mortgage loans held for sale at fair value 3,099,103 2,935,593 2,172,815
Derivative assets 78,179 76,709 82,905
Servicing advances, net 318,066 262,650 348,306
Carried Interest due from Investment Funds 8,552 8,547 70,906
Investment in PennyMac Mortgage Investment Trust at fair value 1,205 1,304 1,228
Mortgage servicing rights 2,119,588 2,016,485 1,627,672
Real estate acquired in settlement of loans 2,447 986 1,418
Furniture, fixtures, equipment and building improvements, net 29,453 30,037 31,321
Capitalized software, net 25,729 21,625 11,205
Financing receivable from PennyMac Mortgage Investment Trust 144,128 148,072 150,000
Receivable from Investment Funds 417 654 1,219
Receivable from PennyMac Mortgage Investment Trust 27,119 16,008 16,416
Loans eligible for repurchase 1,208,195 584,394 382,268
Other   98,107   81,380   50,892
Total assets $ 7,368,093 $ 6,388,369 $ 5,133,902
 
LIABILITIES
Assets sold under agreements to repurchase $ 2,381,538 $ 2,096,492 $ 1,735,114
Mortgage loan participation and sale agreements 527,395 531,776 671,426
Notes payable 891,505 890,884 150,942
Obligations under capital lease 20,971 24,373 23,424
Excess servicing spread financing payable to PennyMac Mortgage Investment Trust at fair value 236,534 248,763 288,669
Derivative liabilities 5,796 11,474 22,362
Mortgage servicing liabilities at fair value 14,120 16,076 15,192
Accounts payable and accrued expenses 106,716 122,698 134,611
Payable to Investment Funds 2,427 2,190 20,393
Payable to PennyMac Mortgage Investment Trust 136,998 124,589 170,036

Payable to exchanged Private National Mortgage Acceptance Company, LLC unitholders under tax receivable agreement
44,011 75,076 75,954
Income taxes payable 52,160 49,620 25,088
Liability for loans eligible for repurchase 1,208,195 584,394 382,268
Liability for losses under representations and warranties   20,053   19,673   19,067
Total liabilities   5,648,419   4,798,078   3,734,546
 
STOCKHOLDERS' EQUITY

Class A common stock---authorized 200,000,000 shares of $0.0001 par value; issued and outstanding, 23,529,970, 23,219,088 and 22,426,779 shares, respectively
2 2 2

Class B common stock---authorized 1,000 shares of $0.0001 par value; issued and outstanding, 46, 49 and 49 shares, respectively
- - -
Additional paid-in capital 204,103 196,346 182,772
Retained earnings   265,306   202,988   164,549

Total stockholders' equity attributable to PennyMac Financial Services, Inc. common stockholders
  469,411   399,336   347,323

Noncontrolling interests in Private National Mortgage Acceptance Company, LLC
  1,250,263   1,190,955   1,052,033
Total stockholders' equity   1,719,674   1,590,291   1,399,356
Total liabilities and stockholders' equity $ 7,368,093 $ 6,388,369 $ 5,133,902
 
 
PENNYMAC FINANCIAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
 
  Quarter ended
December 31,   September 30,   December 31,
2017 2017 2016
(in thousands, except earnings per share)
Revenue
Net gains on mortgage loans held for sale at fair value $ 98,621 $ 108,136 $ 127,932
Mortgage loan origination fees 30,267 33,168 39,572
Fulfillment fees from PennyMac Mortgage Investment Trust 19,175 23,507 27,164
Net mortgage loan servicing fees:
Mortgage loan servicing fees
From non-affiliates 130,617 126,416 102,671
From PennyMac Mortgage Investment Trust 11,077 11,402 11,696
From Investment Funds 6 416 389
Ancillary and other fees   20,308     15,548     12,727  
162,008 153,782 127,483

Amortization, impairment and change in estimated fair value of mortgage servicing rights and excess servicing spread
  (55,106 )   (75,701 )   (31,955 )
Net mortgage loan servicing fees   106,902     78,081     95,528  
Management fees:
From PennyMac Mortgage Investment Trust 5,900 6,038 5,081
From Investment Funds   88     178     502  
  5,988     6,216     5,583  
Carried Interest from Investment Funds 5 (1,158 ) 36
Net interest income (expense):
Interest income 39,905 44,442 24,335
Interest expense   35,677     42,492     32,237  
4,228 1,950 (7,902 )

Change in fair value of investment in and dividends received from PennyMac Mortgage Investment Trust
(63 ) (33 ) 94
Results of real estate acquired in settlement of loans (43 ) 281 (82 )

Revaluation of payable to exchanged Private National Mortgage Acceptance Company, LLC unitholders under tax receivable agreement
32,940 - 551
Other   614     487     809  
Total net revenue   298,634     250,635     289,285  
Expenses
Compensation 97,097 93,417 94,576
Servicing 41,183 24,968 29,363
Technology 13,993 13,926 11,009
Occupancy and equipment 5,675 5,933 5,138
Loan origination 5,599 5,581 6,961
Professional services 4,868 4,636 5,155
Marketing 2,524 2,375 1,321
Other   5,922     5,655     6,354  
Total expenses   176,861     156,491     159,877  
Income before provision for income taxes 121,773 94,144 129,408
(Benefit from) provision for income taxes   (2,125 )   11,652     15,568  
Net income 123,898 82,492 113,840
Less: Net income attributable to noncontrolling interest   61,580     65,411     91,096  

Net income attributable to PennyMac Financial Services, Inc. common stockholders
$ 62,318   $ 17,081   $ 22,744  
 
Earnings per share
Basic $ 2.67 $ 0.73 $ 1.02
Diluted $ 2.44 $ 0.71 $ 1.00
Weighted-average common shares outstanding
Basic 23,354 23,426 22,339
Diluted 25,565 78,416 76,970
 
 
PENNYMAC FINANCIAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
 
  Year ended December 31,
2017   2016   2015
(in thousands, except earnings per share)
Revenue
Net gains on mortgage loans held for sale at fair value $ 391,804 $ 531,780 $ 320,715
Mortgage loan origination fees 119,202 125,534 91,520
Fulfillment fees from PennyMac Mortgage Investment Trust 80,359 86,465 58,607
Net mortgage loan servicing fees:
Mortgage loan servicing fees
From non-affiliates 475,848 385,633 290,474
From PennyMac Mortgage Investment Trust 43,064 50,615 46,423
From Investment Funds 1,461 2,583 2,636
Ancillary and other fees   58,924     46,910     43,139  
579,297 485,741 382,672

Amortization, impairment and change in estimated fair value of mortgage servicing rights and excess servicing spread
  (273,238 )   (300,275 )   (153,129 )
Net mortgage loan servicing fees   306,059     185,466     229,543  
Management fees:
From PennyMac Mortgage Investment Trust 22,584 20,657 24,194
From Investment Funds   1,001     2,089     4,043  
  23,585     22,746     28,237  
Carried Interest from Investment Funds (1,040 ) 980 2,628
Net interest income (expense):
Interest income 143,179 81,127 49,155
Interest expense   144,520     106,206     68,537  
(1,341 ) (25,079 ) (19,382 )

Change in fair value of investment in and dividends received from PennyMac Mortgage Investment Trust
118 224 (230 )
Results of real estate acquired in settlement of loans 94 (82 ) -
Revaluation of payable to exchanged Private National Mortgage Acceptance Company, LLC unitholders under tax receivable agreement 32,940 551 (1,695 )
Other   3,683     3,302     3,167  
Total net revenue   955,463     931,887     713,110  
Expenses
Compensation 358,721 342,153 274,262
Servicing 117,696 85,857 68,085
Technology 52,013 35,322 25,164
Occupancy and equipment 22,615 17,140 8,056
Loan origination 20,429 22,528 17,396
Professional services 17,845 18,078 15,473
Marketing 9,118 5,264 5,664
Other   21,117     22,462     19,817  
Total expenses   619,554     548,804     433,917  
Income before provision for income taxes 335,909 383,083 279,193
Provision for income taxes   24,387     46,103     31,635  
Net income 311,522 336,980 247,558
Less: Net income attributable to noncontrolling interest   210,765     270,901     200,330  

Net income attributable to PennyMac Financial Services, Inc. common stockholders
$ 100,757   $ 66,079   $ 47,228  
 
Earnings per share
Basic $ 4.34 $ 2.98 $ 2.17
Diluted $ 4.03 $ 2.94 $ 2.17
Weighted-average common shares outstanding
Basic 23,199 22,161 21,755
Diluted 24,999 76,629 76,104
 

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