Table of Contents

 

 

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 June 30, 20162017

 

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)

 


 

 

 

 

Delaware

 

80-0882793

(State or other jurisdiction of

 

(IRS Employer

incorporation or organization)

 

Identification No.)

 

 

 

 

 

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, or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”,filer,” “accelerated filer”filer,” “smaller reporting company,” and “smaller reporting“emerging growth company” in Rule 12b-2 of the Exchange Act (check one):Act.

 

 

 

 

Large accelerated filer ☐

 

Accelerated filer ☒

 

 

 

Non-accelerated filer ☐ (Do not check if a smaller reporting company)                                  

 

Smaller reporting company ☐

(Do not check if a smaller reporting company)

           Emerging growth company ☐

 

 

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.

 

 

 

 

Class

 

Outstanding at August 8, 20164, 2017

Class A Common Stock, $0.0001 par value

 

22,193,57223,510,542

Class B Common Stock, $0.0001 par value

 

4950

 

 

 

 

 


 

Table of Contents

 

PENNYMAC FINANCIAL SERVICES, INC.

 

FORM 10-Q

June 30, 20162017

 

TABLE OF CONTENTS

 

 

 

 

 

Page

 

Special Note Regarding Forward-Looking Statements 

3

 

 

 

PART I. FINANCIAL INFORMATION 

5

 

 

 

Item 1. 

Financial Statements (Unaudited):

5

 

Consolidated Balance Sheets

5

 

Consolidated Statements of Income

6

 

Consolidated Statements of Changes in Stockholders’ Equity

7

 

Consolidated Statements of Cash Flows

8

 

Notes to Consolidated Financial Statements

9

Item 2. 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

56 64

Item 3. 

Quantitative and Qualitative Disclosures About Market Risk

80

Item 4. 

Controls and Procedures

80

 

 

 

PART II. OTHER INFORMATION 

82

 

 

 

Item 1. 

Legal Proceedings

82

Item 1A. 

Risk Factors

82

Item 2. 

Unregistered Sales of Equity Securities and Use of Proceeds

82

Item 3. 

Defaults Upon Senior Securities

82

Item 4. 

Mine Safety Disclosures

82

Item 5. 

Other Information

82

Item 6. 

Exhibits

83

 

 

 

2


 

Table of Contents

 

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, 2015,2016, filed with the Securities and Exchange Commission (“SEC”) on March 10, 2016.9, 2017.

 

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. 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 tocertain banking regulations that may limit our businesses, to which our bank competitors are not subject;business activities;

·

foreclosure delays and changes in foreclosure practices;

·

certain banking regulations that may limitthe licensing and operational requirements of states and other jurisdictions applicable to our business activities;businesses, to which our bank competitors are not subject;

·

our dependence on the multi-family and commercial real estate sectors for future originations and investments in commercial mortgage loans and other commercial real estate related loans;

·

changes in macroeconomic and U.S. real estate market conditions;

·

difficulties inherent in growing loan production volume;

·

difficulties inherent in adjusting the size of our operations to reflect changes in business levels;

3


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·

purchase opportunities for mortgage servicing rights (“MSRs”)any required additional capital and our success in winning bids;liquidity to support business growth that may not be available on acceptable terms, if at all;

·

changes in prevailing interest rates;

3


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·

increases in loan delinquencies and defaults;

·

our dependence on the success of the small balance multifamily market for future originations of commercial mortgage loans and other commercial real estate-related loans;

·

our reliance on PennyMac Mortgage Investment Trust (“PMT”) as a significant source of financing for, and revenue related to, our mortgage banking business;

·

any required additional capital and liquidity to support business growth that may not be available on acceptable terms, if at all;

·

our obligation to indemnify third party purchasers or repurchase loans if loans that we originate, acquire, service or assist in the fulfillment of, fail to meet certain criteria or characteristics or under other circumstances;

·

our ability to realize the anticipated benefit of potential future acquisitions of mortgage servicing rights (“MSRs”);

·

our obligation to indemnify PMT and certain investment funds if our services fail to meet certain criteria or characteristics or under other circumstances;

·

decreases in the historical returns on the assets that we select and manage for our clients, and our resulting management and incentive fees;

·

the extensive amount of regulation applicable to our investment management segment;

·

conflicts of interest in allocating our services and investment opportunities among ourselves and certain advised entities;

·

the effect of public opinion on our reputation;

·

our recent growth;

·

our ability to effectively identify, manage, monitor and mitigate financial risks;

·

our initiation of new business activities or expansion of existing business activities;

·

our ability to detect misconduct and fraud; and

·

our ability to mitigate cybersecurity risks and cyber incidents.

 

Other factors that could also cause results to differ from our expectations may not be described in this Report or any other document.  Each of these factors could by itself, or together with one or more other factors, adversely affect our business, results of operations and/or financial condition.

 

Forward-looking statements speak only as of the date they are made, and we undertake no obligation to update any forward-looking statement to reflect the impact of circumstances or events that arise after the date the forward-looking statement was made.

 

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PART I. FINANCIAL INFORMATIOINFORMATIONN

Item 1. Financial StatementStatementss

PENNYMAC FINANCIAL SERVICES, INC.

CONSOLIDATED BALANCE SHEETSHEETS (UNAUDITED)S (UNAUDITED)

 

 

 

 

 

 

 

 

    

June 30, 

    

December 31, 

 

    

2017

    

2016

 

 

(in thousands, except share amounts)

ASSETS

 

 

 

 

 

 

Cash (includes $50,458 and $91,788 pledged to creditors)

 

 $

75,978

 

 $

99,367

Short-term investments at fair value

 

 

145,440

 

 

85,964

Mortgage loans held for sale at fair value (includes $3,019,088 and $2,125,174 pledged to creditors)

 

 

3,037,602

 

 

2,172,815

Derivative assets

 

 

70,075

 

 

82,905

Servicing advances, net (includes valuation allowance of $48,161 and $45,425; $72,010 and $81,306 pledged to creditors)

 

 

291,907

 

 

348,306

Carried Interest due from Investment Funds pledged to creditors

 

 

71,019

 

 

70,906

Investment in PennyMac Mortgage Investment Trust at fair value

 

 

1,372

 

 

1,228

Mortgage servicing rights (includes $678,441 and $515,925 at fair value; $1,736,119 and $1,617,671 pledged to creditors)

 

 

1,951,599

 

 

1,627,672

Real estate acquired in settlement of loans

 

 

822

 

 

1,418

Furniture, fixtures, equipment and building improvements, net (includes $27,476 and $25,134 pledged to creditors)

 

 

31,418

 

 

31,321

Capitalized software, net (includes $1,797 and $515 pledged to creditors)

 

 

18,197

 

 

11,205

Assets purchased from PennyMac Mortgage Investment Trust under agreements to resell pledged to creditors

 

 

150,000

 

 

150,000

Receivable from PennyMac Mortgage Investment Trust

 

 

17,725

 

 

16,416

Receivable from Investment Funds

 

 

1,330

 

 

1,219

Mortgage loans eligible for repurchase

 

 

462,487

 

 

382,268

Other 

 

 

77,767

 

 

50,892

Total assets

 

 $

6,404,738

 

 $

5,133,902

LIABILITIES

 

 

 

 

 

 

Assets sold under agreements to repurchase 

 

 $

3,021,328

 

 $

1,735,114

Mortgage loan participation and sale agreements

 

 

243,361

 

 

671,426

Notes payable

 

 

429,692

 

 

150,942

Obligations under capital lease

 

 

26,641

 

 

23,424

Excess servicing spread financing payable to PennyMac Mortgage Investment Trust at fair value

 

 

261,796

 

 

288,669

Derivative liabilities

 

 

16,564

 

 

22,362

Accounts payable and accrued expenses

 

 

132,053

 

 

134,611

Mortgage servicing liabilities at fair value

 

 

18,295

 

 

15,192

Payable to Investment Funds

 

 

15,236

 

 

20,393

Payable to PennyMac Mortgage Investment Trust 

 

 

132,709

 

 

170,036

Payable to exchanged Private National Mortgage Acceptance Company, LLC unitholders under tax receivable agreement

 

 

73,084

 

 

75,954

Income taxes payable

 

 

40,672

 

 

25,088

Liability for mortgage loans eligible for repurchase

 

 

462,487

 

 

382,268

Liability for losses under representations and warranties  

 

 

19,568

 

 

19,067

Total liabilities

 

 

4,893,486

 

 

3,734,546

 

 

 

 

 

 

 

Commitments and contingencies  –  See Note 20

 

 

 

 

 

 

 

 

 

 

 

 

 

STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

Class A common stock—authorized 200,000,000 shares of $0.0001 par value; issued and outstanding, 23,472,795  and 22,426,779 shares, respectively

 

 

 2

 

 

 2

Class B common stock—authorized 1,000 shares of $0.0001 par value; issued and outstanding, 50 and 49 shares, respectively

 

 

 —

 

 

 —

Additional paid-in capital

 

 

199,146

 

 

182,772

Retained earnings

 

 

185,907

 

 

164,549

Total stockholders' equity attributable to PennyMac Financial Services, Inc. common stockholders

 

 

385,055

 

 

347,323

Noncontrolling interest in Private National Mortgage Acceptance Company, LLC

 

 

1,126,197

 

 

1,052,033

Total stockholders' equity

 

 

1,511,252

 

 

1,399,356

Total liabilities and stockholders’ equity

 

 $

6,404,738

 

 $

5,133,902

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Table of Contents

The accompanying notes are an integral part of these consolidated financial statements.

PENNYMAC FINANCIAL SERVICES, INC.

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Quarter ended June 30, 

 

Six months ended June 30, 

 

 

    

2017

    

2016

 

2017

 

2016

 

 

 

(in thousands, except earnings per share)

 

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

Net gains on mortgage loans held for sale at fair value:

 

 

 

 

 

 

 

 

 

 

 

 

 

From non-affiliates

 

$

99,597

 

$

132,118

 

$

188,248

 

$

225,594

 

Recapture payable to PennyMac Mortgage Investment Trust

 

 

(1,506)

 

 

(1,915)

 

 

(3,201)

 

 

(3,867)

 

 

 

 

98,091

 

 

130,203

 

 

185,047

 

 

221,727

 

Mortgage loan origination fees:

 

 

 

 

 

 

 

 

 

 

 

 

 

From non-affiliates

 

 

28,303

 

 

27,443

 

 

52,498

 

 

48,870

 

From PennyMac Mortgage Investment Trust

 

 

1,890

 

 

1,464

 

 

3,269

 

 

2,471

 

 

 

 

30,193

 

 

28,907

 

 

55,767

 

 

51,341

 

Fulfillment fees from PennyMac Mortgage Investment Trust

 

 

21,107

 

 

19,111

 

 

37,677

 

 

32,046

 

Net mortgage loan servicing fees:

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage loan servicing fees:

 

 

 

 

 

 

 

 

 

 

 

 

 

From non-affiliates

 

 

112,348

 

 

92,770

 

 

218,815

 

 

184,097

 

From PennyMac Mortgage Investment Trust

 

 

10,099

 

 

16,427

 

 

20,585

 

 

27,880

 

From Investment Funds

 

 

543

 

 

723

 

 

1,039

 

 

1,424

 

Ancillary and other fees

 

 

11,202

 

 

10,818

 

 

23,068

 

 

22,270

 

 

 

 

134,192

 

 

120,738

 

 

263,507

 

 

235,671

 

Amortization, impairment and change in fair value of mortgage servicing rights and mortgage servicing liabilities

 

 

(94,435)

 

 

(111,611)

 

 

(152,360)

 

 

(228,474)

 

Change in fair value of excess servicing spread payable to PennyMac Mortgage Investment Trust

 

 

7,156

 

 

17,428

 

 

9,929

 

 

36,877

 

 

 

 

(87,279)

 

 

(94,183)

 

 

(142,431)

 

 

(191,597)

 

Net mortgage loan servicing fees

 

 

46,913

 

 

26,555

 

 

121,076

 

 

44,074

 

Management fees:

 

 

 

 

 

 

 

 

 

 

 

 

 

From PennyMac Mortgage Investment Trust

 

 

5,638

 

 

5,199

 

 

10,646

 

 

10,551

 

From Investment Funds

 

 

369

 

 

531

 

 

735

 

 

1,091

 

 

 

 

6,007

 

 

5,730

 

 

11,381

 

 

11,642

 

Carried Interest from Investment Funds

 

 

241

 

 

244

 

 

113

 

 

837

 

Net interest expense:

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income:

 

 

 

 

 

 

 

 

 

 

 

 

 

From non-affiliates

 

 

32,948

 

 

18,332

 

 

55,002

 

 

30,259

 

From PennyMac Mortgage Investment Trust

 

 

2,025

 

 

2,222

 

 

3,830

 

 

3,824

 

 

 

 

34,973

 

 

20,554

 

 

58,832

 

 

34,083

 

Interest expense:

 

 

 

 

 

 

 

 

 

 

 

 

 

To non-affiliates

 

 

32,511

 

 

19,753

 

 

57,338

 

 

33,725

 

To PennyMac Mortgage Investment Trust

 

 

4,366

 

 

5,713

 

 

9,013

 

 

12,728

 

 

 

 

36,877

 

 

25,466

 

 

66,351

 

 

46,453

 

Net interest expense

 

 

(1,904)

 

 

(4,912)

 

 

(7,519)

 

 

(12,370)

 

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

 

 

76

 

 

229

 

 

215

 

 

143

 

Results of real estate acquired in settlement of loans

 

 

(119)

 

 

393

 

 

(144)

 

 

(42)

 

Other

 

 

1,116

 

 

1,346

 

 

2,581

 

 

1,809

 

Total net revenues

 

 

201,721

 

 

207,806

 

 

406,194

 

 

351,207

 

Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

Compensation

 

 

82,967

 

 

83,147

 

 

168,207

 

 

151,445

 

Servicing

 

 

24,702

 

 

13,430

 

 

51,545

 

 

34,317

 

Technology

 

 

11,581

 

 

7,733

 

 

22,937

 

 

14,580

 

Loan origination

 

 

5,116

 

 

4,910

 

 

9,249

 

 

9,096

 

Professional services

 

 

4,523

 

 

4,559

 

 

8,341

 

 

8,292

 

Other

 

 

14,872

 

 

9,769

 

 

25,923

 

 

19,080

 

Total expenses

 

 

143,761

 

 

123,548

 

 

286,202

 

 

236,810

 

Income before provision for income taxes

 

 

57,960

 

 

84,258

 

 

119,992

 

 

114,397

 

Provision for income taxes

 

 

7,214

 

 

9,963

 

 

14,860

 

 

13,559

 

Net income

 

 

50,746

 

 

74,295

 

 

105,132

 

 

100,838

 

Less: Net income attributable to noncontrolling interest

 

 

40,267

 

 

59,820

 

 

83,774

 

 

81,188

 

Net income attributable to PennyMac Financial Services, Inc. common stockholders

 

$

10,479

 

$

14,475

 

$

21,358

 

$

19,650

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per common share

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.45

 

$

0.66

 

$

0.93

 

$

0.89

 

Diluted

 

$

0.44

 

$

0.65

 

$

0.91

 

$

0.89

 

Weighted average common shares outstanding

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

23,388

 

 

22,078

 

 

23,006

 

 

22,042

 

Diluted

 

 

77,650

 

 

76,280

 

 

77,641

 

 

76,236

 

The accompanying notes are an integral part of these consolidated financial statements.

6


Table of Contents

PENNYMAC FINANCIAL SERVICES, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED)

 

 

 

 

 

 

 

 

 

June 30, 

 

December 31, 

 

 

2016

   

2015

 

 

(in thousands, except share amounts)

 

 

 

 

 

 

 

 

ASSETS

 

 

 

 

 

 

Cash (includes $124,026 and $93,757 pledged to creditors)

 $

143,715

     

 $

105,472

 

Short-term investments at fair value

 

41,063

 

 

46,319

 

Mortgage loans held for sale at fair value (includes $2,071,968 and $1,079,489 pledged to creditors)

 

2,097,138

 

 

1,101,204

 

Derivative assets

 

124,542

 

 

50,280

 

Servicing advances, net (includes $38,647 and $33,458 valuation allowance)

 

296,581

 

 

299,354

 

Carried Interest due from Investment Funds pledged to creditors

 

70,763

 

 

69,926

 

Investment in PennyMac Mortgage Investment Trust at fair value

 

1,217

 

 

1,145

 

Mortgage servicing rights (includes $526,294 and $660,247 at fair value; $1,285,700 and $803,560 pledged to creditors)

 

1,290,928

 

 

1,411,935

 

Real estate acquired in settlement of loans

 

1,394

 

 

 —

 

Furniture, fixtures, equipment and building improvements, net (includes $27,240 and $14,034 pledged to creditors)

 

27,851

 

 

16,311

 

Capitalized software, net (includes $986 and $783 pledged to creditors)

 

6,209

 

 

3,025

 

Note receivable from PennyMac Mortgage Investment Trust

 

150,000

 

 

150,000

 

Receivable from PennyMac Mortgage Investment Trust

 

22,054

 

 

18,965

 

Receivable from Investment Funds

 

1,288

 

 

1,316

 

Deferred tax asset

 

4,878

 

 

18,378

 

Mortgage loans eligible for repurchase

 

286,048

 

 

166,070

 

Other 

 

50,651

 

 

45,594

 

Total assets

 $

4,616,320

 

 $

3,505,294

 

LIABILITIES

 

 

 

 

 

 

Assets sold under agreements to repurchase 

 $

1,591,798

 

 $

1,166,731

 

Mortgage loan participation and sale agreement

 

737,176

 

 

234,872

 

Notes payable

 

114,235

 

 

61,136

 

Obligations under capital lease

 

22,886

 

 

13,579

 

Excess servicing spread financing payable to PennyMac Mortgage Investment Trust at fair value

 

294,551

 

 

412,425

 

Derivative liabilities

 

3,734

 

 

9,083

 

Accounts payable and accrued expenses

 

102,310

 

 

89,915

 

Mortgage servicing liabilities at fair value

 

4,681

 

 

1,399

 

Payable to Investment Funds

 

28,209

 

 

30,429

 

Payable to PennyMac Mortgage Investment Trust 

 

160,712

 

 

162,379

 

Payable to exchanged Private National Mortgage Acceptance Company, LLC unitholders under tax receivable agreement

 

74,850

 

 

74,315

 

Liability for mortgage loans eligible for repurchase

 

286,048

 

 

166,070

 

Liability for losses under representations and warranties  

 

24,277

 

 

20,611

 

Total liabilities

 

3,445,467

 

 

2,442,944

 

 

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

 

 

 

STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

Class A common stock—authorized 200,000,000 shares of $0.0001 par value; issued and outstanding, 22,189,337 and 21,990,831 shares, respectively

 

2

 

 

2

 

Class B common stock—authorized 1,000 shares of $0.0001 par value; issued and outstanding, 50 and 51 shares, respectively

 

 —

 

 

 —

 

Additional paid-in capital

 

176,742

 

 

172,354

 

Retained earnings

 

118,120

 

 

98,470

 

Total stockholders' equity attributable to PennyMac Financial Services, Inc. common stockholders

 

294,864

 

 

270,826

 

Noncontrolling interest in Private National Mortgage Acceptance Company, LLC

 

875,989

 

 

791,524

 

Total stockholders' equity

 

1,170,853

 

 

1,062,350

 

Total liabilities and stockholders’ equity

 $

4,616,320

 

 $

3,505,294

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Class A Common Stock

 

Noncontrolling 

 

 

 

 

 

 

 

 

 

 

 

 

interest in Private 

 

 

 

 

 

 

 

 

Additional

 

 

 

National Mortgage

 

Total

 

 

Number of

 

Par

 

paid-in

 

Retained

 

Acceptance

 

stockholders'

 

    

shares

    

value

    

capital

    

earnings

    

Company, LLC

    

equity

 

 

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2015

 

21,991

 

$

 2

 

$

172,354

 

$

98,470

 

$

791,524

 

$

1,062,350

Net income

 

 —

 

 

 —

 

 

 —

 

 

19,650

 

 

81,188

 

 

100,838

Stock and unit-based compensation

 

93

 

 

 —

 

 

2,119

 

 

 —

 

 

5,917

 

 

8,036

Issuance of Class A common stock in settlement of directors' fees

 

12

 

 

 —

 

 

149

 

 

 —

 

 

 —

 

 

149

Exchange of Class A units of Private  National Mortgage Acceptance Company,  LLC to Class A common stock of PennyMac Financial Services, Inc.

 

93

 

 

 —

 

 

2,640

 

 

 —

 

 

(2,640)

 

 

 —

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.

 

 —

 

 

 —

 

 

(520)

 

 

 —

 

 

 —

 

 

(520)

Balance at June 30, 2016

 

22,189

 

$

 2

 

$

176,742

 

$

118,120

 

$

875,989

 

$

1,170,853

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2016

 

22,427

 

$

 2

 

$

182,772

 

$

164,549

 

$

1,052,033

 

$

1,399,356

Net income

 

 —

 

 

 —

 

 

 —

 

 

21,358

 

 

83,774

 

 

105,132

Stock and unit-based compensation

 

 —

 

 

 —

 

 

3,450

 

 

 —

 

 

7,256

 

 

10,706

Issuance of Class A common stock in settlement of directors' fees

 

 —

 

 

 —

 

 

108

 

 

 —

 

 

61

 

 

169

Exchange of Class A units of Private National Mortgage Acceptance Company, LLC to Class A common stock of PennyMac Financial Services, Inc.

 

1,046

 

 

 —

 

 

16,927

 

 

 —

 

 

(16,927)

 

 

 —

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.

 

 —

 

 

 —

 

 

(4,111)

 

 

 —

 

 

 —

 

 

(4,111)

Balance at June 30, 2017

 

23,473

 

$

 2

 

$

199,146

 

$

185,907

 

$

1,126,197

 

$

1,511,252

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 

57


 

Table of Contents

PENNYMAC FINANCIAL SERVICES, INC.

CONSOLIDATED STATEMENTS OF INCOMCASH FLOWS (UNAUDITED)E (UNAUDITED)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Quarter ended June 30, 

 

Six months ended June 30, 

 

 

 

2016

 

2015

 

2016

 

2015

 

 

 

(in thousands, except earnings per share)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

 

 

 

 

 

 

 

 

 

 

 

 

Net gains on mortgage loans held for sale at fair value:

 

 

 

 

 

 

 

 

 

 

 

 

 

From non-affiliates

    

$

132,118

     

$

85,411

    

$

225,594

     

$

162,078

 

Recapture payable to PennyMac Mortgage Investment Trust

 

 

(1,915)

 

 

(1,456)

 

 

(3,867)

 

 

(2,745)

 

 

 

 

130,203

 

 

83,955

 

 

221,727

 

 

159,333

 

Mortgage loan origination fees

 

 

28,907

 

 

24,421

 

 

51,341

 

 

41,103

 

Fulfillment fees from PennyMac Mortgage Investment Trust

 

 

19,111

 

 

15,333

 

 

32,046

 

 

28,199

 

Net mortgage loan servicing fees:

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage loan servicing fees:

 

 

 

 

 

 

 

 

 

 

 

 

 

From non-affiliates

 

 

92,770

 

 

66,867

 

 

184,097

 

 

116,968

 

From PennyMac Mortgage Investment Trust

 

 

16,427

 

 

12,136

 

 

27,880

 

 

22,806

 

From Investment Funds

 

 

723

 

 

153

 

 

1,424

 

 

1,121

 

Ancillary and other fees

 

 

10,818

 

 

11,850

 

 

22,270

 

 

23,035

 

 

 

 

120,738

 

 

91,006

 

 

235,671

 

 

163,930

 

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

 

 

(111,611)

 

 

(15,324)

 

 

(228,474)

 

 

(69,008)

 

Change in fair value of excess servicing spread payable to PennyMac Mortgage Investment Trust

 

 

17,428

 

 

(7,133)

 

 

36,877

 

 

403

 

 

 

 

(94,183)

 

 

(22,457)

 

 

(191,597)

 

 

(68,605)

 

Net mortgage loan servicing fees

 

 

26,555

 

 

68,549

 

 

44,074

 

 

95,325

 

Management fees:

 

 

 

 

 

 

 

 

 

 

 

 

 

From PennyMac Mortgage Investment Trust

 

 

5,199

 

 

5,779

 

 

10,551

 

 

12,782

 

From Investment Funds

 

 

531

 

 

1,184

 

 

1,091

 

 

2,670

 

 

 

 

5,730

 

 

6,963

 

 

11,642

 

 

15,452

 

Carried Interest from Investment Funds

 

 

244

 

 

182

 

 

837

 

 

1,415

 

Net interest expense:

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income:

 

 

 

 

 

 

 

 

 

 

 

 

 

From non-affiliates

 

 

18,332

 

 

12,651

 

 

30,259

 

 

21,584

 

From PennyMac Mortgage Investment Trust

 

 

2,222

 

 

533

 

 

3,824

 

 

533

 

 

 

 

20,554

 

 

13,184

 

 

34,083

 

 

22,117

 

Interest expense:

 

 

 

 

 

 

 

 

 

 

 

 

 

To non-affiliates

 

 

19,753

 

 

10,531

 

 

33,725

 

 

18,608

 

To PennyMac Mortgage Investment Trust

 

 

5,713

 

 

5,818

 

 

12,728

 

 

9,570

 

 

 

 

25,466

 

 

16,349

 

 

46,453

 

 

28,178

 

Net interest expense

 

 

(4,912)

 

 

(3,165)

 

 

(12,370)

 

 

(6,061)

 

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

 

 

229

 

 

(244)

 

 

143

 

 

(137)

 

Result of real estate acquired in settlement of loans

 

 

393

 

 

 —

 

 

(42)

 

 

 —

 

Other

 

 

1,346

 

 

357

 

 

1,809

 

 

2,036

 

Total net revenue

 

 

207,806

 

 

196,351

 

 

351,207

 

 

336,665

 

Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

Compensation

 

 

83,147

 

 

70,422

 

 

151,445

 

 

128,566

 

Servicing

 

 

13,430

 

 

28,603

 

 

34,317

 

 

38,338

 

Technology

 

 

7,733

 

 

6,490

 

 

14,580

 

 

11,428

 

Loan origination

 

 

4,910

 

 

4,148

 

 

9,096

 

 

8,499

 

Professional services

 

 

4,559

 

 

4,074

 

 

8,292

 

 

6,907

 

Other

 

 

9,769

 

 

7,815

 

 

19,080

 

 

14,890

 

Total expenses

 

 

123,548

 

 

121,552

 

 

236,810

 

 

208,628

 

Income before provision for income taxes

 

 

84,258

 

 

74,799

 

 

114,397

 

 

128,037

 

Provision for income taxes

 

 

9,963

 

 

8,619

 

 

13,559

 

 

14,733

 

Net income

 

 

74,295

 

 

66,180

 

 

100,838

 

 

113,304

 

Less: Net income attributable to noncontrolling interest

 

 

59,820

 

 

53,431

 

 

81,188

 

 

91,527

 

Net income attributable to PennyMac Financial Services, Inc. common stockholders

 

$

14,475

 

$

12,749

 

$

19,650

 

$

21,777

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.66

 

$

0.59

 

$

0.89

 

$

1.01

 

Diluted

 

$

0.65

 

$

0.59

 

$

0.89

 

$

1.01

 

Weighted average common shares outstanding

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

22,078

 

 

21,700

 

 

22,042

 

 

21,647

 

Diluted

 

 

76,280

 

 

76,105

 

 

76,236

 

 

76,063

 

 

 

 

 

 

 

 

 

 

 

Six months ended June 30, 

 

 

    

2017

    

2016

 

 

 

(in thousands)

 

Cash flow from operating activities

 

 

 

 

 

 

 

Net income

 

$

105,132

 

$

100,838

 

Adjustments to reconcile net income to net cash used in operating activities:

 

 

 

 

 

 

 

Net gains on mortgage loans held for sale at fair value

 

 

(185,047)

 

 

(221,727)

 

Accrual of servicing rebate payable to Investment Funds

 

 

100

 

 

148

 

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

 

 

142,431

 

 

191,597

 

Carried Interest from Investment Funds

 

 

(113)

 

 

(837)

 

Capitalization of interest on mortgage loans held for sale at fair value

 

 

(21,615)

 

 

(13,513)

 

Accrual of interest on excess servicing spread financing

 

 

9,013

 

 

12,728

 

Amortization of debt issuance costs

 

 

7,122

 

 

5,215

 

Change in fair value of investment in common shares of PennyMac Mortgage Investment Trust

 

 

(144)

 

 

(72)

 

Results of real estate acquired in settlement in loans

 

 

144

 

 

42

 

Stock and unit-based compensation expense

 

 

10,390

 

 

8,036

 

Provision for servicing advance losses

 

 

18,030

 

 

12,519

 

Loss from disposition of fixed assets

 

 

377

 

 

 —

 

Depreciation and amortization

 

 

4,117

 

 

2,274

 

Purchase of mortgage loans held for sale from PennyMac Mortgage Investment Trust

 

 

(21,244,194)

 

 

(16,783,840)

 

Originations of mortgage loans held for sale

 

 

(2,353,899)

 

 

(2,736,621)

 

Purchase of mortgage loans from Ginnie Mae securities and early buyout investors for modification and subsequent sale

 

 

(1,814,080)

 

 

(703,464)

 

Sale and principal payments of mortgage loans held for sale

 

 

24,497,179

 

 

19,176,697

 

Sale of mortgage loans held for sale to PennyMac Mortgage Investment Trust

 

 

40,222

 

 

8,139

 

Repurchase of mortgage loans subject to representations and warranties

 

 

(11,520)

 

 

(11,399)

 

Decrease (increase) in servicing advances

 

 

38,821

 

 

(11,182)

 

Increase in receivable from Investment Funds

 

 

(211)

 

 

(120)

 

Increase in receivable from PennyMac Mortgage Investment Trust

 

 

(1,092)

 

 

(2,056)

 

Decrease in deferred tax asset

 

 

 —

 

 

13,515

 

Payments to exchanged Private National Mortgage Acceptance Company, LLC unitholders under tax receivable agreement

 

 

(6,221)

 

 

 —

 

Increase in other assets

 

 

(29,608)

 

 

(10,941)

 

(Decrease) increase in accounts payable and accrued expenses

 

 

(30,395)

 

 

9,781

 

Decrease in payable to Investment Funds

 

 

(5,157)

 

 

(2,220)

 

Decrease in payable to PennyMac Mortgage Investment Trust

 

 

(37,650)

 

 

(2,332)

 

Increase in income taxes payable

 

 

14,824

 

 

 —

 

Net cash used in operating activities

 

 

(853,044)

 

 

(958,795)

 

Cash flow from investing activities

 

 

 

 

 

 

 

(Increase) decrease in short-term investments

 

 

(59,476)

 

 

5,256

 

Net settlement of derivative financial instruments used for hedging

 

 

(30,949)

 

 

138,801

 

Purchase of mortgage servicing rights

 

 

(159,465)

 

 

(11)

 

Purchase of furniture, fixtures, equipment and leasehold improvements

 

 

(4,668)

 

 

(14,459)

 

Acquisition of capitalized software

 

 

(7,719)

 

 

(3,342)

 

Increase in margin deposits and restricted cash

 

 

(12,071)

 

 

(16,443)

 

Net cash (used in) provided by investing activities

 

 

(274,348)

 

 

109,802

 

Cash flow from financing activities

 

 

 

 

 

 

 

Sale of assets under agreements to repurchase

 

 

13,332,610

 

 

18,461,897

 

Repurchase of assets sold under agreements to repurchase

 

 

(12,046,244)

 

 

(18,037,356)

 

Issuance of mortgage loan participation certificates

 

 

10,491,796

 

 

10,843,858

 

Repayment of mortgage loan participation certificates

 

 

(10,919,650)

 

 

(10,341,436)

 

Advances on notes payable

 

 

435,000

 

 

68,000

 

Repayment of notes payable

 

 

(153,073)

 

 

(15,671)

 

Advances of obligations under capital lease

 

 

10,298

 

 

12,652

 

Repayment of obligations under capital lease

 

 

(7,081)

 

 

(3,345)

 

Repayment of excess servicing spread financing

 

 

(28,910)

 

 

(38,281)

 

Settlement of excess servicing spread financing

 

 

 —

 

 

(59,045)

 

Payment of debt issuance costs

 

 

(11,059)

 

 

(4,037)

 

Proceeds from common stock options exercised

 

 

316

 

 

 —

 

Net cash provided by financing activities

 

 

1,104,003

 

 

887,236

 

Net (decrease) increase in cash

 

 

(23,389)

 

 

38,243

 

Cash at beginning of period

 

 

99,367

 

 

105,472

 

Cash at end of period

 

$

75,978

 

$

143,715

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 

68


 

Table of Contents

PENNYMAC FINANCIAL SERVICES, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Class A Common Stock

 

Noncontrolling 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

interest in Private 

 

 

 

 

 

 

                          

 

 

                          

 

 

Additional

 

 

                          

 

National Mortgage

 

Total

 

 

 

Number of

 

Par

 

 

paid-in

 

Retained

 

Acceptance

 

stockholders'

 

 

   

shares

 

value

 

 

capital

 

earnings

 

Company, LLC

 

equity

  

 

 

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2014

    

21,578

    

$

2

    

    

$

162,720

    

$

51,242

    

$

593,302

    

$

807,266

 

Net income

 

 —

 

 

 —

 

 

 

 —

 

 

21,777

 

 

91,527

 

 

113,304

 

Stock and unit-based compensation

 

72

 

 

 —

 

 

 

2,452

 

 

 —

 

 

6,146

 

 

8,598

 

Distributions

 

 —

 

 

 —

 

 

 

 —

 

 

 —

 

 

(9,627)

 

 

(9,627)

 

Issuance of common stock in settlement of directors' fees

 

8

 

 

 —

 

 

 

149

 

 

 —

 

 

 —

 

 

149

 

Exchange of Class A units of Private  National Mortgage Acceptance Company,  LLC to
Class A common stock of PennyMac Financial Services, Inc.

 

133

 

 

 —

 

 

 

2,432

 

 

 —

 

 

(2,432)

 

 

 —

 

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.

 

 —

 

 

 —

 

 

 

(217)

 

 

 —

 

 

 —

 

 

(217)

 

Balance at June 30, 2015

 

21,791

 

$

2

 

 

$

167,536

 

$

73,019

 

$

678,916

 

$

919,473

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2015

 

21,991

 

$

2

 

 

$

172,354

 

$

98,470

 

$

791,524

 

$

1,062,350

 

Net income

 

 —

 

 

 —

 

 

 

 —

 

 

19,650

 

 

81,188

 

 

100,838

 

Stock and unit-based compensation

 

93

 

 

 —

 

 

 

2,119

 

 

 —

 

 

5,917

 

 

8,036

 

Issuance of common stock in settlement of directors' fees

 

12

 

 

 —

 

 

 

149

 

 

 —

 

 

 —

 

 

149

 

Exchange of Class A units of Private National Mortgage Acceptance Company, LLC to

Class A common stock of PennyMac Financial Services, Inc.

 

93

 

 

 —

 

 

 

2,640

 

 

 —

 

 

(2,640)

 

 

 —

 

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.

 

 —

 

 

 —

 

 

 

(520)

 

 

 —

 

 

 —

 

 

(520)

 

Balance at June 30, 2016

 

22,189

 

$

2

 

 

$

176,742

 

$

118,120

 

$

875,989

 

$

1,170,853

 

The accompanying notes are an integral part of these consolidated financial statements.

7


Table of Contents

PENNYMAC FINANCIAL SERVICES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

 

 

 

 

 

 

 

 

 

 

Six months ended June 30, 

 

 

    

2016

    

2015

 

 

 

(in thousands)

 

 

 

 

 

 

 

 

 

Cash flow from operating activities

 

 

                              

 

 

                              

 

Net income

 

$

100,838

 

$

113,304

 

Adjustments to reconcile net income to net cash used in operating activities:

 

 

 

 

 

 

 

Net gains on mortgage loans held for sale at fair value

 

 

(221,727)

 

 

(159,333)

 

Accrual of servicing rebate payable to Investment Funds

 

 

148

 

 

1,114

 

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

 

 

191,597

 

 

68,605

 

Carried Interest from Investment Funds

 

 

(837)

 

 

(1,415)

 

Amortization of debt issuance costs and commitment fees relating to financing facilities

 

 

5,215

 

 

3,631

 

Capitalization of interest on mortgage loans held for sale at fair value

 

 

(13,513)

 

 

(4,745)

 

Accrual of interest on excess servicing spread financing

 

 

12,728

 

 

9,570

 

Change in fair value of investment in common shares of PennyMac Mortgage Investment Trust

 

 

(72)

 

 

275

 

Results of real estate acquired in settlement in loans

 

 

42

 

 

 —

 

Stock and unit-based compensation expense

 

 

8,036

 

 

8,598

 

Provision for servicing advance losses

 

 

12,519

 

 

16,013

 

Depreciation and amortization

 

 

2,274

 

 

911

 

Purchase of mortgage loans held for sale from PennyMac Mortgage Investment Trust

 

 

(16,783,840)

 

 

(13,514,568)

 

Originations of mortgage loans held for sale

 

 

(2,730,709)

 

 

(2,052,648)

 

Purchase of mortgage loans from Ginnie Mae securities and early buyout investors for modification and subsequent sale

 

 

(703,464)

 

 

(531,842)

 

Purchase of commercial real estate loans from non-affiliates

 

 

(5,912)

 

 

 —

 

Sale and principal payments of mortgage loans held for sale

 

 

19,176,697

 

 

15,619,191

 

Sale of loans held for sale to PennyMac Mortgage Investment Trust

 

 

8,139

 

 

10,828

 

Repurchase of mortgage loans and real estate acquired in settlement of loans subject to representations and warranties

 

 

(11,399)

 

 

(11,567)

 

Increase in servicing advances

 

 

(11,182)

 

 

(32,189)

 

Increase in receivable from Investment Funds

 

 

(120)

 

 

(971)

 

(Increase) decrease in receivable from PennyMac Mortgage Investment Trust

 

 

(2,056)

 

 

9,175

 

Decrease in deferred tax asset

 

 

13,515

 

 

12,826

 

Payments to exchanged Private National Mortgage Acceptance Company, LLC unitholders under tax receivable agreement

 

 

 —

 

 

(4,299)

 

Increase in other assets

 

 

(10,941)

 

 

(14,282)

 

Increase in accounts payable and accrued expenses

 

 

9,781

 

 

20,941

 

Decrease in payable to Investment Funds

 

 

(2,220)

 

 

(4,653)

 

(Decrease) increase in payable to PennyMac Mortgage Investment Trust

 

 

(2,332)

 

 

16,120

 

Net cash used in operating activities

 

 

(958,795)

 

 

(421,410)

 

Cash flow from investing activities

 

 

 

 

 

 

 

Decrease (increase) in short-term investments

 

 

5,256

 

 

(1,890)

 

Advance on note receivable from PennyMac Mortgage Investment Trust

 

 

 —

 

 

(71,072)

 

Repayment of note receivable from PennyMac Mortgage Investment Trust

 

 

 —

 

 

18,546

 

Purchase of mortgage servicing rights

 

 

(11)

 

 

(270,133)

 

Net settlement of derivative financial instruments used for hedging

 

 

138,801

 

 

(8,293)

 

Purchase of furniture, fixtures, equipment and building improvements

 

 

(14,459)

 

 

(2,277)

 

Acquisition of capitalized software

 

 

(3,342)

 

 

(860)

 

(Increase) decrease in margin deposits and restricted cash

 

 

(16,443)

 

 

19,932

 

Net cash  provided by (used in) investing activities

 

 

109,802

 

 

(316,047)

 

Cash flow from financing activities

 

 

 

 

 

 

 

Sale of assets under agreements to repurchase

 

 

18,461,897

 

 

14,379,136

 

Repurchase of assets sold under agreements to repurchase

 

 

(18,037,356)

 

 

(13,937,711)

 

Issuance of mortgage loan participation certificates

 

 

10,843,858

 

 

7,937,026

 

Repayment of mortgage loan participation certificates

 

 

(10,341,436)

 

 

(7,884,705)

 

Advances on notes payable

 

 

68,000

 

 

129,012

 

Repayment of notes payable

 

 

(15,671)

 

 

(29,411)

 

Issuance of excess servicing spread financing

 

 

 —

 

 

187,287

 

Repayment of excess servicing spread financing

 

 

(38,281)

 

 

(31,083)

 

Repurchase of excess servicing spread financing

 

 

(59,045)

 

 

 —

 

Advances of obligations under capital lease

 

 

12,652

 

 

 —

 

Repayment of obligation under capital lease

 

 

(3,345)

 

 

(5)

 

Payment of debt issuance costs

 

 

(4,037)

 

 

(3,990)

 

Distribution to Private National Mortgage Acceptance Company, LLC members

 

 

 —

 

 

(9,627)

 

Net cash provided by financing activities

 

 

887,236

 

 

735,929

 

Net increase (decrease) in cash

 

 

38,243

 

 

(1,528)

 

Cash at beginning of period

 

 

105,472

 

 

76,256

 

Cash at end of period

 

$

143,715

 

$

74,728

 

The accompanying notes are an integral part of these consolidated financial statements.

8


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PENNYMAC FINANCIAL SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTSTATEMENTS (UNAUDITED)S (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 investment vehiclesentities that invest in residential mortgage loans and related assets. PennyMac’s primary wholly owned subsidiaries are:

 

·

PNMAC Capital Management, LLC (“PCM”)—a Delaware limited liability company registered with the Securities and Exchange Commission (“SEC”) as an investment adviser under the Investment Advisers Act of 1940, as amended. PCM enters into investment management agreements with entities that invest in residential mortgage loans and related assets.

 

Presently, PCM has management agreements with, PennyMac Mortgage Investment Trust (“PMT”), a publicly held real estate investment trust (“REIT”), 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, and 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.”

 

·

PennyMac Loan Services, LLC (“PLS”)—a Delaware limited liability company that services residential mortgage loans on behalf of non-affiliates and the Advised Entities, purchases and originates new prime credit quality residential mortgage loans, and engages in other mortgage banking activities for its own account and the account of PMT.

 

PLS is approved as a seller/servicer of mortgage loans by the Federal National Mortgage Association (“Fannie Mae”) and the Federal Home Loan Mortgage Corporation (“Freddie Mac”) and as an issuer of securities guaranteed by the Government National Mortgage Association (“Ginnie Mae”). PLS is a licensed Federal Housing Administration 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.

 

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. The interim consolidated information should be read together with the Company’s Annual Report on Form 10-K for the year ended December 31, 2015.2016.

 

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


 

Table of Contents

indicative of the results of operationsincome to be anticipated for the full year ending December 31, 2016.2017. Intercompany accounts and transactions have been eliminated.

 

Preparation of financial statements in compliance with GAAP requires management to make estimatesjudgments and judgmentsestimates 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.

 

Note 2—Concentration of Risk

 

A substantial portion of the Company’s activities relate to the Advised Entities. FeesRevenues generated from these entities (generally comprised of servicing recapture fees, mortgage loan origination fees, fulfillment fees, mortgage loan servicing fees, management fees, Carried Interest, and Carried Interest) andnet interest charged to these entitiesentities) totaled 26%21% and 10%26% of total net revenue for the quarters ended June 30, 20162017 and 2015,2016, respectively, and 28%19% and 17%28% for the six months ended June 30, 20162017 and 2015,2016, respectively.

 

Note 3—Transactions with Affiliates

 

Transactions with PMT

 

Operating Activities

 

Mortgage Loan Production Activities and Mortgage Servicing Rights (“MSR”) Recapture

 

Following isThe Company provides fulfillment and other services to PMT under a summarymortgage banking services agreement. Before September 12, 2016, the Company was entitled to a fulfillment fee based on the type of mortgage lendingloan 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, the applicable fulfillment fee percentages are (i) 0.35% for mortgage loans sold or delivered to Fannie Mae or Freddie Mac, and (ii) 0.85% for all other mortgage loans; provided, however, that no fulfillment fee shall be due or payable to the Company with respect to any mortgage loans underwritten to Ginnie Mae guidelines. PMT does not hold the Ginnie Mae approval required to issue Ginnie Mae mortgage-backed securities (“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 Securities 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 activity betweenfee 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 PMT:(ii) in the amount of $35 for each mortgage loan that PMT acquires thereunder.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Quarter ended June 30, 

 

Six months ended June 30, 

 

 

   

2016

   

2015

   

2016

    

2015

 

 

 

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fulfillment fee revenue

    

$

19,111

    

$

15,333

    

$

32,046

 

$

28,199

 

Unpaid principal balance of mortgage loans fulfilled for PMT

 

$

5,174,020

 

$

3,579,078

 

$

8,433,383

 

$

6,469,210

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sourcing fees paid to PMT

 

$

2,824

 

$

2,427

 

$

4,773

 

$

3,848

 

Unpaid principal balance of mortgage loans purchased from PMT

 

$

9,409,399

 

$

8,082,764

 

$

15,905,121

 

$

12,818,138

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Proceeds from sale of mortgage loans held for sale to PMT

 

$

3,424

 

$

2,423

 

$

8,139

 

$

10,828

 

Tax service fee from PMT

 

$

1,464

 

$

1,113

 

$

2,471

 

$

2,002

 

Mortgage servicing rights and excess servicing spread recapture incurred

 

$

1,915

 

$

1,456

 

$

3,867

 

$

2,745

 

Mortgage banking and warehouse service fees paid by PMT

 

$

1

 

$

 —

 

$

2

 

$

 —

 

Pursuant to the terms of an amended and restated MSR recapture agreement, effective September 12, 2016, if the Company refinances 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 originated in those refinancings (or, under certain circumstances, other mortgage loans) that have an aggregate UPB that is not less than 30% of the aggregate UPB of 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:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Quarter ended June 30, 

 

Six months ended June 30, 

 

    

2017

    

2016

   

2017

    

2016

 

 

(in thousands)

Mortgage servicing rights and excess servicing spread recapture incurred included in Net gains on mortgage loans held for sale at fair value

 

$

1,506

 

$

1,915

 

$

3,201

 

$

3,867

 

 

 

 

 

 

 

 

 

 

 

 

 

Fulfillment fee revenue

    

$

21,107

    

$

19,111

    

$

37,677

 

$

32,046

Unpaid principal balance of mortgage loans fulfilled for PMT

 

$

5,918,027

 

$

5,174,020

 

$

10,549,933

 

$

8,433,383

 

 

 

 

 

 

 

 

 

 

 

 

 

Sourcing fees paid to PMT

 

$

3,204

 

$

2,824

 

$

6,065

 

$

4,773

Unpaid principal balance of mortgage loans purchased from PMT

 

$

10,641,243

 

$

9,409,399

 

$

20,215,960

 

$

15,905,121

 

 

 

 

 

 

 

 

 

 

 

 

 

Proceeds from sale of mortgage loans held for sale to PMT

 

$

18,692

 

$

3,424

 

$

40,222

 

$

8,139

Tax service fees received from PMT included in Mortgage loan origination fees

 

$

1,890

 

$

1,464

 

$

3,269

 

$

2,471

Property management fees received from PMT included in Other income

 

$

95

 

$

54

 

$

166

 

$

85

Early purchase program fees earned from PMT included in Mortgage loan servicing fees

 

$

 1

 

$

 1

 

$

 6

 

$

 2

Mortgage Loan Servicing Activities

The Company has a loan servicing agreement with PMT (“Servicing Agreement”). The Servicing 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”). The Company also remains entitled to customary ancillary income and market-based fees and charges, including boarding and deboarding fees, liquidation and disposition fees, assumption, modification and origination fees and 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.

·

The base servicing fee rates for distressed whole mortgage loans range from $30 per month for current loans up to $100 per month for loans where the borrower has declared bankruptcy. The base servicing fee rate for REO is $75 per month. 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 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.

·

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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Table of Contents

·

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 0.50% for a streamline modification to 1.50% 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.

·

Because PMT has limited employees and 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.

·

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.

·

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 Plan (“HAMP”); provided, however, that with respect to any such incentive payments paid to the Company in connection with a mortgage loan modification for which PMT previously paid the Company a modification fee, the Company is required to reimburse PMT an amount equal to the incentive payments.

The Servicing 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:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Quarter ended June 30, 

 

 

Six months ended June 30, 

 

 

2016

   

2015

 

 

2016

   

2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(in thousands)

 

 

Quarter ended June 30, 

 

Six months ended June 30, 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

2017

    

2016

 

2017

   

2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(in thousands)

Mortgage loans acquired for sale at fair value:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Base and supplemental

    

$

79

    

$

42

    

 

$

135

    

$

68

 

    

$

82

    

$

79

    

$

147

    

$

135

Activity-based

 

 

172

 

 

59

 

 

 

287

 

 

90

 

 

 

176

 

 

172

 

 

319

 

 

287

 

 

251

 

 

101

 

 

 

422

 

 

158

 

 

 

258

 

 

251

 

 

466

 

 

422

Mortgage loans at fair value:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Base and supplemental

 

 

2,959

 

 

4,210

 

 

 

6,359

 

 

8,272

 

 

 

1,754

 

 

2,959

 

 

3,713

 

 

6,359

Activity-based

 

 

8,518

 

 

3,093

 

 

 

11,967

 

 

5,987

 

 

 

1,767

 

 

8,518

 

 

4,157

 

 

11,967

 

 

11,477

 

 

7,303

 

 

 

18,326

 

 

14,259

 

 

 

3,521

 

 

11,477

 

 

7,870

 

 

18,326

Mortgage servicing rights:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Base and supplemental

 

 

4,583

 

 

4,627

 

 

 

8,927

 

 

8,253

 

 

 

6,188

 

 

4,583

 

 

12,025

 

 

8,927

Activity-based

 

 

116

 

 

105

 

 

 

205

 

 

136

 

 

 

132

 

 

116

 

 

224

 

 

205

 

 

4,699

 

 

4,732

 

 

 

9,132

 

 

8,389

 

 

 

6,320

 

 

4,699

 

 

12,249

 

 

9,132

 

$

16,427

 

$

12,136

 

 

$

27,880

 

$

22,806

 

 

$

10,099

 

$

16,427

 

$

20,585

 

$

27,880

 

Investment Management Activities

The Company has a management agreement with PMT (“Management Agreement”). The Management Agreement provides that:

·

The base management fee is calculated quarterly and is equal to the sum of (i) 1.5% per year of PMT’s 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.

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Table of Contents

·

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% of the amount by which PMT’s net income for the quarter exceeds a 16% return on equity plus the “high watermark.”

For the purpose of determining the amount of the performance incentive fee:

“Net income” is defined as net income or loss computed in accordance with 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 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.

 

Following is a summary of the base management and performance incentive fees earned from PMT:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Quarter ended June 30, 

 

 

Six months ended June 30, 

 

 

   

2016

   

2015

 

 

2016

   

2015

 

 

 

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Base management

    

$

5,199

    

$

5,709

    

 

$

10,551

    

$

11,439

 

Performance incentive

 

 

 —

 

 

70

 

 

 

 —

 

 

1,343

 

 

 

$

5,199

 

$

5,779

 

 

$

10,551

 

$

12,782

 

The term of the management agreement, as amended,Management Agreement expires on February 1, 2017,September 12, 2020, subject to automatic renewal for additional 18‑month18-month periods, unless terminated earlier in accordance with the terms of the management 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 beforeimmediately preceding the date of termination.

 

Following is a summary of the base management and performance incentive fees earned from PMT:

11


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Quarter ended June 30, 

 

Six months ended June 30, 

 

    

2017

    

2016

 

2017

   

2016

 

 

(in thousands)

Base management

 

$

5,334

 

$

5,199

    

$

10,342

    

$

10,551

Performance incentive

 

 

304

 

 

 —

 

 

304

 

 

 —

 

 

$

5,638

 

$

5,199

 

$

10,646

 

$

10,551

 

 

 

 

 

 

 

 

 

 

 

 

 

Expense Reimbursement

 

Under the Management Agreement, PMT reimburses the Company for otherits organizational and operating expenses, including common overheadthird-party expenses, incurred on PMT’s behalf, it being understood that the Company and its behalfaffiliates 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

13


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 in accordance withor 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 termsCompany and its affiliates required for PMT’s and its subsidiaries’ operations. These expenses will be allocated based on the ratio of its management agreement. Such amounts are summarized below: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:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Quarter ended June 30, 

 

Six months ended June 30, 

 

 

   

2016

   

2015

   

2016

   

2015

 

 

 

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Reimbursement of:

    

 

                

    

 

                

    

 

                

 

 

 

 

Common overhead incurred by the Company (1)

 

$

2,435

 

$

2,702

 

$

4,996

 

$

5,431

 

Expenses incurred on (the Company's) PMT's behalf

 

 

(169)

 

 

83

 

 

(114)

 

 

462

 

 

 

$

2,266

 

$

2,785

 

$

4,882

 

$

5,893

 

Payments and settlements during the period (2)

 

$

28,952

 

$

24,114

 

$

56,613

 

$

46,866

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Quarter ended June 30, 

 

Six months ended June 30, 

 

    

2017

    

2016

   

2017

   

2016

 

 

(in thousands)

Reimbursement of:

    

 

                

    

 

                

    

 

                

 

 

 

Common overhead incurred by the Company

 

$

1,593

 

$

2,435

 

$

3,027

 

$

4,996

Expenses incurred on PMT's behalf, net

 

 

398

 

 

(169)

 

 

653

 

 

(114)

 

 

$

1,991

 

$

2,266

 

$

3,680

 

$

4,882

Payments and settlements during the period (1)

 

$

16,070

 

$

28,952

 

$

40,463

 

$

56,613


(1)

For the quarter ended June 30, 2015, reimbursement of common overhead incurred by the Company included a discretionary waiver, in accordance with the terms of the management agreement, of $700,000 of overhead expenses otherwise allocable to PMT.  On December 15, 2015, the Company and PMT amended their management agreement to provide that the total overhead costs and expenses incurred by the Company in any quarter and reimbursable by PMT is capped at an amount equal to the product of (A) 70 basis points (0.0070), multiplied by (B) PMT’s shareholders’ equity (as defined in the management agreement) as of the last day of such quarter, divided by four (4).

(2)

Payments and settlements include payments for operating, investmentmanagement fees and financingcorrespondent production activities itemized in this Notethe preceding tables and netting settlements made pursuant to master netting agreements between the Company and PMT.

Amounts due from and payable to PMT are summarized below:

 

 

 

 

 

 

 

 

 

 

June 30, 

 

December 31, 

 

 

   

2016

   

2015

 

 

 

(in thousands)

 

 

 

 

 

 

 

 

 

Receivable from PMT:

 

 

 

 

 

 

 

Management fees

 

$

5,200

 

$

5,670

 

Servicing fees

 

 

9,154

 

 

3,682

 

Correspondent production fees

 

 

2,567

 

 

2,729

 

Fulfillment fees

 

 

1,890

 

 

1,082

 

Interest on note receivable

 

 

1,042

 

 

412

 

Conditional reimbursement

    

 

900

    

 

900

 

Allocated expenses

 

 

847

 

 

1,043

 

Expenses incurred on PMT's behalf

 

 

454

 

 

3,447

 

 

 

$

22,054

 

$

18,965

 

Payable to PMT:

 

 

 

 

 

 

 

Deposits made by PMT to fund servicing advances

 

$

148,337

 

$

153,573

 

Mortgage servicing rights ("MSR") recapture payable

 

 

605

 

 

781

 

Other

 

 

11,770

 

 

8,025

 

 

 

$

160,712

 

$

162,379

 

 

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 reimbursement payments from PMT totaling $73,000 and $230,000 for the quarter and six months ended June 30, 2015, respectively, and received no reimbursement from PMT during the six months ended June 30, 2017 and 2016.

12


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.

 

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 excess servicing spread (“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

14


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.

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.

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. The note receivable was replaced by the PMH Repurchase Agreement upon the closing of the GNMA MSR facility.

The Company also 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 June 30, 

 

Six months ended June 30, 

 

 

Quarter ended June 30, 

 

Six months ended June 30, 

    

2016

    

2015

    

2016

    

2015

 

    

2017

    

2016

    

2017

    

2016

 

 

(in thousands)

 

 

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets purchased from PennyMac Mortgage Investment Trust under agreements to resell:

 

 

��

 

 

 

 

 

 

 

 

 

 

Interest income

 

$

2,025

 

$

 —

 

$

3,830

 

$

 —

 

Note receivable from PennyMac Mortgage Investment Trust:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

$

2,222

 

$

533

 

$

3,824

 

$

533

 

 

$

 —

 

$

2,222

 

$

 —

 

$

3,824

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common shares of beneficial interest of PennyMac Mortgage Investment Trust:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends received from PennyMac Mortgage Investment Trust

 

$

36

 

$

46

 

$

71

 

$

138

 

 

$

35

 

$

36

 

$

71

 

$

71

 

Change in fair value of investment in PennyMac Mortgage Investment Trust

 

 

193

 

 

(290)

 

 

72

 

 

(275)

 

Change in fair value of investment in common shares of PennyMac Mortgage Investment Trust

 

 

41

 

 

193

 

 

144

 

 

72

 

 

$

229

 

$

(244)

 

$

143

 

$

(137)

 

 

$

76

 

$

229

 

$

215

 

$

143

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 

 

December 31, 

 

 

    

2017

    

2016

 

 

 

(in thousands)

 

Assets purchased from PennyMac Mortgage Investment Trust under agreements to resell

 

$

150,000

 

$

150,000

 

Common shares of beneficial interest of PennyMac Mortgage Investment Trust:

 

 

 

 

 

 

 

Fair value

 

$

1,372

 

$

1,228

 

Number of shares

 

 

75

 

 

75

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 

 

December 31, 

 

 

    

2016

    

2015

 

 

 

(in thousands)

 

 

 

 

 

 

 

 

 

Note receivable from PennyMac Mortgage Investment Trust:

 

$

150,000

 

$

150,000

 

Common shares of beneficial interest of PennyMac Mortgage Investment Trust:

 

 

 

 

 

 

 

Fair value

 

$

1,217

 

$

1,145

 

Number of shares

 

 

75

 

 

75

 

15


 

Table of Contents

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 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, the Company entered into a second master spread acquisition and MSR servicing agreement with PMT (the “12/19/14 Spread Acquisition Agreement”). The terms of the 12/19/14 Spread Acquisition Agreement are substantially similar to the terms of the 2/1/13 Spread Acquisition Agreement, except that 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, 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

16


Table of Contents

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 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.

 

Following is a summary of financing activities between the Company and PMT:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Quarter ended June 30, 

 

Six months ended June 30, 

 

 

   

2016

   

2015

   

2016

   

2015

 

 

 

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Excess servicing spread financing:

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance:

 

 

 

 

 

 

    

 

 

    

 

 

 

Cash

 

$

 —

    

$

140,875

 

$

 —

 

$

187,287

 

Pursuant to recapture agreement

 

$

1,690

 

$

1,319

 

$

3,601

 

$

2,565

 

Repayment

 

$

(17,400)

 

$

(18,352)

 

$

(38,281)

 

$

(31,083)

 

Repurchase

 

$

 —

 

$

 —

 

$

(59,045)

 

$

 —

 

Change in fair value

 

$

(17,428)

 

$

(7,133)

 

$

(36,877)

 

$

403

 

Interest expense

 

$

5,713

 

$

5,818

 

$

12,728

 

$

9,570

 

Excess servicing spread recapture incurred pursuant to refinancings by the Company of mortgage loans subject to excess servicing spread

 

$

1,604

 

$

1,456

 

$

3,426

 

$

2,745

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Quarter ended June 30, 

 

Six months ended June 30, 

 

 

    

2017

    

2016

   

2017

   

2016

 

 

 

(in thousands)

 

Excess servicing spread financing:

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance pursuant to recapture agreement

 

$

1,380

 

$

1,690

    

$

2,953

    

$

3,601

 

Repayment

 

$

14,278

 

$

17,400

 

$

28,910

 

$

38,281

 

Settlement

 

$

 —

 

$

 —

 

$

 —

 

$

59,045

 

Change in fair value

 

$

(7,156)

 

$

(17,428)

 

$

(9,929)

 

$

(36,877)

 

Interest expense

 

$

4,366

 

$

5,713

 

$

9,013

 

$

12,728

 

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

 

$

1,271

 

$

1,604

 

$

2,674

 

$

3,426

 

Receivable from and Payable to PMT

Amounts receivable from and payable to PMT are summarized below:

 

 

 

 

 

 

 

 

 

June 30, 

 

December 31, 

 

   

2017

   

2016

 

 

(in thousands)

Receivable from PMT:

 

 

 

 

 

 

Management fees

 

$

5,638

 

$

5,081

Servicing fees

 

 

4,231

 

 

5,465

Correspondent production fees

 

 

2,495

 

 

2,371

Allocated expenses and expenses incurred on PMT's behalf

 

 

2,324

 

 

1,046

Fulfillment fees

 

 

2,022

 

 

1,300

Conditional Reimbursement

    

 

900

    

 

900

Interest on assets purchased under agreements to resell

 

 

115

 

 

253

 

 

$

17,725

 

$

16,416

Payable to PMT:

 

 

 

 

 

 

Deposits made by PMT to fund servicing advances

 

$

127,696

 

$

162,945

Mortgage servicing rights recapture payable

 

 

428

 

 

707

Other

 

 

4,585

 

 

6,384

 

 

$

132,709

 

$

170,036

 

1317


 

Table of Contents

Investment Funds

 

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. 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 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.

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 of the Investment Funds. At that time, the Company settled its accrued servicing fee rebate and amended its loan servicing agreement with such fund to charge scheduled servicing fees in place of the previous “at cost” servicing arrangement.

18


Table of Contents

Amounts due from and payable to the Investment Funds are summarized below:

 

 

 

 

 

 

 

 

June 30, 

 

December 31, 

 

 

 

 

 

 

 

    

2016

    

2015

 

 

June 30, 

 

December 31, 

 

(in thousands)

 

    

2017

    

2016

 

 

 

 

 

 

 

 

(in thousands)

Carried Interest due from Investment Funds:

 

 

 

 

 

 

 

 

 

 

 

 

 

PNMAC Mortgage Opportunity Fund, LLC

 

$

42,430

 

$

41,893

 

 

$

42,174

 

$

42,427

PNMAC Mortgage Opportunity Fund Investors, LLC

 

 

28,333

 

 

28,033

 

 

 

28,845

 

 

28,479

 

$

70,763

 

$

69,926

 

 

$

71,019

 

$

70,906

Receivable from Investment Funds:

 

 

 

 

 

 

 

 

 

 

 

 

Expense reimbursements

 

$

453

 

$

238

Management fees

 

$

455

 

$

655

 

 

 

359

 

 

500

Expense reimbursements

 

359

 

 

45

 

Mortgage loan servicing fees

 

247

 

 

392

 

 

 

263

 

 

231

Mortgage loan servicing rebate

 

 

227

 

 

224

 

Mortgage loan servicing fee rebate deposit

 

 

255

 

 

250

 

$

1,288

 

$

1,316

 

 

$

1,330

 

$

1,219

Payable to Investment Funds—Servicing advances

 

$

28,209

 

$

30,429

 

Payable to Investment Funds:

 

 

 

 

 

 

Deposits received to fund servicing advances

 

$

15,103

 

$

20,221

Other

 

 

133

 

 

172

 

$

15,236

 

$

20,393

 

Exchanged Private National Mortgage Acceptance Company, LLC Unitholders

 

The Company entered into a tax receivable agreement with PennyMac’s existing unitholdersowners of PennyMac other than the Company on the date of the IPO that will provideprovides 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 $74.9$73.1 million and $74.3$76.0 million Payable to exchanged Private National Mortgage Acceptance Company, LLC unitholders under tax receivable agreement as of June 30, 20162017 and December 31, 2015,2016, respectively. The Company made payments under the tax receivable agreement totaling $0 and $4.3of $6.2 million during the quarter and six months ended June 30, 2015, respectively. There2017. No payments were no payments made during the six months ended June 30, 2016.

 

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 diluted net income attributable to the Company’s common stockholders by the weighted average number of shares of common stock outstanding, assuming all potentially dilutive shares of common stock were issued.

 

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 the shares of common stock assumed to be exchanged.such earnings.

 

1419


 

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The following table summarizes the basic and diluted earnings per share calculations:

 

 

 

 

 

 

 

 

 

 

 

 

Quarter ended June 30, 

 

Six months ended June 30, 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

2016

   

2015

   

2016

   

2015

 

 

Quarter ended June 30, 

 

Six months ended June 30, 

 

 

(in thousands, except per share amounts)

 

    

2017

    

2016

   

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

 

$

14,475

    

$

12,749

 

$

19,650

    

$

21,777

 

 

$

10,479

    

$

14,475

 

$

21,358

    

$

19,650

 

Weighted average shares of common stock outstanding

 

 

22,078

 

21,700

 

 

22,042

 

21,647

 

 

 

23,388

 

 

22,078

 

 

23,006

 

 

22,042

 

Basic earnings per share of common stock

 

$

0.66

 

$

0.59

 

$

0.89

 

$

1.01

 

 

$

0.45

 

$

0.66

 

$

0.93

 

$

0.89

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted earnings per share of common stock:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income attributable to PennyMac Financial Services, Inc. common stockholders

 

$

14,475

 

$

12,749

 

$

19,650

 

$

21,777

 

 

$

10,479

 

$

14,475

 

$

21,358

 

$

19,650

 

Effect of net income attributable to PennyMac Class A units exchangeable to common stock, net of income taxes

 

 

35,433

 

 

31,925

 

 

48,040

 

 

54,688

 

 

 

23,849

 

 

35,433

 

 

49,403

 

 

48,040

 

Diluted net income attributable to common stockholders

 

$

49,908

 

$

44,674

 

$

67,690

 

$

76,465

 

 

$

34,328

 

$

49,908

 

$

70,761

 

$

67,690

 

Weighted average shares of common stock outstanding

 

 

22,078

 

21,700

 

 

22,042

 

21,647

 

 

 

23,388

 

 

22,078

 

 

23,006

 

 

22,042

 

Dilutive shares:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

PennyMac Class A units exchangeable to common stock

 

 

54,021

 

53,620

 

 

54,032

 

53,592

 

 

 

53,375

 

 

54,021

 

 

53,481

 

 

54,032

 

Non-vested PennyMac Class A units issuable under unit-based stock compensation plan and exchangeable to common stock

 

 

 —

 

650

 

 

 —

 

714

 

Common shares issuable under stock-based compensation plan

 

 

181

 

 

135

 

 

162

 

 

110

 

 

 

887

 

 

181

 

 

1,154

 

 

162

 

Diluted weighted average shares of common stock outstanding

 

 

76,280

 

 

76,105

 

 

76,236

 

 

76,063

 

 

 

77,650

 

 

76,280

 

 

77,641

 

 

76,236

 

Diluted earnings per share of common stock

 

$

0.65

 

$

0.59

 

$

0.89

 

$

1.01

 

 

$

0.44

 

$

0.65

 

$

0.91

 

$

0.89

 

 

Potentially dilutive securities are excluded from the calculationCalculations of diluted earnings per share whenrequire 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 June 30, 

 

Six months ended June 30, 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2016

    

 

2015

 

2016

 

    

2015

 

 

Quarter ended June 30, 

 

Six months ended June 30, 

 

(in thousands except for weighted-average exercise price)

 

    

2017

    

2016

    

2017

    

2016

 

 

 

 

 

 

 

 

 

 

 

 

 

(in thousands except for weighted-average exercise price)

 

Stock options (1)

 

2,795

 

1,875

 

 

2,450

 

 

1,635

 

 

 

2,636

 

 

2,795

 

 

2,335

 

 

2,450

 

Performance-based RSUs (2)

 

2,684

 

 

2,389

 

 

2,512

 

 

2,126

 

 

 

1,433

 

 

2,684

 

 

1,192

 

 

2,512

 

Time-based RSUs

 

 

134

 

 

 -

 

 

87

 

 

 -

 

Total anti-dilutive stock-based compensation units

 

5,479

 

 

4,264

 

 

4,962

 

 

3,761

 

 

 

4,203

 

 

5,479

 

 

3,614

 

 

4,962

 

Weighted-average exercise price of anti-dilutive stock options (1)

$

15.81

 

$

18.17

 

$

15.81

 

$

18.17

 

Weighted average exercise price of anti-dilutive stock options (1)

 

$

16.38

 

$

15.81

 

$

16.38

 

$

15.81

 


(1)

Certain stock options were outstanding but not included in the computation of diluted earnings per share because the weighted-average exercise prices were anti-dilutive.

(2)

Certain performance-based RSUs were outstanding but not included in the computation of diluted earnings per share due tobecause the performance thresholds included in such RSUs have not beingbeen achieved.

 

.

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.

 

1520


 

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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 June 30, 

 

Six months ended June 30, 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

2016

    

2015

    

2016

    

2015

 

 

Quarter ended June 30, 

 

Six months ended June 30, 

 

 

(in thousands)

 

    

2017

    

2016

    

2017

    

2016

 

 

 

 

 

 

 

 

 

 

 

 

 

(in thousands)

 

Cash flows:

   

 

 

   

 

 

 

 

 

   

 

 

 

   

 

 

   

 

 

 

 

 

   

 

 

 

Sales proceeds

 

$

11,234,497

 

$

9,853,346

 

$

19,176,697

 

$

15,619,191

 

 

$

12,637,046

 

$

11,234,497

 

$

24,497,179

 

$

19,176,697

 

Servicing fees received (1)

 

$

60,623

 

$

35,317

 

$

119,103

 

$

69,312

 

 

$

89,970

 

$

60,623

 

$

174,991

 

$

119,103

 

Net servicing advances

 

$

(1,264)

 

$

(5,248)

 

$

(9,545)

 

$

(8,955)

 

Net servicing advances (recoveries)

 

$

15,700

 

$

(1,264)

 

$

13,791

 

$

(9,545)

 


(1)

Net of guarantee fees paid to the Agencies.

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30,

 

December 31,

 

 

June 30, 

 

December 31,

    

2016

    

2015

 

    

2017

   

2016

 

(in thousands)

 

 

(in thousands)

 

 

 

 

 

 

Unpaid principal balance of mortgage loans outstanding at end of period

 

$

71,436,178

 

$

60,687,246

 

Unpaid principal balance of mortgage loans outstanding

 

$

106,297,560

 

$

89,516,155

Delinquencies:

 

 

 

 

 

 

 

 

 

 

 

30-89 days

 

$

1,796,640

 

$

1,539,568

 

 

$

3,042,877

 

$

2,545,970

90 days or more:

 

 

 

 

 

 

 

 

 

 

 

Not in foreclosure

 

$

434,899

 

$

340,313

 

 

$

1,204,131

 

$

735,263

In foreclosure or bankruptcy

 

$

347,221

 

$

227,025

 

In foreclosure

 

$

397,412

 

$

137,856

Foreclosed

 

$

2,630

 

$

755

 

 

$

27,740

 

$

2,552

Bankruptcy

 

$

518,416

 

$

256,471

 

The unpaid principal balance (“UPB”)UPB of the Company’s mortgage loan servicing portfolio is summarized as follows:

 

 

 

 

 

 

 

 

 

June 30, 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

Contract

 

Total

 

 

June 30, 2017

 

Servicing

 

 servicing and

 

mortgage

 

 

 

 

Contract

 

Total

   

rights owned

   

subservicing

   

loans serviced

 

 

Servicing

 

 servicing and

 

mortgage

 

(in thousands)

 

    

rights owned

    

subservicing

    

loans serviced

 

 

 

 

 

 

 

 

 

(in thousands)

Investor:

 

                            

 

                       ��    

 

                            

 

 

 

 

 

 

 

 

 

 

Non-affiliated entities

    

$

117,787,996

    

$

 —

    

$

117,787,996

 

    

$

158,922,497

    

$

 —

    

$

158,922,497

Affiliated entities

 

 —

 

51,958,636

 

51,958,636

 

 

 

 —

 

 

67,125,932

 

 

67,125,932

Mortgage loans held for sale

 

 

1,971,903

 

 

 —

 

 

1,971,903

 

 

 

2,915,346

 

 

 —

 

 

2,915,346

 

$

119,759,899

 

$

51,958,636

 

$

171,718,535

 

 

$

161,837,843

 

$

67,125,932

 

$

228,963,775

Amount subserviced for the Company (1)

 

$

12,375

 

$

 —

 

$

12,375

 

Amounts subserviced for the Company (1)

 

$

11,909,829

 

$

61,108

 

$

11,970,937

Delinquent mortgage loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

30 days

 

$

2,621,050

 

$

324,346

 

$

2,945,396

 

 

$

3,803,957

 

$

410,437

 

$

4,214,394

60 days

 

788,609

 

117,638

 

906,247

 

 

 

1,067,664

 

 

134,083

 

 

1,201,747

90 days or more:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Not in foreclosure

 

1,340,898

 

640,677

 

1,981,575

 

 

 

2,138,947

 

 

512,227

 

 

2,651,174

In foreclosure or bankruptcy

 

638,916

 

910,346

 

1,549,262

 

In foreclosure

 

 

795,309

 

 

491,142

 

 

1,286,451

Foreclosed

 

 

24,855

 

 

493,441

 

 

518,296

 

 

 

35,352

 

 

361,521

 

 

396,873

 

$

5,414,328

 

$

2,486,448

 

$

7,900,776

 

 

$

7,841,229

 

$

1,909,410

 

$

9,750,639

Bankruptcy

 

$

900,628

 

$

254,396

 

$

1,155,024

Custodial funds managed by the Company (2)

 

$

3,163,812

 

$

804,003

 

$

3,967,815

 

 

$

3,455,435

 

$

982,652

 

$

4,438,087


(1)

Certain of the mortgage loans serviced by the Company are subserviced on the Company’s behalf by other mortgage loan servicers. Mortgageservicers including commercial real estate loans are subserviced for the Companyand certain mortgage loans on a transitional basis when the Company has obtained the rights to service the mortgage loans but servicing of the loans has not yet transferred to the Company’s servicing system.

(2)

Borrower and investor custodial cash accounts relate to mortgage loans serviced under the servicing agreements and are not recorded on the Company’s consolidated balance sheets. The Company earns placement fees on certain of

16


Table of Contents

the custodial funds it manages on behalf of the mortgage loans’ investors, which is included in Interestincome in the Company’s consolidated statements of income.

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2015

 

 

 

 

 

Contract

 

Total

 

 

 

Servicing

 

servicing and

 

mortgage

 

 

   

rights owned

   

subservicing

   

loans serviced

 

 

 

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

Investor:

    

 

                            

    

 

                            

    

 

                            

 

Non-affiliated entities

 

$

111,409,601

    

$

 —

 

$

111,409,601

 

Affiliated entities

 

 

 —

 

 

47,810,632

 

 

47,810,632

 

Mortgage loans held for sale

 

 

1,052,485

 

 

 —

 

 

1,052,485

 

 

 

$

112,462,086

 

$

47,810,632

 

$

160,272,718

 

Amount subserviced for the Company (1)

 

$

14,454

 

$

 —

 

$

14,454

 

Delinquent mortgage loans:

 

 

 

 

 

 

 

 

 

 

30 days

 

$

2,666,435

 

$

349,859

 

$

3,016,294

 

60 days

 

 

834,617

 

 

136,924

 

 

971,541

 

90 days or more:

 

 

 

 

 

 

 

 

 

 

Not in foreclosure

 

 

1,270,236

 

 

788,410

 

 

2,058,646

 

In foreclosure or bankruptcy

 

 

656,617

 

 

1,180,014

 

 

1,836,631

 

Foreclosed

 

 

23,372

 

 

542,031

 

 

565,403

 

 

 

$

5,451,277

 

$

2,997,238

 

$

8,448,515

 

Custodial funds managed by the Company (2)

 

$

2,242,146

 

$

502,751

 

$

2,744,897

 


(1)

Certain of the mortgage loans serviced by the Company are subserviced on the Company’s behalf by other mortgage loan servicers. Mortgage loans are subserviced for the Company on a transitional basis whenwhere the Company has obtained the rights to service the loans but servicing of the loans has not yet been transferred to the Company’s servicing system.

(2)

BorrowerCustodial funds include borrower and investor custodial cash accounts relaterelating to mortgage loans serviced under the servicing agreements and are not recorded on the Company’s consolidated balance sheets. The Company earns

21


Table of Contents

placement fees on certain of the custodial funds it manages on behalf of the mortgage loans’ investors, which are included in Interestincome in the Company’s consolidated statements of income.

 

 

 

 

 

 

 

 

 

 

 

 

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


(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 custodial funds it manages on behalf of the mortgage loans’ investors, which isare included in Interest income in the Company’s consolidated statements of income.

 

Following is a summary of the geographical distribution of mortgage loans included in the Company’s servicing portfolio for the top five and all other states as measured by UPB:

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 

 

December 31, 

 

 

June 30, 

 

December 31, 

State

   

2016

   

2015

 

    

2017

    

2016

 

(in thousands)

 

 

(in thousands)

 

 

 

 

 

 

California

    

$

40,010,729

    

$

39,007,363

 

 

$

45,679,111

 

$

42,303,952

Texas

 

13,679,577

 

12,191,722

 

 

 

18,468,384

 

 

16,037,426

Florida

 

 

15,829,653

 

 

12,817,627

Virginia

 

11,194,022

 

 

9,816,114

 

 

 

15,002,859

 

 

13,143,510

Florida

 

10,897,536

 

9,709,940

 

Maryland

 

7,090,073

 

 

6,151,945

 

 

 

10,215,463

 

 

8,564,923

All other states

 

 

88,846,598

 

 

83,395,634

 

 

 

123,768,305

 

 

101,372,564

 

$

171,718,535

 

$

160,272,718

 

 

$

228,963,775

 

$

194,240,002

 

 

 

 

 

22


Table of Contents

Note 6—Mortgage Loans Held for Sale at Fair Value

Mortgage loans held for sale at fair value include the following:

 

 

 

 

 

 

 

 

 

June 30, 

 

December 31, 

 

    

2017

    

2016

 

 

(in thousands)

Government-insured or guaranteed

 

$

2,523,757

 

$

1,984,020

Conventional conforming

 

 

133,761

 

 

141,524

Purchased from Ginnie Mae pools serviced by the Company

 

 

373,938

 

 

40,437

Repurchased pursuant to representations and warranties

 

 

6,146

 

 

6,834

 

 

$

3,037,602

 

$

2,172,815

Fair value of mortgage loans pledged to secure:

 

 

 

 

 

 

Assets sold under agreements to repurchase

 

$

2,766,171

 

$

1,422,255

Mortgage loan participation and sale agreements

 

 

252,917

 

 

702,919

 

 

$

3,019,088

 

$

2,125,174

 

 

Note 6—Netting of Financial Instruments7—Derivative Activities

 

The Company uses derivative financial instrumentsis exposed to manage exposurefair value risk relative to interest rate riskits mortgage loans held for thesale as well as to its interest rate lock commitments (“IRLCs”) it makesand MSRs. The Company bears fair value risk from the time an IRLC is made to purchasePMT or originatea loan applicant to the time the mortgage loan is sold. The Company is exposed to loss in fair value of its IRLCs and mortgage loans at specifiedheld for sale when market mortgage interest rates increase. The Company is exposed to loss in fair value of its MSRs when market mortgage interest rates decrease.

The Company engages in interest rate risk management activities in an effort to reduce the variability of earnings caused by changes in market interest rates. To manage this 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 MSRs. the portion of its MSRs not financed with ESS.

The Company does not use derivative financial instruments other than IRLCs or for purposes other than in support of its risk management activities. IRLCs are generated in the process of purchasing or originating mortgage loans held for sale. The Company records all derivative financial instruments at fair value and records changes in fair value in current period income.

23


Table of Contents

Derivative Notional Amounts and Fair Value of Derivatives

The Company had the following derivative financial instruments recorded on its consolidated balance sheets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2017

 

December 31, 2016

 

 

 

 

Fair value

 

 

 

Fair value

 

 

Notional

 

Derivative

 

Derivative

 

Notional

 

Derivative

 

Derivative

Instrument

    

amount

    

assets

    

liabilities

    

amount

    

assets

    

liabilities

 

 

(in thousands)

Derivatives not designated as hedging instruments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Not subject to master netting arrangements:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate lock commitments

 

3,999,761

 

$

51,287

 

$

5,129

 

4,279,611

 

$

65,848

 

$

6,457

Used for hedging purposes:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Forward purchase contracts

 

7,819,706

 

 

25

 

 

33,731

 

12,746,191

 

 

77,905

 

 

16,914

Forward sales contracts

 

7,641,979

 

 

28,759

 

 

528

 

16,577,942

 

 

28,324

 

 

85,035

MBS put options

 

6,075,000

 

 

11,232

 

 

 —

 

1,175,000

 

 

3,934

 

 

 —

MBS call options

 

 —

 

 

 —

 

 

 —

 

1,600,000

 

 

217

 

 

 —

Put options on interest rate futures purchase contracts

 

1,250,000

 

 

2,520

 

 

63

 

1,125,000

 

 

3,109

 

 

 —

Call options on interest rate futures purchase contracts

 

200,000

 

 

438

 

 

 —

 

900,000

 

 

203

 

 

 —

Put options on interest rate futures sale contracts

 

200,000

 

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

Interest rate swap futures purchase contracts

 

325,000

 

 

 —

 

 

 —

 

200,000

 

 

 —

 

 

 —

Total derivatives before netting

 

 

 

 

94,261

 

 

39,451

 

 

 

 

179,540

 

 

108,406

Netting

 

 

 

 

(24,186)

 

 

(22,887)

 

 

 

 

(96,635)

 

 

(86,044)

 

 

 

 

$

70,075

 

$

16,564

 

 

 

$

82,905

 

$

22,362

Deposits placed with derivative counterparties

 

 

 

$

1,299

 

 

 

 

 

 

$

10,591

 

 

 

The following table summarizes the notional value activity for derivative contracts used in the Company’s hedging activities:

 

 

 

 

 

 

 

 

 

 

 

Quarter ended June 30, 2017

 

 

Balance

 

 

 

 

 

Balance

 

 

beginning of

 

 

 

Dispositions/

 

end of

Instrument

    

period

    

Additions

    

expirations

    

period

 

 

(in thousands)

Forward purchase contracts

 

9,292,052

 

46,756,266

 

(48,228,612)

 

7,819,706

Forward sale contracts

 

11,383,749

 

56,284,621

 

(60,026,391)

 

7,641,979

MBS put options

 

2,950,000

 

7,325,000

 

(4,200,000)

 

6,075,000

MBS call options

 

 —

 

4,200,000

 

(4,200,000)

 

 —

Put options on interest rate futures purchase contracts

 

1,160,000

 

1,400,000

 

(1,310,000)

 

1,250,000

Call options on interest rate futures purchase contracts

 

482,300

 

534,300

 

(816,600)

 

200,000

Put options on interest rate futures sale contracts

 

 —

 

1,510,000

 

(1,310,000)

 

200,000

Call options on interest rate futures sale contracts

 

57,300

 

759,300

 

(816,600)

 

 —

Treasury futures purchase contracts

 

 —

 

61,300

 

(61,300)

 

 —

Treasury futures sale contracts

 

 —

 

61,300

 

(61,300)

 

 —

Interest rate swap futures purchase contracts

 

200,000

 

325,000

 

(200,000)

 

325,000

Interest rate swap futures sale contracts

 

 —

 

200,000

 

(200,000)

 

 —

24


Table of Contents

 

 

 

 

 

 

 

 

 

 

 

Quarter ended June 30, 2016

 

 

Balance

 

 

 

 

 

Balance

 

 

beginning of

 

 

 

Dispositions/

 

end of

Instrument

    

period

    

Additions

    

expirations

    

period

 

 

(in thousands)

Forward purchase contracts

 

9,464,470

 

46,870,345

 

(42,823,952)

 

13,510,863

Forward sale contracts

 

10,418,906

 

56,521,979

 

(53,326,689)

 

13,614,196

MBS put options

 

1,375,000

 

6,750,000

 

(4,575,000)

 

3,550,000

Put options on interest rate futures purchase contracts

 

1,750,000

 

1,650,000

 

(2,400,000)

 

1,000,000

Call options on interest rate futures purchase contracts

 

3,937,500

 

 —

 

(3,485,400)

 

452,100

 

 

 

 

 

 

 

 

 

 

 

Six months ended June 30, 2017

 

 

Balance

 

                            

 

                            

 

Balance

 

 

beginning of

 

 

 

Dispositions/

 

end of

Instrument

    

period

    

Additions

    

expirations

    

period

 

 

(in thousands)

Forward purchase contracts

 

12,746,191

 

88,940,575

 

(93,867,061)

 

7,819,706

Forward sale contracts

 

16,577,942

 

107,934,447

 

(116,870,410)

 

7,641,979

MBS put options

 

1,175,000

 

12,850,000

 

(7,950,000)

 

6,075,000

MBS call options

 

1,600,000

 

4,200,000

 

(5,800,000)

 

 —

Put options on interest rate futures purchase contracts

 

1,125,000

 

4,460,000

 

(4,335,000)

 

1,250,000

Call options on interest rate futures purchase contracts

 

900,000

 

1,489,300

 

(2,189,300)

 

200,000

Put options on interest rate futures sale contracts

 

 —

 

4,535,000

 

(4,335,000)

 

200,000

Call options on interest rate futures sale contracts

 

 —

 

2,189,300

 

(2,189,300)

 

 —

Treasury futures purchase contracts

 

 —

 

166,100

 

(166,100)

 

 —

Treasury futures sale contracts

 

 —

 

166,100

 

(166,100)

 

 —

Interest rate swap futures purchase contracts

 

200,000

 

525,000

 

(400,000)

 

325,000

Interest rate swap futures sales contracts

 

 —

 

400,000

 

(400,000)

 

 —

 

 

 

 

 

 

 

 

 

 

 

Six months ended June 30, 2016

 

 

Balance

 

                            

 

                            

 

Balance

 

 

beginning of

 

 

 

Dispositions/

 

end of

Instrument

    

period

    

Additions

    

expirations

    

period

 

 

(in thousands)

Forward purchase contracts

 

5,254,293

 

77,682,720

 

(69,426,150)

 

13,510,863

Forward sale contracts

 

6,230,811

 

95,918,405

 

(88,535,020)

 

13,614,196

MBS put options

 

1,275,000

 

9,450,000

 

(7,175,000)

 

3,550,000

Put options on interest rate futures purchase contracts

 

1,650,000

 

4,675,000

 

(5,325,000)

 

1,000,000

Call options on interest rate futures purchase contracts

 

600,000

 

3,637,500

 

(3,785,400)

 

452,100

25


Table of Contents

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.

 

17


Table of Contents

Offsetting of Derivative Assets

 

Following are summaries of derivative assets and related netting amounts.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2016

 

December 31, 2015

 

 

June 30, 2017

 

December 31, 2016

 

Gross

 

Gross amount

 

Net amount

 

Gross

 

Gross amount

 

Net amount

 

 

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

 

 

amount of

 

offset in the

 

of assets in the

 

amount of

 

offset in the

 

of assets in the

 

recognized

 

consolidated

 

consolidated

 

recognized

 

consolidated

 

consolidated

 

 

recognized

 

consolidated

 

consolidated

 

recognized

 

consolidated

 

consolidated

    

assets

    

balance sheet

    

balance sheet

    

assets

    

balance sheet

    

balance sheet

 

    

assets

    

balance sheet

    

balance sheet

    

assets

    

balance sheet

    

balance sheet

 

(in thousands)

 

 

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivatives not subject to a master netting arrangement - IRLCs

 

$

91,607

 

$

 —

 

$

91,607

 

$

45,885

 

$

 —

 

$

45,885

 

Derivatives subject to a master netting arrangement:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivatives not subject to master netting arrangements - IRLCs

 

$

51,287

 

$

 —

 

$

51,287

 

$

65,848

 

$

 —

 

$

65,848

Derivatives subject to a master netting arrangements:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Forward purchase contracts

 

 

125,358

 

 

 —

 

 

125,358

 

 

4,181

 

 

 —

 

 

4,181

 

 

 

25

 

 

 —

 

 

25

 

 

77,905

 

 

 —

 

 

77,905

Forward sale contracts

 

 

664

 

 

 —

 

 

664

 

 

4,965

 

 

 —

 

 

4,965

 

 

 

28,759

 

 

 —

 

 

28,759

 

 

28,324

 

 

 —

 

 

28,324

Mortgage-backed security ("MBS") put options

 

 

1,777

 

 

 —

 

 

1,777

 

 

404

 

 

 —

 

 

404

 

MBS put options

 

 

11,232

 

 

 —

 

 

11,232

 

 

3,934

 

 

 —

 

 

3,934

MBS call options

 

 

 —

 

 

 —

 

 

 —

 

 

217

 

 

 —

 

 

217

Put options on interest rate futures purchase contracts

 

 

1,618

 

 

 —

 

 

1,618

 

 

1,832

 

 

 —

 

 

1,832

 

 

 

2,520

 

 

 —

 

 

2,520

 

 

3,109

 

 

 —

 

 

3,109

Call options on interest rate futures purchase contracts

 

 

8,279

 

 

 —

 

 

8,279

 

 

1,555

 

 

 —

 

 

1,555

 

 

 

438

 

 

 —

 

 

438

 

 

203

 

 

 —

 

 

203

Netting

 

 

 —

 

 

(104,761)

 

 

(104,761)

 

 

 —

 

 

(8,542)

 

 

(8,542)

 

 

 

 —

 

 

(24,186)

 

 

(24,186)

 

 

 —

 

 

(96,635)

 

 

(96,635)

 

 

137,696

 

 

(104,761)

 

 

32,935

 

 

12,937

 

 

(8,542)

 

 

4,395

 

 

 

42,974

 

 

(24,186)

 

 

18,788

 

 

113,692

 

 

(96,635)

 

 

17,057

 

$

229,303

 

$

(104,761)

 

$

124,542

 

$

58,822

 

$

(8,542)

 

$

50,280

 

 

$

94,261

 

$

(24,186)

 

$

70,075

 

$

179,540

 

$

(96,635)

 

$

82,905

 

Derivative Assets, Financial Assets,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 qualifymeet the accounting guidance qualifying for set off accounting.netting.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2016

 

December 31, 2015

 

 

 

 

 

 

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)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate lock commitments

 

$

91,607

 

$

 —

 

$

 —

 

$

91,607

 

$

45,885

 

$

 —

 

$

 —

 

$

45,885

 

Fannie Mae

 

 

10,279

 

 

 —

 

 

 —

 

 

10,279

 

 

453

 

 

 —

 

 

 —

 

 

453

 

Barclays Capital

 

 

7,483

 

 

 —

 

 

 —

 

 

7,483

 

 

72

 

 

 —

 

 

 —

 

 

72

 

RJ O'Brien

 

 

7,341

 

 

 —

 

 

 —

 

 

7,341

 

 

2,246

 

 

 —

 

 

 —

 

 

2,246

 

Bank of America, N.A.

 

 

4,141

 

 

 —

 

 

 —

 

 

4,141

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

JP Morgan

 

 

2,661

 

 

 —

 

 

 —

 

 

2,661

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

Morgan Stanley Bank, N.A.

 

 

383

 

 

 —

 

 

 —

 

 

383

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

Wells Fargo Bank, N.A.

 

 

370

 

 

 —

 

 

 —

 

 

370

 

 

53

 

 

 —

 

 

 —

 

 

53

 

Goldman Sachs

 

 

125

 

 

 —

 

 

 —

 

 

125

 

 

471

 

 

 —

 

 

 —

 

 

471

 

Jefferies & Co.

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

888

 

 

 —

 

 

 —

 

 

888

 

Others

 

 

152

 

 

 —

 

 

 —

 

 

152

 

 

212

 

 

 —

 

 

 —

 

 

212

 

 

 

$

124,542

 

$

 —

 

$

 —

 

$

124,542

 

$

50,280

 

$

 —

 

$

 —

 

$

50,280

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 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

 

$

51,287

 

$

 —

 

$

 —

 

$

51,287

 

$

65,848

 

$

 —

 

$

 —

 

$

65,848

Barclays Capital

 

 

7,105

 

 

 —

 

 

 —

 

 

7,105

 

 

12,002

 

 

 —

 

 

 —

 

 

12,002

Goldman Sachs

 

 

3,446

 

 

 —

 

 

 —

 

 

3,446

 

 

 —

 

 

 —

 

 

 —

 

 

 —

RJ O'Brien

 

 

2,895

 

 

 —

 

 

 —

 

 

2,895

 

 

2,750

 

 

 —

 

 

 —

 

 

2,750

Bank of America, N.A.

 

 

2,803

 

 

 —

 

 

 —

 

 

2,803

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Others

 

 

2,539

 

 

 —

 

 

 —

 

 

2,539

 

 

2,305

 

 

 —

 

 

 —

 

 

2,305

 

 

$

70,075

 

$

 —

 

$

 —

 

$

70,075

 

$

82,905

 

$

 —

 

$

 —

 

$

82,905

 

1826


 

Table of Contents

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 mortgage loansAssets sold under agreements to repurchase do not qualify for set off accounting.netting.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2016

 

December 31, 2015

 

 

June 30, 2017

 

December 31, 2016

 

 

 

 

 

Net

 

 

 

 

 

Net

 

 

 

 

 

 

Net

 

 

 

 

 

Net

 

 

 

 

 

amount

 

 

 

 

 

amount

 

 

 

 

 

 

amount

 

 

 

 

 

amount

 

Gross

 

Gross amount

 

of liabilities

 

Gross

 

Gross amount

 

of liabilities

 

 

Gross

 

Gross amount

 

of liabilities

 

Gross

 

Gross amount

 

of liabilities

 

amount of

 

offset in the

 

in the

 

amount of

 

offset in the

 

in the

 

 

amount of

 

offset in the

 

in the

 

amount of

 

offset in the

 

in the

 

recognized

 

consolidated

 

consolidated

 

recognized

 

consolidated

 

consolidated

 

 

recognized

 

consolidated

 

consolidated

 

recognized

 

consolidated

 

consolidated

   

liabilities

   

balance sheet

   

balance sheet

   

liabilities

   

balance sheet

   

balance sheet

 

    

liabilities

    

balance sheet

    

balance sheet

    

liabilities

    

balance sheet

    

balance sheet

 

(in thousands)

 

 

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivatives not subject to a master netting arrangement - IRLCs

 

$

1,345

 

$

 —

 

$

1,345

 

$

2,112

 

$

 —

 

$

2,112

 

Derivatives not subject to master netting arrangements - IRLCs

 

$

5,129

 

$

 —

 

$

5,129

 

$

6,457

 

$

 —

 

$

6,457

Derivatives subject to a master netting arrangement:

 

                  

 

                  

 

                  

 

                  

 

                  

 

                  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Forward purchase contracts

    

 

119

    

 

 —

    

 

119

    

 

9,004

    

 

 —

    

 

9,004

 

 

 

33,731

 

 

 —

 

 

33,731

 

 

16,914

 

 

 —

 

 

16,914

Forward sale contracts

 

101,772

 

 —

 

101,772

 

7,497

 

 —

 

7,497

 

 

 

528

 

 

 —

 

 

528

 

 

85,035

 

 

 —

 

 

85,035

Put options on interest rate futures purchase contracts

 

2,070

 

 —

 

2,070

 

203

 

 —

 

203

 

 

 

63

 

 

 —

 

 

63

 

 

 —

 

 

 —

 

 

 —

Call options on interest rate futures purchase contracts

 

234

 

 —

 

234

 

47

 

 —

 

47

 

Netting

 

 

 —

 

 

(101,806)

 

 

(101,806)

 

 

 —

 

 

(9,780)

 

 

(9,780)

 

 

 

 —

 

 

(22,887)

 

 

(22,887)

 

 

 —

 

 

(86,044)

 

 

(86,044)

 

 

104,195

 

 

(101,806)

 

 

2,389

 

 

16,751

 

 

(9,780)

 

 

6,971

 

 

 

34,322

 

 

(22,887)

 

 

11,435

 

 

101,949

 

 

(86,044)

 

 

15,905

Total derivatives

 

 

105,540

 

 

(101,806)

 

 

3,734

 

 

18,863

 

 

(9,780)

 

 

9,083

 

 

 

39,451

 

 

(22,887)

 

 

16,564

 

 

108,406

 

 

(86,044)

 

 

22,362

Mortgage loans sold under agreements to repurchase:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amount outstanding

 

1,591,947

 

 —

 

1,591,947

 

1,167,405

 

 —

 

1,167,405

 

 

 

3,023,288

 

 

 —

 

 

3,023,288

 

 

1,736,922

 

 

 —

 

 

1,736,922

Unamortized debt issuance costs

 

 

(149)

 

 

 —

 

 

(149)

 

 

(674)

 

 

 —

 

 

(674)

 

 

 

(1,960)

 

 

 —

 

 

(1,960)

 

 

(1,808)

 

 

 —

 

 

(1,808)

 

 

1,591,798

 

 

 —

 

 

1,591,798

 

 

1,166,731

 

 

 —

 

 

1,166,731

 

 

 

3,021,328

 

 

 —

 

 

3,021,328

 

 

1,735,114

 

 

 —

 

 

1,735,114

 

$

1,697,338

 

$

(101,806)

 

$

1,595,532

 

$

1,185,594

 

$

(9,780)

 

$

1,175,814

 

 

$

3,060,779

 

$

(22,887)

 

$

3,037,892

 

$

1,843,520

 

$

(86,044)

 

$

1,757,476

 

1927


 

Table of Contents

Derivative Liabilities, Financial Liabilities,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.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2016

 

December 31, 2015

 

 

 

 

 

 

Gross amounts

 

 

 

 

 

 

 

Gross amounts

 

 

 

 

 

 

 

 

 

not offset in the

 

 

 

 

 

 

 

not offset in the

 

 

 

 

 

 

Net amount

 

consolidated 

 

Net amount

 

Net amount

 

consolidated 

 

Net amount

 

 

 

of liabilities

 

balance sheet

 

of liabilities

 

of liabilities

 

balance sheet

 

of liabilities

 

 

 

in the

 

 

 

 

Cash

 

in the

 

in the

 

 

 

 

Cash

 

in the

 

 

 

consolidated

 

Financial

 

collateral

 

consolidated

 

consolidated

 

Financial

 

collateral

 

consolidated

 

 

    

balance sheet

    

instruments

    

pledged

    

balance sheet

    

balance sheet

    

instruments

    

pledged

    

balance sheet

 

 

 

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate lock commitments

 

$

1,345

 

$

 —

 

$

 —

 

$

1,345

 

$

2,112

 

$

 —

 

$

 —

 

$

2,112

 

Bank of America, N.A.

 

 

372,742

 

 

(372,742)

 

 

 —

 

 

 —

 

 

271,130

 

 

(269,510)

 

 

 —

 

 

1,620

 

Credit Suisse First Boston Mortgage Capital LLC

 

 

856,725

 

 

(855,962)

 

 

 —

 

 

763

 

 

795,179

 

 

(794,470)

 

 

 —

 

 

709

 

Morgan Stanley Bank, N.A.

 

 

168,200

 

 

(168,200)

 

 

 —

 

 

 —

 

 

49,763

 

 

(49,521)

 

 

 —

 

 

242

 

Citibank, N.A.

 

 

157,201

 

 

(157,201)

 

 

 —

 

 

 —

 

 

55,948

 

 

(53,904)

 

 

 —

 

 

2,044

 

Barclays Capital

 

 

37,842

 

 

(37,842)

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

Nomura

 

 

330

 

 

 —

 

 

 —

 

 

330

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

Raymond James & Associates

 

 

271

 

 

 —

 

 

 —

 

 

271

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

Cantor Fitzgerald LP

 

 

195

 

 

 —

 

 

 —

 

 

195

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

Bank of Oklahoma

 

 

497

 

 

 —

 

 

 —

 

 

497

 

 

135

 

 

 —

 

 

 —

 

 

135

 

Bank of New York Mellon

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

154

 

 

 —

 

 

 —

 

 

154

 

JP Morgan

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

672

 

 

 —

 

 

 —

 

 

672

 

BNP Paribas

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

738

 

 

 —

 

 

 —

 

 

738

 

Others

 

 

333

 

 

 —

 

 

 —

 

 

333

 

 

657

 

 

 —

 

 

 —

 

 

657

 

Unamortized debt issuance costs

 

 

(149)

 

 

149

 

 

 —

 

 

 —

 

 

(674)

 

 

674

 

 

 —

 

 

 —

 

 

 

$

1,595,532

 

$

(1,591,798)

 

$

 —

 

$

3,734

 

$

1,175,814

 

$

(1,166,731)

 

$

 —

 

$

9,083

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 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

 

$

5,129

 

$

 —

 

$

 —

 

$

5,129

 

$

6,457

 

$

 —

 

$

 —

 

$

6,457

Credit Suisse First Boston Mortgage Capital LLC

 

 

1,231,323

 

 

(1,231,323)

 

 

 —

 

 

 —

 

 

961,533

 

 

(960,988)

 

 

 —

 

 

545

Bank of America, N.A.

 

 

766,544

 

 

(766,544)

 

 

 —

 

 

 —

 

 

349,638

 

 

(342,769)

 

 

 —

 

 

6,869

JP Morgan Chase Bank, N.A.

 

 

490,058

 

 

(489,474)

 

 

 —

 

 

584

 

 

135,322

 

 

(135,322)

 

 

 —

 

 

 —

Citibank, N.A.

 

 

175,878

 

 

(175,878)

 

 

 —

 

 

 —

 

 

81,555

 

 

(80,525)

 

 

 —

 

 

1,030

Barclays Capital

 

 

135,757

 

 

(135,757)

 

 

 —

 

 

 —

 

 

28,467

 

 

(28,467)

 

 

 —

 

 

 —

Morgan Stanley Bank, N.A.

 

 

135,439

 

 

(131,399)

 

 

 —

 

 

4,040

 

 

189,756

 

 

(188,851)

 

 

 —

 

 

905

Royal Bank of Canada

 

 

93,780

 

 

(92,913)

 

 

 —

 

 

867

 

 

2,937

 

 

 —

 

 

 —

 

 

2,937

Wells Fargo Bank, N.A.

 

 

5,403

 

 

 —

 

 

 —

 

 

5,403

 

 

 —

 

 

 —

 

 

 —

 

 

 —

BNP Paribas

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

1,151

 

 

 —

 

 

 —

 

 

1,151

Federal National Mortgage Association

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

1,033

 

 

 —

 

 

 —

 

 

1,033

Goldman Sachs

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

823

 

 

 —

 

 

 —

 

 

823

Others

 

 

541

 

 

 —

 

 

 —

 

 

541

 

 

612

 

 

 —

 

 

 —

 

 

612

 

 

$

3,039,852

 

$

(3,023,288)

 

$

 —

 

$

16,564

 

$

1,759,284

 

$

(1,736,922)

 

$

 —

 

$

22,362

 

 

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 June 30, 

 

Six months ended June 30, 

Hedged item

    

Income statement line

    

2017

    

2016

    

2017

    

2016

 

 

 

 

 

(in thousands)

Interest rate lock commitments and mortgage loans held for sale

 

Net gains on mortgage loans held for sale

 

$

(1,918)

 

$

(48,943)

 

$

(210)

 

$

(118,119)

 

Mortgage servicing rights

 

Net mortgage loan servicing fees - Amortization, impairment and change in fair value of mortgage servicing rights and mortgage servicing liabilities

 

$

(2,026)

 

$

64,948

 

$

(24,192)

 

$

123,668

 

28


Table of Contents

Note 7—8—Fair Value

 

The Company’s consolidated financial statements include assets and 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 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, (for example, when there is little or no market activity for an asset or liability at the end of the period), 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.

 

20


Table of Contents

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 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 Trustunder agreements to resell, as well as its originated MSRs relating to loans with initial interest rates of more than 4.5%, its purchased MSRs subject to excess servicing spread financing (“ESS”) and its mortgage 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 electedidentified its ESS financing to accountbe accounted for its ESS at fair value as a means of hedging the related MSRs’ fair value risk. Originated MSRs backed by mortgage loans with initial interest rates of less than or equal to 4.5% are accounted for using the amortization method.

 

Financial Statement Items

29


Table of Contents

Assets and Liabilities Measured at Fair Value on a Recurring Basis

 

Following is a summary of financial statement itemsassets and liabilities that are measured at fair value on a recurring basis:

 

 

 

 

 

 

 

 

 

 

 

June 30, 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Level 1

 

Level 2

 

Level 3

 

Total

  

 

June 30, 2017

 

(in thousands)

 

    

Level 1

    

Level 2

    

Level 3

    

Total

 

 

 

 

 

 

 

 

 

 

(in thousands)

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Short-term investments

    

$

41,063

    

$

 —

    

$

 —

    

$

41,063

 

 

$

145,440

 

$

 —

 

$

 —

 

$

145,440

Mortgage loans held for sale at fair value

 

 —

 

2,059,059

 

38,079

 

2,097,138

 

 

 

 —

 

 

2,657,518

 

 

380,084

 

 

3,037,602

Derivative assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate lock commitments

 

 —

 

 —

 

91,607

 

91,607

 

 

 

 —

 

 

 —

 

 

51,287

 

 

51,287

Forward purchase contracts

 

 —

 

125,358

 

 —

 

125,358

 

 

 

 —

 

 

25

 

 

 —

 

 

25

Forward sales contracts

 

 —

 

664

 

 —

 

664

 

 

 

 —

 

 

28,759

 

 

 —

 

 

28,759

MBS put options

 

 —

 

1,777

 

 —

 

1,777

 

 

 

 —

 

 

11,232

 

 

 —

 

 

11,232

Put options on interest rate futures purchase contracts

 

1,618

 

 —

 

 —

 

1,618

 

 

 

2,520

 

 

 —

 

 

 —

 

 

2,520

Call options on interest rate futures purchase contracts

 

 

8,279

 

 

 —

 

 

 —

 

 

8,279

 

 

 

438

 

 

 —

 

 

 —

 

 

438

Total derivative assets before netting

 

9,897

 

127,799

 

91,607

 

229,303

 

 

 

2,958

 

 

40,016

 

 

51,287

 

 

94,261

Netting

 

 

 —

 

 

 —

 

 

 —

 

 

(104,761)

 

 

 

 —

 

 

 —

 

 

 —

 

 

(24,186)

Total derivative assets

 

9,897

 

127,799

 

91,607

 

124,542

 

 

 

2,958

 

 

40,016

 

 

51,287

 

 

70,075

Investment in PennyMac Mortgage Investment Trust

 

1,217

 

 —

 

 —

 

1,217

 

 

 

1,372

 

 

 —

 

 

 —

 

 

1,372

Mortgage servicing rights at fair value

 

 

 —

 

 

 —

 

 

526,294

 

 

526,294

 

 

 

 —

 

 

 —

 

 

678,441

 

 

678,441

 

$

52,177

 

$

2,186,858

 

$

655,980

 

$

2,790,254

 

 

$

149,770

 

$

2,697,534

 

$

1,109,812

 

$

3,932,930

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Excess servicing spread financing at fair value payable to PennyMac Mortgage Investment Trust

 

$

 —

 

$

 —

 

$

294,551

 

$

294,551

 

 

$

 —

 

$

 —

 

$

261,796

 

$

261,796

Derivative liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate lock commitments

 

 —

 

 —

 

1,345

 

1,345

 

 

 

 —

 

 

 —

 

 

5,129

 

 

5,129

Forward purchase contracts

 

 —

 

119

 

 —

 

119

 

 

 

 —

 

 

33,731

 

 

 —

 

 

33,731

Forward sales contracts

 

 —

 

101,772

 

 —

 

101,772

 

 

 

 —

 

 

528

 

 

 —

 

 

528

Put options on interest rate futures purchase contracts

 

2,070

 

 —

 

 —

 

2,070

 

 

 

63

 

 

 —

 

 

 —

 

 

63

Call options on interest rate futures purchase contracts

 

 

234

 

 

 —

 

 

 —

 

 

234

 

Total derivative liabilities before netting

 

2,304

 

101,891

 

1,345

 

105,540

 

 

 

63

 

 

34,259

 

 

5,129

 

 

39,451

Netting

 

 

 —

 

 

 —

 

 

 —

 

 

(101,806)

 

 

 

 —

 

 

 —

 

 

 —

 

 

(22,887)

Total derivative liabilities

 

2,304

 

101,891

 

1,345

 

3,734

 

 

 

63

 

 

34,259

 

 

5,129

 

 

16,564

Mortgage servicing liabilities

 

 

 —

 

 

 —

 

 

4,681

 

 

4,681

 

Mortgage servicing liabilities at fair value

 

 

 —

 

 

 —

 

 

18,295

 

 

18,295

 

$

2,304

 

$

101,891

 

$

300,577

 

$

302,966

 

 

$

63

 

$

34,259

 

$

285,220

 

$

296,655

 

2130


 

Table of Contents

 

 

 

 

 

 

 

 

 

 

December 31, 2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Level 1

 

Level 2

 

Level 3

 

Total

 

 

December 31, 2016

 

(in thousands)

 

    

Level 1

    

Level 2

    

Level 3

    

Total

 

 

 

 

 

 

 

 

 

 

(in thousands)

Assets:

    

 

 

    

 

 

    

 

 

    

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Short-term investments

    

$

46,319

    

$

 —

    

$

 —

    

$

46,319

 

 

$

85,964

 

$

 —

 

$

 —

 

$

85,964

Mortgage loans held for sale at fair value

 

 —

 

1,052,673

 

48,531

 

1,101,204

 

 

 

 —

 

 

2,125,544

 

 

47,271

 

 

2,172,815

Derivative assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate lock commitments

 

 —

 

 —

 

45,885

 

45,885

 

 

 

 —

 

 

 —

 

 

65,848

 

 

65,848

Forward purchase contracts

 

 —

 

4,181

 

 —

 

4,181

 

 

 

 —

 

 

77,905

 

 

 —

 

 

77,905

Forward sales contracts

 

 —

 

4,965

 

 —

 

4,965

 

 

 

 —

 

 

28,324

 

 

 —

 

 

28,324

MBS put options

 

 —

 

404

 

 —

 

404

 

 

 

 —

 

 

3,934

 

 

 —

 

 

3,934

MBS call options

 

 

 —

 

 

217

 

 

 —

 

 

217

Put options on interest rate futures purchase contracts

 

1,832

 

 —

 

 —

 

1,832

 

 

 

3,109

 

 

 —

 

 

 —

 

 

3,109

Call options on interest rate futures purchase contracts

 

 

1,555

 

 

 —

 

 

 —

 

 

1,555

 

 

 

203

 

 

 —

 

 

 —

 

 

203

Total derivative assets before netting

 

3,387

 

9,550

 

45,885

 

58,822

 

 

 

3,312

 

 

110,380

 

 

65,848

 

 

179,540

Netting

 

 

 —

 

 

 —

 

 

 —

 

 

(8,542)

 

 

 

 —

 

 

 —

 

 

 —

 

 

(96,635)

Total derivative assets

 

3,387

 

9,550

 

45,885

 

50,280

 

 

 

3,312

 

 

110,380

 

 

65,848

 

 

82,905

Investment in PennyMac Mortgage Investment Trust

 

1,145

 

 —

 

 —

 

1,145

 

 

 

1,228

 

 

 —

 

 

 —

 

 

1,228

Mortgage servicing rights at fair value

 

 

 —

 

 

 —

 

 

660,247

 

 

660,247

 

 

 

 —

 

 

 —

 

 

515,925

 

 

515,925

 

$

50,851

 

$

1,062,223

 

$

754,663

 

$

1,859,195

 

 

$

90,504

 

$

2,235,924

 

$

629,044

 

$

2,858,837

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Excess servicing spread financing at fair value payable to PennyMac Mortgage Investment Trust

 

$

 —

 

$

 —

 

$

412,425

 

$

412,425

 

 

$

 —

 

$

 —

 

$

288,669

 

$

288,669

Derivative liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate lock commitments

 

 —

 

 —

 

2,112

 

2,112

 

 

 

 —

 

 

 —

 

 

6,457

 

 

6,457

Forward purchase contracts

 

 —

 

9,004

 

 —

 

9,004

 

 

 

 —

 

 

16,914

 

 

 —

 

 

16,914

Forward sales contracts

 

 —

 

7,497

 

 —

 

7,497

 

 

 

 —

 

 

85,035

 

 

 —

 

 

85,035

Put options on interest rate futures purchase contracts

 

203

 

 —

 

 —

 

203

 

Call options on interest rate futures purchase contracts

 

 

47

 

 

 —

 

 

 —

 

 

47

 

Total derivative liabilities before netting

 

250

 

16,501

 

2,112

 

18,863

 

 

 

 —

 

 

101,949

 

 

6,457

 

 

108,406

Netting

 

 

 —

 

 

 —

 

 

 —

 

 

(9,780)

 

 

 

 —

 

 

 —

 

 

 —

 

 

(86,044)

Total derivative liabilities

 

250

 

16,501

 

2,112

 

9,083

 

 

 

 —

 

 

101,949

 

 

6,457

 

 

22,362

Mortgage servicing liabilities

 

 

 —

 

 

 —

 

 

1,399

 

 

1,399

 

Mortgage servicing liabilities at fair value

 

 

 —

 

 

 —

 

 

15,192

 

 

15,192

 

$

250

 

$

16,501

 

$

415,936

 

$

422,907

 

 

$

 —

 

$

101,949

 

$

310,318

 

$

326,223

 

2231


 

Table of Contents

As shown above, all or a portion of the Company’s mortgage loans held for sale, IRLCs, MSRs at fair value, ESS and MSLs are measured using Level 3 fair value inputs. Following are roll forwards of these items for the quarters and six month periodsmonths ended June 30, 20162017 and 2015:2016:

 

 

 

 

 

 

 

 

 

 

 

Quarter ended June 30, 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage

 

Net interest 

 

Mortgage 

 

 

 

 

 

Quarter ended June 30, 2017

 

loans held

 

rate lock

 

servicing 

 

 

 

 

 

Mortgage

 

Net interest 

 

Mortgage 

 

 

 

 

for sale

 

commitments (1)

 

rights

 

 

Total

 

 

loans held

 

rate lock

 

servicing 

 

 

 

    

(in thousands)

 

    

for sale

    

commitments (1)

    

rights

    

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

(in thousands)

Assets:

    

 

 

    

 

 

    

 

 

   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, March 31, 2016

 

$

33,030

 

$

71,885

 

$

594,403

 

$

699,318

 

Balance, March 31, 2017

 

$

327,682

 

$

66,007

 

$

506,916

 

$

900,605

Purchases

 

142,912

 

 —

 

 —

 

142,912

 

 

 

625,492

 

 —

 

 

183,586

 

 

809,078

Sales

 

(3,826)

 

 —

 

 —

 

(3,826)

 

Repayments

 

(10,617)

 

 —

 

 —

 

(10,617)

 

Sales and repayments

 

 

(264,558)

 

 —

 

 

 —

 

 

(264,558)

Interest rate lock commitments issued, net

 

 —

 

102,755

 

 —

 

102,755

 

 

 

 —

 

71,062

 

 

 —

 

 

71,062

Mortgage servicing rights resulting from mortgage loan sales

 

 —

 

 —

 

4,820

 

4,820

 

 

 

 —

 

 —

 

 

7,945

 

 

7,945

Changes in fair value included in income arising from:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Changes in instrument-specific credit risk

 

(1,078)

 

 —

 

 —

 

(1,078)

 

 

 

(3,046)

 

 —

 

 

 —

 

 

(3,046)

Other factors

 

 

 —

 

 

77,518

 

 

(72,929)

 

 

4,589

 

 

 

 —

 

 

32,613

 

 

(20,006)

 

 

12,607

 

 

(1,078)

 

 

77,518

 

 

(72,929)

 

 

3,511

 

 

 

(3,046)

 

 

32,613

 

 

(20,006)

 

 

9,561

Transfers of mortgage loans held for sale from Level 3 to Level 2 (2)

 

(122,342)

 

 —

 

 —

 

(122,342)

 

Transfers from Level 3 to Level 2

 

 

(305,486)

 

 —

 

 

 —

 

 

(305,486)

Transfers of interest rate lock commitments to mortgage loans held for sale

 

 

 —

 

 

(161,896)

 

 

 —

 

 

(161,896)

 

 

 

 —

 

 

(123,524)

 

 

 —

 

 

(123,524)

Balance, June 30, 2016

 

$

38,079

 

$

90,262

 

$

526,294

 

$

654,635

 

Changes in fair value recognized during the period relating to assets still held at June 30, 2016

 

$

442

 

$

90,262

 

$

(72,929)

 

$

17,775

 

 

 

 

 

 

 

 

 

 

Balance, June 30, 2017

 

$

380,084

 

$

46,158

 

$

678,441

 

$

1,104,683

Changes in fair value recognized during the period relating to assets still held at June 30, 2017

 

$

(3,042)

 

$

46,158

 

$

(20,006)

 

$

23,110


(1)

For the purpose of this table, the IRLC asset and liability positions are shown net.

 

 

 

 

 

 

 

 

 

 

 

 

 

Quarter ended June 30, 2017

 

 

 

Excess

 

 

 

 

 

 

 

 

servicing

 

Mortgage

 

 

 

 

 

 

spread

 

servicing

 

 

 

 

 

    

financing

    

liabilities

    

Total

  

 

 

(in thousands)

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

Balance, March 31, 2017

 

$

277,484

 

$

15,994

 

$

293,478

 

Issuance of excess servicing spread financing pursuant to a recapture agreement with PennyMac Mortgage Investment Trust

 

 

1,380

 

 

 —

 

 

1,380

 

Accrual of interest

 

 

4,366

 

 

 —

 

 

4,366

 

Repayments

 

 

(14,278)

 

 

 —

 

 

(14,278)

 

Mortgage servicing liabilities resulting from mortgage loan sales

 

 

 —

 

 

3,810

 

 

3,810

 

Changes in fair value included in income

 

 

(7,156)

 

 

(1,509)

 

 

(8,665)

 

Balance, June 30, 2017

 

$

261,796

 

$

18,295

 

$

280,091

 

Changes in fair value recognized during the period relating to liabilities still outstanding at June 30, 2017

 

$

(7,156)

 

$

(1,509)

 

$

(8,665)

 

 

 

 

 

 

 

 

 

 

 

 

32


Table of Contents

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Quarter ended June 30, 2016

 

 

Mortgage

 

Net interest 

 

Mortgage

 

 

 

 

 

loans held

 

rate lock

 

servicing

 

 

 

 

 

for sale

 

commitments (1)

 

rights

 

Total

 

 

(in thousands)

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

Balance, March 31, 2016

    

$

33,030

    

$

71,885

    

$

594,403

    

$

699,318

Purchases

 

 

142,912

 

 

 —

 

 

 —

 

 

142,912

Sales and repayments

 

 

(14,443)

 

 

 —

 

 

 —

 

 

(14,443)

Interest rate lock commitments issued, net

 

 

 —

 

 

102,755

 

 

 —

 

 

102,755

Mortgage servicing rights resulting from mortgage loan sales

 

 

 —

 

 

 —

 

 

4,820

 

 

4,820

Changes in fair value included in income arising from:

 

 

 

 

 

 

 

 

 

 

 

 

Changes in instrument-specific credit risk

 

 

(1,078)

 

 

 —

 

 

 —

 

 

(1,078)

Other factors

 

 

 —

 

 

77,518

 

 

(72,929)

 

 

4,589

 

 

 

(1,078)

 

 

77,518

 

 

(72,929)

 

 

3,511

Transfers from Level 3 to Level 2

 

 

(122,342)

 

 

 —

 

 

 —

 

 

(122,342)

Transfers of interest rate lock commitments to mortgage loans held for sale

 

 

 —

 

 

(161,896)

 

 

 —

 

 

(161,896)

Balance, June 30, 2016

 

$

38,079

 

$

90,262

 

$

526,294

 

$

654,635

Changes in fair value recognized during the period relating to assets still held at June 30, 2016

 

$

442

 

$

90,262

 

$

(72,929)

 

$

17,775


(1)

For the purpose of this table, the IRLC asset and liability positions are shown net.

 

 

 

 

 

 

 

 

 

 

 

 

 

Quarter ended June 30, 2016

 

 

 

Excess

 

 

 

 

 

 

 

servicing

 

Mortgage 

 

 

 

 

 

spread

 

servicing

 

 

 

 

    

financing

    

liabilities

    

Total

 

 

 

(in thousands)

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

Balance, March 31, 2016

 

$

321,976

 

$

6,747

 

$

328,723

 

Issuance of excess servicing spread financing pursuant to a recapture agreement with PennyMac Mortgage Investment Trust

 

 

1,690

 

 

 —

 

 

1,690

 

Accrual of interest

 

 

5,713

 

 

 —

 

 

5,713

 

Repayments

 

 

(17,400)

 

 

 —

 

 

(17,400)

 

Changes in fair value included in income

 

 

(17,428)

 

 

(2,066)

 

 

(19,494)

 

Balance, June 30, 2016

 

$

294,551

 

$

4,681

 

$

299,232

 

Changes in fair value recognized during the period relating to liabilities still outstanding at June 30, 2016

 

$

(17,428)

 

$

(2,066)

 

$

(19,494)

 

33


Table of Contents

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six months ended June 30, 2017

 

 

Mortgage

 

Net interest 

 

Mortgage 

 

 

 

 

 

loans held

 

rate lock

 

servicing 

 

 

 

 

 

for sale

 

commitments (1)

 

rights

 

 

Total

 

    

(in thousands)

Assets:

    

 

 

    

 

 

    

 

 

   

 

 

Balance, December 31, 2016

 

$

47,271

 

$

59,391

 

$

515,925

 

$

622,587

Purchases

 

 

1,315,963

 

 

 —

 

 

183,789

 

 

1,499,752

Sales and repayments

 

 

(538,860)

 

 

 —

 

 

 —

 

 

(538,860)

Interest rate lock commitments issued, net

 

 

 —

 

 

142,819

 

 

 —

 

 

142,819

Mortgage servicing rights resulting from mortgage loan sales

 

 

 —

 

 

 —

 

 

13,929

 

 

13,929

Changes in fair value included in income arising from:

 

 

 

 

 

 

 

 

 

 

 

 

Changes in instrument-specific credit risk

 

 

(4,974)

 

 

 —

 

 

 —

 

 

(4,974)

Other factors

 

 

 —

 

 

57,732

 

 

(35,202)

 

 

22,530

 

 

 

(4,974)

 

 

57,732

 

 

(35,202)

 

 

17,556

Transfers from Level 3 to Level 2

 

 

(439,316)

 

 

 —

 

 

 —

 

 

(439,316)

Transfers of interest rate lock commitments to mortgage loans held for sale

 

 

 —

 

 

(213,784)

 

 

 —

 

 

(213,784)

Balance, June 30, 2017

 

$

380,084

 

$

46,158

 

$

678,441

 

$

1,104,683

Changes in fair value recognized during the period relating to assets still held at June 30, 2017

 

$

(4,620)

 

$

46,158

 

$

(35,202)

 

$

6,336


(1)

For the purpose of this table, the IRLC asset and liability positions are shown net.

 

 

 

 

 

 

 

 

 

 

 

 

 

Six months ended June 30, 2017

 

 

 

Excess

 

 

 

 

 

 

 

 

servicing

 

Mortgage

 

 

 

 

 

 

spread

 

servicing

 

 

 

 

 

 

financing

 

liabilities

 

Total

 

 

 

(in thousands)

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

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

 

 

2,953

 

 

 —

 

 

2,953

 

Accrual of interest

 

 

9,013

 

 

 —

 

 

9,013

 

Repayments

 

 

(28,910)

 

 

 —

 

 

(28,910)

 

Mortgage servicing liabilities resulting from mortgage loan sales

 

 

 —

 

 

7,869

 

 

7,869

 

Changes in fair value included in income

 

 

(9,929)

 

 

(4,766)

 

 

(14,695)

 

Balance, June 30, 2017

 

$

261,796

 

$

18,295

 

$

280,091

 

Changes in fair value recognized during the period relating to liabilities still outstanding at June 30, 2017

 

$

(9,929)

 

$

(4,766)

 

$

(14,695)

 

34


Table of Contents

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six months ended June 30, 2016

 

 

Mortgage

 

Net interest 

 

Mortgage

 

 

 

 

 

loans held

 

rate lock

 

servicing

 

 

 

 

    

for sale

 

commitments (1)

 

rights

 

Total

 

 

(in thousands)

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

Balance December 31, 2015

    

$

48,531

    

$

43,773

    

$

660,247

    

$

752,551

Purchases

 

 

488,798

 

 

 —

 

 

11

 

 

488,809

Sales and repayments

 

 

(298,176)

 

 

 —

 

 

 —

 

 

(298,176)

Interest rate lock commitments issued, net

 

 

 —

 

 

181,218

 

 

 —

 

 

181,218

Mortgage servicing rights resulting from mortgage loan sales

 

 

 —

 

 

 —

 

 

9,288

 

 

9,288

Changes in fair value included in income arising from:

 

 

 

 

 

 

 

 

 

 

 

 

Changes in instrument-specific credit risk

 

 

691

 

 

 —

 

 

 —

 

 

691

Other factors

 

 

 —

 

 

149,188

 

 

(143,252)

 

 

5,936

 

 

 

691

 

 

149,188

 

 

(143,252)

 

 

6,627

Transfers from Level 3 to Level 2

 

 

(201,765)

 

 

 —

 

 

 —

 

 

(201,765)

Transfers of interest rate lock commitments to mortgage loans held for sale

 

 

 —

 

 

(283,917)

 

 

 —

 

 

(283,917)

Balance, June 30, 2016

 

$

38,079

 

$

90,262

 

$

526,294

 

$

654,635

Changes in fair value recognized during the year relating to assets still held at June 30, 2016

 

$

860

 

$

90,262

 

$

(143,252)

 

$

(52,130)


(1)

For the purpose of this table, the IRLC asset and liability positions are shown net.

 

(2)

Mortgage loans held for sale are transferred from Level 3 to Level 2 as a result of the mortgage loan becoming saleable into active mortgage markets pursuant to a loan modification, borrower reperformance or resolution of deficiencies.

 

 

 

 

 

 

 

 

 

 

 

 

 

Quarter ended June 30, 2016

 

 

 

Excess

 

 

 

 

 

 

 

 

servicing

 

Mortgage

 

 

 

 

 

 

spread

 

servicing

 

 

 

 

 

 

financing

 

liabilities

 

Total

  

 

 

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

Balance, March 31, 2016

    

$

321,976

    

$

6,747

    

$

328,723

 

Issuance of excess servicing spread financing pursuant to a recapture agreement with PennyMac Mortgage Investment Trust

 

 

1,690

 

 

 —

 

 

1,690

 

Accrual of interest

 

 

5,713

 

 

 —

 

 

5,713

 

Repayments

 

 

(17,400)

 

 

 —

 

 

(17,400)

 

Changes in fair value included in income

 

 

(17,428)

 

 

(2,066)

 

 

(19,494)

 

Balance, June 30, 2016

 

$

294,551

 

$

4,681

 

$

299,232

 

Changes in fair value recognized during the period relating to liabilities still outstanding at June 30, 2016

 

$

(17,428)

 

$

(2,066)

 

$

(19,494)

 

23


Table of Contents

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Quarter ended June 30, 2015

 

 

 

Mortgage

 

Net interest 

 

Mortgage

 

 

 

 

 

 

loans held

 

rate lock

 

servicing

 

 

 

 

 

 

for sale

 

commitments (1)

 

rights

 

Total

 

 

 

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, March 31, 2015

    

$

83,684

    

$

54,392

    

$

361,413

    

$

499,489

 

Purchases

 

 

400,705

 

 

 —

 

 

206,996

 

 

607,701

 

Sales

 

 

(386,586)

 

 

 —

 

 

 —

 

 

(386,586)

 

Repayments

 

 

(11,610)

 

 

 —

 

 

 —

 

 

(11,610)

 

Interest rate lock commitments issued, net

 

 

 —

 

 

61,365

 

 

 —

 

 

61,365

 

Mortgage servicing rights resulting from mortgage loan sales

 

 

 —

 

 

 —

 

 

3,443

 

 

3,443

 

Changes in fair value included in income arising from:

 

 

 

 

 

 

 

 

 

 

 

 

 

Changes in instrument-specific credit risk

 

 

1,739

 

 

 —

 

 

 —

 

 

1,739

 

Other factors

 

 

746

 

 

(10,245)

 

 

9,417

 

 

(82)

 

 

 

 

2,485

 

 

(10,245)

 

 

9,417

 

 

1,657

 

Transfers of mortgage loans held for sale from Level 3 to Level 2  (2)

 

 

(54,593)

 

 

 —

 

 

 —

 

 

(54,593)

 

Transfers of interest rate lock commitments to mortgage loans held for sale

 

 

 —

 

 

(77,775)

 

 

 —

 

 

(77,775)

 

Balance, June 30, 2015

    

$

34,085

 

$

27,737

 

$

581,269

 

$

643,091

 

Changes in fair value recognized during the period relating to assets still held at June 30, 2015

    

$

481

 

$

(10,245)

 

$

9,417

 

$

(347)

 


(1)

For the purpose of this table, the interest rate lock asset and liability positions are shown net.

(2)

Mortgage loans held for sale are transferred from Level 3 to Level 2 as a result of the mortgage loan becoming saleable into active mortgage markets pursuant to a loan modification, borrower reperformance or resolution of deficiencies.

 

 

 

 

 

 

 

 

 

 

 

 

 

Quarter ended June 30, 2015

 

 

 

Excess

 

 

 

 

 

 

 

servicing

 

Mortgage 

 

 

 

 

 

spread

 

servicing

 

 

 

 

 

financing

 

liabilities

 

Total

 

 

 

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

Balance, March 31, 2015

    

$

222,309

    

$

6,529

    

$

228,838

 

Issuance of excess servicing spread financing:

 

 

 

 

 

 

 

 

 

 

For cash

 

 

140,875

 

 

 —

 

 

140,875

 

Pursuant to a recapture agreement with PennyMac Mortgage Investment Trust

 

 

1,319

 

 

 —

 

 

1,319

 

Mortgage servicing liabilities resulting from mortgage loan sales

 

 

 —

 

 

9,156

 

 

9,156

 

Accrual of interest

 

 

5,818

 

 

 —

 

 

5,818

 

Repayments

 

 

(18,352)

 

 

 —

 

 

(18,352)

 

Changes in fair value included in income

 

 

7,133

 

 

(3,894)

 

 

3,239

 

Balance, June 30, 2015

 

$

359,102

 

$

11,791

 

$

370,893

 

Changes in fair value recognized during the period relating to liabilities still outstanding at June 30, 2015

 

$

7,133

 

$

(3,894)

 

$

3,239

 

24


Table of Contents

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six months ended June 30, 2016

 

 

 

Mortgage

 

Net interest 

 

Mortgage 

 

 

 

 

 

 

loans held

 

rate lock

 

servicing 

 

 

 

 

 

 

for sale

 

commitments (1)

 

rights

 

 

Total

 

 

    

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets:

    

 

 

    

 

 

    

 

 

   

 

 

 

Balance, December 31, 2015

 

$

48,531

 

$

43,773

 

$

660,247

 

$

752,551

 

Purchases

 

 

488,798

 

 

 —

 

 

11

 

 

488,809

 

Sales

 

 

(278,318)

 

 

 —

 

 

 —

 

 

(278,318)

 

Repayments

 

 

(19,858)

 

 

 —

 

 

 —

 

 

(19,858)

 

Interest rate lock commitments issued, net

 

 

 —

 

 

181,218

 

 

 —

 

 

181,218

 

Mortgage servicing rights resulting from mortgage loan sales

 

 

 —

 

 

 —

 

 

9,288

 

 

9,288

 

Changes in fair value included in income arising from:

 

 

 

 

 

 

 

 

 

 

 

 

 

Changes in instrument-specific credit risk

 

 

691

 

 

 —

 

 

 —

 

 

691

 

Other factors

 

 

 —

 

 

149,188

 

 

(143,252)

 

 

5,936

 

 

 

 

691

 

 

149,188

 

 

(143,252)

 

 

6,627

 

Transfers of mortgage loans held for sale from Level 3 to Level 2 (2)

 

 

(201,765)

 

 

 —

 

 

 —

 

 

(201,765)

 

Transfers of interest rate lock commitments to mortgage loans held for sale

 

 

 —

 

 

(283,917)

 

 

 —

 

 

(283,917)

 

Balance, June 30, 2016

 

$

38,079

 

$

90,262

 

$

526,294

 

$

654,635

 

Changes in fair value recognized during the period relating to assets still held at June 30, 2016

 

$

860

 

$

90,262

 

$

(143,252)

 

$

(52,130)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


(1)

For the purpose of this table, the IRLC asset and liability positions are shown net.

(2)

Mortgage loans held for sale are transferred from Level 3 to Level 2 as a result of the mortgage loan becoming saleable into active mortgage markets pursuant to a loan modification, borrower reperformance or resolution of deficiencies.

 

 

 

 

 

 

 

 

 

 

 

 

 

Six months ended June 30, 2016

 

 

 

Excess

 

 

 

 

 

 

 

 

servicing

 

Mortgage

 

 

 

 

 

 

spread

 

servicing

 

 

 

 

 

 

financing

 

liabilities

 

Total

 

 

 

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2015

    

$

412,425

 

$

1,399

    

$

413,824

 

Issuance of excess servicing spread financing pursuant to a recapture agreement with PennyMac Mortgage Investment Trust

 

 

3,601

 

 

 —

 

 

3,601

 

Accrual of interest

 

 

12,728

 

 

 —

 

 

12,728

 

Repurchase

 

 

(59,045)

 

 

 —

 

 

(59,045)

 

Repayments

 

 

(38,281)

 

 

 —

 

 

(38,281)

 

Mortgage servicing liabilities resulting from mortgage loan sales

 

 

 —

 

 

5,409

 

 

5,409

 

Changes in fair value included in income

 

 

(36,877)

 

 

(2,127)

 

 

(39,004)

 

Balance, June 30, 2016

 

$

294,551

 

$

4,681

 

$

299,232

 

Changes in fair value recognized during the period relating to liabilities still outstanding at June 30, 2016

 

$

(29,667)

 

$

(2,127)

 

$

(31,794)

 

25


Table of Contents

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six months ended June 30, 2015

 

 

 

Mortgage

 

Net interest 

 

Mortgage

 

 

 

 

 

 

loans held

 

rate lock

 

servicing

 

 

 

 

 

    

for sale

 

commitments (1)

 

rights

 

Total

 

 

 

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance December 31, 2014

    

$

209,908

    

$

32,401

    

$

325,383

    

$

567,692

 

Purchases

 

 

466,285

 

 

 —

 

 

270,133

 

 

736,418

 

Sales

 

 

(511,854)

 

 

 —

 

 

 —

 

 

(511,854)

 

Repayments

 

 

(20,002)

 

 

 —

 

 

 —

 

 

(20,002)

 

Interest rate lock commitments issued, net

 

 

 —

 

 

144,145

 

 

 —

 

 

144,145

 

Mortgage servicing rights resulting from mortgage loan sales

 

 

 —

 

 

 —

 

 

6,118

 

 

6,118

 

Changes in fair value included in income arising from:

 

 

 

 

 

 

 

 

 

 

 

 

 

Changes in instrument-specific credit risk

 

 

4,054

 

 

 —

 

 

 —

 

 

4,054

 

Other factors

 

 

(791)

 

 

(10,292)

 

 

(20,365)

 

 

(31,448)

 

 

 

 

3,263

 

 

(10,292)

 

 

(20,365)

 

 

(27,394)

 

Transfers of mortgage loans held for sale from Level 3 to Level 2 (2)

 

 

(113,515)

 

 

 —

 

 

 —

 

 

(113,515)

 

Transfers of interest rate lock commitments to mortgage loans held for sale

 

 

 —

 

 

(138,517)

 

 

 —

 

 

(138,517)

 

Balance, June 30, 2015

 

$

34,085

 

$

27,737

 

$

581,269

 

$

643,091

 

Changes in fair value recognized during the period relating to assets still held at June 30, 2015

 

$

906

 

$

(10,292)

 

$

(20,365)

 

$

(29,751)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


(1)

For the purpose of this table, the interest rate lock asset and liability positions are shown net.

(2)

Mortgage loans held for sale are transferred from Level 3 to Level 2 as a result of the mortgage loan becoming saleable into active mortgage markets pursuant to a loan modification, borrower reperformance or resolution of deficiencies.

 

 

 

 

 

 

 

 

 

 

 

 

 

Six months ended June 30, 2015

 

 

 

Excess

 

 

 

 

 

 

 

 

 

servicing

 

 

Mortgage 

 

 

 

 

 

spread

 

 

servicing

 

 

 

 

    

financing

    

 

liabilities

 

Total

 

 

 

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

Balance December 31, 2014

 

$

191,166

    

$

6,306

    

$

197,472

 

Issuance of excess servicing spread financing:

 

 

 

 

 

 

 

 

 

 

For cash

 

 

187,287

 

 

 —

 

 

187,287

 

Pursuant to a recapture agreement with PennyMac Mortgage Investment Trust

 

 

2,565

 

 

 —

 

 

2,565

 

Mortgage servicing liabilities resulting from mortgage loan sales

 

 

 —

 

 

12,084

 

 

12,084

 

Accrual of interest

 

 

9,570

 

 

 —

 

 

9,570

 

Repayments

 

 

(31,083)

 

 

 —

 

 

(31,083)

 

Changes in fair value included in income

 

 

(403)

 

 

(6,599)

 

 

(7,002)

 

Balance, June 30, 2015

 

$

359,102

 

$

11,791

 

$

370,893

 

Changes in fair value recognized during the period relating to liabilities still outstanding at June 30, 2015

 

$

(403)

 

$

(6,599)

 

$

(7,002)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six months ended June 30, 2016

 

 

 

Excess

 

 

 

 

 

 

 

 

 

servicing

 

Mortgage 

 

 

 

 

 

 

spread

 

servicing

 

 

 

 

 

    

financing

    

liabilities

    

Total

 

 

 

(in thousands)

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

Balance December 31, 2015

 

$

412,425

    

$

1,399

    

$

413,824

 

Issuance of excess servicing spread financing pursuant to a recapture agreement with PennyMac Mortgage Investment Trust

 

 

3,601

 

 

 —

 

 

3,601

 

Accrual of interest

 

 

12,728

 

 

 —

 

 

12,728

 

Repurchase

 

 

(59,045)

 

 

 —

 

 

(59,045)

 

Repayments

 

 

(38,281)

 

 

 —

 

 

(38,281)

 

Mortgage servicing liabilities resulting from mortgage loan sales

 

 

 —

 

 

5,409

 

 

5,409

 

Changes in fair value included in income

 

 

(36,877)

 

 

(2,127)

 

 

(39,004)

 

Balance, June 30, 2016

 

$

294,551

 

$

4,681

 

$

299,232

 

Changes in fair value recognized during the year relating to liabilities still outstanding at June 30, 2016

 

$

(29,667)

 

$

(2,127)

 

$

(31,794)

 

 

The information used in the preceding roll forwards represents activity for any financial statement itemsassets and liabilities measured at fair value on a recurring basis and identified as using “Level 3” inputs that are significant to the fair value inputsmeasurement 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. Such mortgage loans become saleable into the active secondary market due to curing of the loans’ defects through borrower reperformance, modification of the loan or resolution of deficiencies contained in the borrowers’ credit file.

 

2635


 

Table of Contents

Financial Statement Items

Assets and Liabilities Measured at Fair Value under the Fair Value Option

 

Net changes in fair values included in income for financial statement itemsassets 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 June 30, 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2016

 

2015

 

 

Quarter ended June 30, 

 

    

Net gains on 

    

 

 

    

 

 

    

Net gains on 

    

 

 

    

 

 

 

 

2017

 

2016

 

 

mortgage

 

Net mortgage

 

 

 

mortgage

 

Net mortgage

 

 

 

    

Net gains on 

    

 

    

 

    

Net gains on 

    

 

    

 

 

 

loans held

 

loan

 

 

 

loans held

 

loan

 

 

 

 

mortgage

 

Net mortgage

 

 

 

mortgage

 

Net mortgage

 

 

 

 

for sale at 

 

servicing

 

 

 

for sale at 

 

servicing

 

 

 

 

loans held

 

loan

 

 

 

loans held

 

loan

 

 

 

 

fair value

 

fees

 

Total

 

fair value

 

fees

 

Total

 

 

for sale at 

 

servicing

 

 

 

for sale at 

 

servicing

 

 

 

 

(in thousands)

 

 

fair value

 

fees

 

Total

 

fair value

 

fees

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(in thousands)

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage loans held for sale at fair value

 

$

164,527

 

$

 —

 

$

164,527

 

$

68,503

 

$

 —

 

$

68,503

 

 

$

123,657

 

$

 —

 

$

123,657

 

$

164,527

 

$

 —

 

$

164,527

 

Mortgage servicing rights at fair value

 

 

 —

 

 

(72,929)

 

 

(72,929)

 

 

 —

 

 

9,417

 

 

9,417

 

 

 

 —

 

 

(20,006)

 

 

(20,006)

 

 

 —

 

 

(72,929)

 

 

(72,929)

 

 

$

164,527

 

$

(72,929)

 

$

91,598

 

$

68,503

 

$

9,417

 

$

77,920

 

 

$

123,657

 

$

(20,006)

 

$

103,651

 

$

164,527

 

$

(72,929)

 

$

91,598

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Excess servicing spread financing at fair value payable to PennyMac Mortgage Investment Trust

 

$

 —

 

$

17,428

 

$

17,428

 

$

 —

 

$

(7,133)

 

$

(7,133)

 

 

$

 —

 

$

7,156

 

$

7,156

 

$

 —

 

$

17,428

 

$

17,428

 

Mortgage servicing liabilities at fair value

 

 

 —

 

 

2,066

 

 

2,066

 

 

 —

 

 

3,894

 

 

3,894

 

 

 

 —

 

 

1,509

 

 

1,509

 

 

 —

 

 

2,066

 

 

2,066

 

 

$

 —

 

$

19,494

 

$

19,494

 

$

 —

 

$

(3,239)

 

$

(3,239)

 

 

$

 —

 

$

8,665

 

$

8,665

 

$

 —

 

$

19,494

 

$

19,494

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six months ended June 30, 

 

 

2017

 

2016

 

 

    

Net gains on 

   

Net

   

 

 

   

Net gains on 

   

Net

 

 

 

 

 

 

mortgage

 

mortgage

 

 

 

 

mortgage

 

mortgage

 

 

 

 

 

 

loans held

 

loan

 

 

 

 

loans held

 

loan

 

 

 

 

 

 

for sale at 

 

servicing

 

 

 

 

for sale at 

 

servicing

 

 

 

 

 

    

fair value

    

fees

    

Total

    

fair value

    

fees

    

Total

 

 

 

(in thousands)

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage loans held for sale at fair value

 

$

205,967

 

$

 —

 

$

205,967

 

$

300,608

 

$

 —

 

$

300,608

 

Mortgage servicing rights at fair value

 

 

 —

 

 

(35,202)

 

 

(35,202)

 

 

 —

 

 

(143,252)

 

 

(143,252)

 

 

 

$

205,967

 

$

(35,202)

 

$

170,765

 

$

300,608

 

$

(143,252)

 

$

157,356

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Excess servicing spread financing at fair value payable to PennyMac Mortgage Investment Trust

 

$

 —

 

$

9,929

 

$

9,929

 

$

 —

 

$

36,877

 

$

36,877

 

Mortgage servicing liabilities at fair value

 

 

 —

 

 

4,766

 

 

4,766

 

 

 —

 

 

2,127

 

 

2,127

 

 

 

$

 —

 

$

14,695

 

$

14,695

 

$

 —

 

$

39,004

 

$

39,004

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six months ended June 30, 

 

 

 

2016

 

2015

 

 

    

Net gains on 

    

Net

    

 

 

    

Net gains on 

    

Net

    

 

 

 

 

 

mortgage

 

mortgage

 

 

 

 

mortgage

 

mortgage

 

 

 

 

 

 

loans held

 

loan

 

 

 

 

loans held

 

loan

 

 

 

 

 

 

for sale at 

 

servicing

 

 

 

 

for sale at 

 

servicing

 

 

 

 

 

 

fair value

 

fees

 

Total

 

fair value

 

fees

 

Total

 

 

 

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage loans held for sale at fair value

 

$

300,608

 

$

 —

 

$

300,608

 

$

149,817

 

$

 —

 

$

149,817

 

Mortgage servicing rights at fair value

 

 

 —

 

 

(143,252)

 

 

(143,252)

 

 

 —

 

 

(20,365)

 

 

(20,365)

 

 

 

$

300,608

 

$

(143,252)

 

$

157,356

 

$

149,817

 

$

(20,365)

 

$

129,452

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Excess servicing spread financing at fair value payable to PennyMac Mortgage Investment Trust

 

$

 —

 

$

36,877

 

$

36,877

 

$

 —

 

$

403

 

$

403

 

Mortgage servicing liabilities at fair value

 

 

 —

 

 

2,127

 

 

2,127

 

 

 —

 

 

6,599

 

 

6,599

 

 

 

$

 —

 

$

39,004

 

$

39,004

 

$

 —

 

$

7,002

 

$

7,002

 

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Table of Contents

Following are the fair value and related principal amounts due upon maturity of assets accounted for under the fair value option:

 

 

 

 

 

 

 

 

 

June 30, 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Principal

 

 

 

 

June 30, 2017

 

 

 

 

amount

 

 

 

 

 

 

Principal

 

 

 

Fair

 

 due upon 

 

 

 

 

 

 

amount

 

 

    

value

    

maturity

    

Difference

 

 

Fair

 

 due upon 

 

 

 

(in thousands)

 

    

value

    

maturity

    

Difference

 

 

 

 

 

 

 

 

 

(in thousands)

Mortgage loans held for sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current through 89 days delinquent

 

$

2,076,718

 

$

1,951,046

 

$

125,672

 

 

$

2,719,560

 

$

2,592,354

 

$

127,206

90 days or more delinquent:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Not in foreclosure

 

12,924

 

12,882

 

42

 

 

 

239,660

 

 

244,419

 

 

(4,759)

In foreclosure

 

 

7,496

 

 

7,975

 

 

(479)

 

 

 

78,382

 

 

78,573

 

 

(191)

 

$

2,097,138

 

$

1,971,903

 

$

125,235

 

 

$

3,037,602

 

$

2,915,346

 

$

122,256

 

 

 

 

 

 

 

 

 

 

 

 

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

 

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Table of Contents

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2015

 

 

 

 

 

 

Principal

 

 

 

 

 

 

 

 

 

amount

 

 

 

 

 

 

Fair

 

due upon

 

 

 

 

 

    

value

    

maturity

    

Difference

 

 

    

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage loans held for sale:

 

 

 

 

 

 

    

 

 

 

Current through 89 days delinquent

 

$

1,068,548

 

$

1,016,314

 

$

52,234

 

90 days or more delinquent:

 

 

 

 

 

 

 

 

 

 

Not in foreclosure

 

 

26,399

 

 

26,999

 

 

(600)

 

In foreclosure

 

 

6,257

 

 

6,598

 

 

(341)

 

 

 

$

1,101,204

 

$

1,049,911

 

$

51,293

 

Financial Statement ItemsAssets Measured at Fair Value on a Nonrecurring Basis

 

Following is a summary of financial statement itemsassets and liabilities that were measured at fair value on a nonrecurring basis during the periods presented:

 

 

 

 

 

 

 

 

 

 

 

June 30, 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Level 1

    

Level 2

    

Level 3

    

Total

 

 

June 30, 2017

 

(in thousands)

 

    

Level 1

    

Level 2

    

Level 3

    

Total

 

 

 

 

(in thousands)

Mortgage servicing rights at lower of amortized cost or fair value

 

$

 —

 

$

 —

 

$

764,634

 

$

764,634

 

 

$

 —

 

$

 —

 

$

1,254,152

 

$

1,254,152

Real estate acquired in settlement of loans

 

 

 —

 

 

 —

 

 

948

 

 

948

 

 

 

 —

 

 

 —

 

 

523

 

 

523

 

$

 —

 

$

 —

 

$

765,582

 

$

765,582

 

 

$

 —

 

$

 —

 

$

1,254,675

 

$

1,254,675

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2015

 

 

    

Level 1

    

Level 2

    

Level 3

    

Total

 

 

 

(in thousands)

 

 

 

 

 

Mortgage servicing rights at lower of amortized cost or fair value

 

$

 —

 

$

 —

 

$

202,991

 

$

202,991

 

 

 

$

 —

 

$

 —

 

$

202,991

 

$

202,991

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2016

 

    

Level 1

    

Level 2

    

Level 3

    

Total

 

 

(in thousands)

Mortgage servicing rights at lower of amortized cost or fair value

 

$

 —

 

$

 —

 

$

1,093,242

 

$

1,093,242

Real estate acquired in settlement of loans

 

 

 —

 

 

 —

 

 

1,152

 

 

1,152

 

 

$

 —

 

$

 —

 

$

1,094,394

 

$

1,094,394

 

 

 

 

 

 

 

 

 

 

 

 

 

 

37


Table of Contents

The following table summarizes the total gains (losses) on assets measured at fair value on a nonrecurring basis:

 

 

 

 

 

 

 

 

 

 

 

Quarter ended June 30, 

 

Six months ended June 30, 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

2016

    

2015

    

2016

    

2015

 

 

Quarter ended June 30, 

 

Six months ended June 30, 

 

 

(in thousands)

 

    

2017

    

2016

    

2017

    

2016

 

 

 

 

 

 

 

 

 

 

 

(in thousands)

Mortgage servicing rights at lower of amortized cost or fair value

 

$

(72,647)

 

$

13,566

 

$

(149,720)

 

$

(18,126)

 

 

$

(30,635)

 

$

(72,647)

 

$

(16,636)

 

$

(149,720)

 

Real estate acquired in settlement of loans

 

 

393

 

 

 —

 

 

(42)

 

 

 —

 

 

 

(73)

 

 

393

 

 

(105)

 

 

(42)

 

 

$

(72,254)

 

$

13,566

 

$

(149,762)

 

$

(18,126)

 

 

$

(30,708)

 

$

(72,254)

 

$

(16,741)

 

$

(149,762)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair Value of Financial Instruments Carried at Amortized Cost

 

The Company’s Cash as well as its Carried Interest dueAssets purchased from PennyMac Mortgage Investment FundsTrust under agreements to resell,  Assets sold under agreements to repurchase,  Mortgage loan participation and sale agreements,  Notes payable,  Obligations under capital lease Note receivable from PMT and amounts receivable from and payable to the Advised Entities are carried at amortized cost.

 

Cash is measured using a “Level 1” fair value input.

The Company has concluded that the carrying value of the Carried Interest due from Investment Funds approximates its fair value as the balance represents the amount distributable to the Company at the balance sheet date assuming liquidation of the Investment Funds.

The Company’s borrowings carried at amortized cost and the receivables from and payables to the Advised Entities 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

28


Table of Contents

significant management judgment or estimation. The Company has classified these financial instruments as “Level 3” fair value financial statement itemsliabilities due to the lack of observable inputs to estimate their fair values.

The Companyvalues and has concluded that thethose liabilities’ fair value of the receivables from and payables to the Advised Entities and the Note receivable from PMT approximatesvalues approximate the carrying value due to their short terms and/or variable interest rates.

 

Valuation Techniques and Inputs

 

Most of the Company’s financial assets, a portion 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 financial statement itemsassets 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 financial statement items,assets and liabilities, management has assigned the responsibility for estimating the fair value of these items to specialized staff and subjects the valuation 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 financial statement itemsassets and liabilities other than IRLCs and maintaining its valuation policies and procedures.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 financial statement items,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, operating,chief risk, business developmentchief enterprise operations and asset/liability managementdeputy 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 “Level 3” fair value financial statement items,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.

 

38


Table of Contents

Following is a description of the techniques and inputs used in estimating the fair values of “Level 2” and “Level 3” fair value financial statement items: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 financial statement itemsassets 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 may becomeheld for sale are 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 such mortgage loans arisesand are therefore categorized as the result of the borrower’s failure to make payments for at least three consecutive months preceding the month of repurchase by the Company and provides an alternative to the Company’s obligation to continue advancing principal and interest at the coupon rate of the related Ginnie Mae security. To the extent such mortgage loans have not become saleable into another Ginnie Mae guaranteed security by becoming current either through the borrower’s reperformance or through completion of a modification of the mortgage loan’s terms, the Company measures such mortgage loans along with mortgage loans with identified defects using “Level 3” fair value inputs.assets:

29


 

·

The Company may 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.

Table of Contents

·

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 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 prepaymentprepayment/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.

 

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

 

June 30, 2016

 

December 31, 2015

 

    

June 30, 2017

    

December 31, 2016

Discount rate

    

 

    

 

 

Discount rate:

 

 

 

 

Range

 

2.5% – 8.1%

 

2.5% – 9.1%

 

 

2.9% – 9.4%

 

2.6% – 8.8%

Weighted average

 

3.2%

 

2.8%

 

 

2.9%

 

3.0%

Twelve-month projected housing price index change

 

 

 

 

 

Twelve-month projected housing price index change:

 

 

 

 

Range

 

2.3% – 4.8%

 

1.8% – 5.0%

 

 

2.6% – 4.7%

 

2.0% – 4.5%

Weighted average

 

4.0%

 

3.7%

 

 

3.8%

 

3.7%

Voluntary prepayment / resale speed (1)

 

 

 

 

 

Voluntary prepayment / resale speed (1):

 

 

 

 

Range

 

0.4% – 21.4%

 

0.6% – 20.1%

 

 

0.1% – 19.3%

 

0.1% – 24.4%

Weighted average

 

17.0%

 

16.6%

 

 

17.3%

 

20.9%

Total prepayment speed (2)

 

 

 

 

 

Total prepayment speed (2):

 

 

 

 

Range

 

0.7% – 38.6%

 

0.7% – 37.6%

 

 

0.1% – 40.0%

 

0.1% – 39.8%

Weighted average

 

30.4%

 

30.9%

 

 

37.7%

 

34.3%


(1)

Voluntary prepayment/resale speed is measured using Life Voluntary Conditional Prepayment Rate (“CPR”).

(1)Voluntary prepayment speed is measured using Life Voluntary Conditional Prepayment Rate (“CPR”).

(2)Total prepayment speed is measured using Life Total CPR.

 

Changes in fair value attributable to changes in instrument specific credit risk are measured by reference to the change in the respective mortgage loan’s delinquency status and performance history at period end from the later of the

39


Table of Contents

beginning of the period or acquisition date. Changes in fair value of mortgage loans held for sale are included in Net gains on mortgage loans held for sale at fair value in the Company’s consolidated statements of income.

 

Derivative Financial Instruments

 

Interest Rate Lock Commitments

 

The Company categorizes IRLCs as a “Level 3” fair value financial statement item.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 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 IRLC, themortgage loan principal and interest payment cash flows that haveflow component, which has decreased in fair value. Changes in fair value of IRLCs are included in Net gains on mortgage loans heldacquired for sale at fair value and may be allocated to Net mortgage loan servicing fees as a hedge of the fair value of MSRs in the consolidated statements of income.income when it is included as a component of the MSR hedging strategy.

 

30


Table of Contents

Following is a quantitative summary of key “Level 3” fair value inputs used in the valuation of IRLCs:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Key inputs

 

June 30, 2016

 

December 31, 2015

 

    

June 30, 2017

    

December 31, 2016

Pull-through rate

    

 

    

 

 

Pull-through rate:

 

 

 

 

Range

 

37.1% – 100.0%

 

54.1% – 100.0%

 

 

38.7% – 100.0%

 

35.0% – 100.0%

Weighted average

 

84.9%

 

90.1%

 

 

86.2%

 

84.9%

Mortgage servicing rights value expressed as:

 

 

 

 

 

 

 

 

 

Servicing fee multiple

 

 

 

 

 

Servicing fee multiple:

 

 

 

 

Range

 

1.2 – 5.5

 

1.0 – 5.8

 

 

1.1 – 5.7

 

1.2 – 5.9

Weighted average

 

4.0

 

4.4

 

 

4.0

 

4.3

Percentage of unpaid principal balance

 

 

 

 

 

Percentage of unpaid principal balance:

 

 

 

 

Range

 

0.2% – 2.6%

 

0.2% – 3.8%

 

 

0.3% – 2.5%

 

0.3% – 2.8%

Weighted average

 

1.1%

 

1.5%

 

 

1.3%

 

1.3%

 

Hedging Derivatives

 

The remainingFair value of hedging derivative financial instruments held or issuedbased on exchange traded market prices are categorized by the Company are categorized as “Level 1” or “Level 2” fair value financial statement items. The Company estimates the fairassets and liabilities. Fair value of commitments to sell and purchase mortgage loanshedging derivative financial instruments based on observable MBS prices. The Company estimates the fair value of MBS options based on observedprices or interest rate volatilities in the MBS market.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 heldacquired 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.

 

Mortgage Servicing Rights

 

MSRs are categorized as “Level 3” fair value financial statement items.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 discount rate or pricing spread, and the per-loan annual cost to service the respective mortgage loans. Changes in the fair value of MSRs are included in Net servicing feesAmortization, impairment and change in fair value of mortgage servicing rights and mortgage servicing liabilities in the consolidated statements of income.

.

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Table of Contents

Following are the key “Level 3” fair value inputs used in determining the fair value of MSRs at the time of initial recognition, excluding MSR purchases:

 

 

 

 

 

 

 

 

 

 

 

Quarter ended June 30, 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2016

 

2015

 

 

Quarter ended June 30, 

 

Fair

 

Amortized

 

Fair

 

Amortized

 

 

2017

 

2016

 

value

 

cost

 

value

 

cost

 

 

Fair

 

Amortized

 

Fair

 

Amortized

 

(Amount recognized and unpaid principal balance of underlying mortgage loans in thousands)

 

    

value

    

cost

    

value

    

cost

 

 

 

 

 

 

 

 

 

 

(Amount recognized and unpaid principal balance of underlying mortgage loans in thousands)

MSR and pool characteristics:

    

 

    

 

    

 

    

 

 

 

 

 

    

 

 

    

 

 

    

 

 

Amount recognized

 

$4,820

 

$127,652

 

$3,443

 

$125,561

 

 

$

7,945

 

$

128,927

 

$

4,820

 

$

127,652

Unpaid principal balance of underlying mortgage loans

 

$400,433

 

$10,370,549

 

$280,613

 

$8,762,024

 

 

$

795,875

 

$

11,005,607

 

$

400,433

 

$

10,370,549

Weighted average servicing fee rate (in basis points)

 

33

 

29

 

34

 

36

 

 

 

29

 

 

30

 

 

33

 

 

29

Key inputs:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pricing spread (1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Range

 

7.2% – 9.5%

 

7.2% – 14.4%

 

7.0% – 13.4%

 

6.8% – 15.7%

 

 

 

7.6% – 11.0%

 

 

7.6% – 15.2%

 

 

7.2% – 9.5%

 

 

7.2% – 14.4%

Weighted average

 

8.7%

 

8.9%

 

9.9%

 

9.0%

 

 

 

10.4%

 

 

10.7%

 

 

8.7%

 

 

8.9%

Annual total prepayment speed (2)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Range

 

3.3% – 45.1%

 

3.9% – 50.9%

 

7.7% – 46.0%

 

7.7% – 34.0%

 

 

 

4.2% – 71.8%

 

 

4.0% – 45.7%

 

 

3.3% – 45.1%

 

 

3.9% – 50.9%

Weighted average

 

12.2%

 

9.8%

 

10.2%

 

8.3%

 

 

 

12.9%

 

 

9.7%

 

 

12.2%

 

 

9.8%

Life (in years)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Range

 

1.6 – 11.8

 

1.3 – 11.8

 

1.5 – 7.3

 

2.1 – 7.3

 

 

 

0.8 – 11.5

 

 

1.6 – 11.7

 

 

1.6 – 11.8

 

 

1.3 – 11.8

Weighted average

 

6.7

 

7.7

 

6.6

 

7.0

 

 

 

6.5

 

 

7.7

 

 

6.7

 

 

7.7

Per-loan annual cost of servicing

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Range

 

$68 – $105

 

$68 – $106

 

$59 – $82

 

$59 – $82

 

 

 

$78 – $98

 

 

$79 –  $98

 

 

$68 – $105

 

 

$68 – $106

Weighted average

 

$89

 

$90

 

$74

 

$75

 

 

 

$88

 

 

$89

 

 

$89

 

 

$90


(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.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six months ended June 30, 

 

 

 

2017

 

 

2016

 

 

 

Fair

 

 

Amortized

 

 

Fair

 

 

Amortized

 

 

 

value

 

 

cost

 

 

value

 

 

cost

 

 

 

(Amount recognized and unpaid principal balance of underlying mortgage loans in thousands)

MSR and pool characteristics:

    

 

 

    

 

 

    

 

 

    

 

 

Amount recognized

 

 

$13,929

 

 

$259,145

 

 

$9,288

 

 

$223,966

Unpaid principal balance of underlying mortgage loans

 

 

$1,299,940

 

 

$21,706,206

 

 

$768,240

 

 

$17,354,721

Weighted average servicing fee rate (in basis points)

 

 

30

 

 

29

 

 

33

 

 

31

Key inputs:

 

 

 

 

 

 

 

 

 

 

 

 

Pricing spread (1) 

 

 

 

 

 

 

 

 

 

 

 

 

Range

 

 

7.6% – 11.0%

 

 

7.6% – 15.2%

 

 

7.2% – 9.8%

 

 

7.2% – 14.4%

Weighted average

 

 

10.5%

 

 

10.7%

 

 

8.7%

 

 

8.9%

Annual total prepayment speed (2) 

 

 

 

 

 

 

 

 

 

 

 

 

Range

 

 

4.2% – 71.8%

 

 

3.4% – 45.7%

 

 

3.3% – 52.3%

 

 

3.8% – 50.9%

Weighted average

 

 

12.1%

 

 

9.0%

 

 

12.7%

 

 

10.3%

Life (in years)

 

 

 

 

 

 

 

 

 

 

 

 

Range

 

 

0.8 – 11.5

 

 

1.6 – 12.2

 

 

1.3 – 11.8

 

 

1.3 – 11.9

Weighted average

 

 

6.7

 

 

8.0

 

 

6.5

 

 

7.5

Per-loan annual cost of servicing

 

 

 

 

 

 

 

 

 

 

 

 

Range

 

 

$78 – $101

 

 

$79 – $101

 

 

$68 – $105

 

 

$68 – $106

Weighted average

 

 

$89

 

 

$90

 

 

$85

 

 

$87

3241


 

Table of Contents

 

 

 

 

 

 

 

 

 

 

 

 

Six months ended June 30, 

 

 

 

2016

 

2015

 

 

 

Fair

 

Amortized

 

Fair

 

Amortized

 

 

 

value

 

cost

 

value

 

cost

 

 

 

(Amount recognized and unpaid principal balance of underlying mortgage loans in thousands)

 

 

 

 

 

 

 

 

 

 

 

MSR and pool characteristics:

    

 

    

 

    

 

    

 

 

Amount recognized

 

$9,288

 

$223,966

 

$6,118

 

$192,842

 

Unpaid principal balance of underlying mortgage loans

 

$768,240

 

$17,354,721

 

$522,130

 

$13,899,109

 

Weighted average servicing fee rate (in basis points)

 

33

 

31

 

33

 

35

 

Key inputs:

 

 

 

 

 

 

 

 

 

Pricing spread (1) 

 

 

 

 

 

 

 

 

 

Range

 

7.2% – 9.8%

 

7.2% – 14.4%

 

7.0% – 14.4%

 

6.8% – 15.9%

 

Weighted average

 

8.7%

 

8.9%

 

10.3%

 

9.3%

 

Annual total prepayment speed (2) 

 

 

 

 

 

 

 

 

 

Range

 

3.3% – 52.3%

 

3.8% – 50.9%

 

7.7% – 62.4%

 

7.6% – 39.4%

 

Weighted average

 

12.7%

 

10.3%

 

11.0%

 

8.5%

 

Life (in years)

 

 

 

 

 

 

 

 

 

Range

 

1.3 – 11.8

 

1.3 – 11.9

 

1.1 – 7.3

 

1.8 – 7.3

 

Weighted average

 

6.5

 

7.5

 

6.4

 

7.0

 

Per-loan annual cost of servicing

 

 

 

 

 

 

 

 

 

Range

 

$68 – $105

 

$68 – $106

 

$59 – $82

 

$59 – $82

 

Weighted average

 

$85

 

$87

 

$74

 

$75

 


(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”)LIBOR curve for purposes of discounting cash flows relating to MSRs.

 

(2)

Prepayment speed is measured using Life Total CPR.

 

33


Table of Contents

Following is a quantitative summary of key inputs used in the valuation and assessment for impairment of the Company’s MSRs at period end and the effect on fair value from adverse changes in those inputs (weighted averages are based upon UPB):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2016

 

December 31, 2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair

 

Amortized

 

Fair

 

Amortized

 

 

 

June 30, 2017

 

 

December 31, 2016

 

    

value

    

cost

    

value

    

cost

 

 

 

Fair

 

 

Amortized

 

 

Fair

 

Amortized

 

 

(Carrying value, unpaid principal balance of underlying 

 

 

  

value

  

  

cost

  

  

value

  

cost

 

 

mortgage loans and effect on fair value amounts in thousands)

 

 

 

(Carrying value, unpaid principal balance of underlying 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

mortgage loans and effect on fair value amounts in thousands)

 

MSR and pool characteristics:

    

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  

 

 

 

  

 

 

 

 

 

 

 

Carrying value

 

$

526,294

 

$

764,634

 

$

660,247

 

$

751,688

 

 

 

$

678,441

 

 

$

1,273,158

 

 

$

515,925

 

$

1,111,747

 

Unpaid principal balance of underlying mortgage loans

 

$

49,376,858

 

$

67,659,946

 

$

54,182,477

 

$

56,420,227

 

 

 

$

56,775,177

 

 

$

100,448,732

 

 

$

43,667,165

 

$

85,509,941

 

Weighted average note interest rate

 

 

4.1%

 

 

3.8%

 

 

4.1%

 

 

3.8%

 

 

 

 

4.0%

 

 

 

3.7%

 

 

 

4.1%

 

 

3.7%

 

Weighted average servicing fee rate (in basis points)

 

 

32

 

 

32

 

 

32

 

 

32

 

 

 

 

32

 

 

 

30

 

 

 

32

 

 

31

 

Key inputs:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pricing spread (1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pricing spread (1):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Range

 

 

7.6% – 14.4%

 

 

7.6% – 14.4%

 

 

7.2% – 14.1%

 

 

7.2% – 12.8%

 

 

 

 

10.0% – 14.3%

 

 

 

7.6% – 14.3%

 

 

 

7.6% – 14.9%

 

 

 

7.6% – 14.9%

 

Weighted average

 

 

8.8%

 

 

9.2%

 

 

8.9%

 

 

8.9%

 

 

 

 

10.6%

 

 

 

10.6%

 

 

 

10.1%

 

 

 

10.7%

 

Effect on fair value of (2):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5% adverse change

 

$

(8,472)

 

$

(12,998)

 

$

(11,115)

 

$

(13,467)

 

 

 

$

(12,381)

 

 

$

(25,059)

 

 

$

(9,097)

 

$

(22,382)

 

10% adverse change

 

$

(16,665)

 

$

(25,551)

 

$

(21,857)

 

$

(26,472)

 

 

 

$

(24,302)

 

 

$

(49,154)

 

 

$

(17,872)

 

$

(43,889)

 

20% adverse change

 

$

(32,268)

 

$

(49,405)

 

$

(42,293)

 

$

(51,183)

 

 

 

$

(46,865)

 

 

$

(94,654)

 

 

$

(34,516)

 

$

(84,464)

 

Average life (in years)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Prepayment speed (3):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Range

 

 

1.6 – 8.9

 

 

1.3 – 9.2

 

 

1.9 – 9.0

 

 

1.8 – 9.1

 

 

 

 

7.6% – 70.8%

 

 

 

7.3% – 43.2%

 

 

 

7.0% – 46.7%

 

 

 

6.6% – 43.9%

 

Weighted average

 

 

6.0

 

 

6.3

 

 

6.9

 

 

7.4

 

 

 

 

10.6%

 

 

 

9.2%

 

 

 

10.3%

 

 

 

8.7%

 

Prepayment speed (3)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average life (in years):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Range

 

 

6.8% – 38.6%

 

 

6.8% – 53.1%

 

 

5.3% – 43.8%

 

 

5.7% – 46.7%

 

 

 

 

3.5 – 8.2

 

 

 

2.0 – 8.9

 

 

 

1.3 – 8.6

 

 

1.6 – 9.4

 

Weighted average

 

 

12.7%

 

 

12.8%

 

 

9.7%

 

 

9.5%

 

 

 

 

6.8

 

 

 

7.8

 

 

 

6.7

 

 

 

8.1

 

Effect on fair value of (2):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5% adverse change

 

$

(11,946)

 

$

(18,312)

 

$

(12,475)

 

$

(14,360)

 

 

 

$

(11,403)

 

 

$

(20,003)

 

 

$

(8,818)

 

$

(16,636)

 

10% adverse change

 

$

(23,401)

 

$

(35,830)

 

$

(24,499)

 

$

(28,197)

 

 

 

$

(22,421)

 

 

$

(39,356)

 

 

$

(17,336)

 

$

(32,750)

 

20% adverse change

 

$

(44,946)

 

$

(68,674)

 

$

(47,286)

 

$

(54,406)

 

 

 

$

(43,374)

 

 

$

(76,236)

 

 

$

(33,533)

 

$

(63,513)

 

Annual per-loan cost of servicing

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Annual per-loan cost of servicing:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Range

 

 

$78 – $105

 

 

$79 – $106

 

 

$68 – $97

 

 

$68 – $95

 

 

 

 

$78 – $98

 

 

 

$79 – $98

 

 

 

$78 – $101

 

 

$79 – $101

 

Weighted average

 

 

$96

 

 

$94

 

 

$86

 

 

$84

 

 

 

 

$89

 

 

 

$89

 

 

 

$92

 

 

$92

 

Effect on fair value of (2):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5% adverse change

 

$

(6,393)

 

$

(6,680)

 

$

(6,812)

 

$

(5,725)

 

 

 

$

(6,645)

 

 

$

(9,965)

 

 

$

(5,612)

 

$

(8,890)

 

10% adverse change

 

$

(12,785)

 

$

(13,361)

 

$

(13,624)

 

$

(11,451)

 

 

 

$

(13,290)

 

 

$

(19,230)

 

 

$

(11,225)

 

$

(17,781)

 

20% adverse change

 

$

(25,570)

 

$

(26,722)

 

$

(27,247)

 

$

(22,901)

 

 

 

$

(26,580)

 

 

$

(39,858)

 

 

$

(22,450)

 

$

(35,562)

 


(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 may result in recognition of MSR impairment. The extent of the recognized MSR impairment will depend on the relationship of fair value to the carrying value of such MSRs.

(3)

Prepayment speed is measured using Life Total CPR.

42


Table of Contents

 

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.

34


Table of Contents

Excess Servicing Spread Financing at Fair Value

 

The Company categorizes ESS as a “Level 3” fair value financial statement item.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 athe same discounted cash flow approach to estimatemeasuring the fair valueESS 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. Increases in the fair value of ESS decrease income and are included in Net mortgage loan servicing fees.

Interest expense for ESS is accrued using the interest method based upon the expected cash flows from the ESS through the expected life of the underlying mortgage loans. Other changes in fair value are recorded in feesAmortization, impairment and changeChange in fair value of mortgageexcess servicing rights.spread payable to PennyMac Mortgage Investment Trust.

 

Following are the key inputs used in estimating the fair value of ESS:ESS financing:

 

 

 

 

 

 

 

June 30, 

 

December 31, 

 

 

 

 

 

    

2016

    

2015

 

 

June 30, 

 

December 31, 

 

 

 

 

 

    

2017

   

2016

Carrying value (in thousands)

 

$294,551

 

$412,425

 

 

$261,796

 

$288,669

ESS and pool characteristics:

 

 

 

 

 

 

 

 

 

Unpaid principal balance of underlying mortgage loans (in thousands)

 

$36,151,940

 

$51,966,405

 

 

$29,716,891

 

$32,376,359

Average servicing fee rate (in basis points)

 

34

 

32

 

 

34

 

34

Average excess servicing spread (in basis points)

 

19

 

17

 

 

19

 

19

Key inputs:

 

 

 

 

 

 

 

 

 

Pricing spread (1)

 

 

 

 

 

Pricing spread (1):

 

 

 

 

Range

 

4.7% – 5.9%

 

4.8% – 6.5%

 

 

3.8% – 4.4%

 

3.8% – 4.8%

Weighted average

 

5.5%

 

5.7%

 

 

4.2%

 

4.4%

Average life (in years)

 

 

 

 

 

Annualized prepayment speed (2):

 

 

 

 

Range

 

1.6 – 8.9

 

1.4 – 9.0

 

 

7.7% – 70.9%

 

7.0% – 41.3%

Weighted average

 

6.2

 

6.9

 

 

10.7%

 

10.5%

Annualized prepayment speed (2)

 

 

 

 

 

Average life (in years):

 

 

 

 

Range

 

6.8% – 37.3%

 

5.2% – 52.4%

 

 

0.7 – 8.1

 

1.4 – 8.6

Weighted average

 

12.5%

 

9.6%

 

 

6.6

 

6.8


(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, and the per-loan annual cost to service the respective mortgage loans. Changes in the fair value of MSLs are included in Net servicing feesAmortization, impairment and change in fair value of mortgage servicing rights and mortgage servicing liabilities in the consolidated statements of income.

3543


 

Table of Contents

Note 8—Mortgage Loans Held for Sale at Fair Value

Mortgage loans held for sale at fair value includeFollowing are the following:

 

 

 

 

 

 

 

 

 

 

June 30, 

 

December 31, 

 

 

    

2016

    

2015

 

 

 

(in thousands)

 

 

 

 

 

 

 

 

 

Government-insured or guaranteed

    

$

1,947,944

    

$

992,805

 

Conventional conforming

 

 

109,744

 

 

59,868

 

Jumbo

 

 

1,371

 

 

 —

 

Delinquent mortgage loans purchased from Ginnie Mae pools serviced by the Company

 

 

28,745

 

 

42,600

 

Mortgage loans repurchased pursuant to representations and warranties

 

 

9,334

 

 

5,931

 

 

 

$

2,097,138

 

$

1,101,204

 

Fair value of mortgage loans pledged to secure:

 

 

 

 

 

 

 

Assets sold under agreements to repurchase

 

$

1,302,339

 

$

833,748

 

Mortgage loan participation and sale agreement

 

 

769,629

 

 

245,741

 

 

 

$

2,071,968

 

$

1,079,489

 

Note 9—Derivative Financial Instruments

The Company is exposed to fair value risk relative to its mortgage loans held for sale as well 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 losskey inputs used in fair value of its IRLCs and mortgage loans held for sale when market mortgage interest rates increase. The Company is exposed to loss in fair value of its MSRs when market mortgage interest rates decrease.

The Company engages in interest rate risk management activities in an effort to reduce the variability of earnings caused by changes in market interest rates. To manage this 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 indetermining the fair value of the Company’s IRLCs, inventory of mortgage loans held for sale and MSRs.

The Company does not use derivative financial instruments for purposes other than in support of its risk management activities other than IRLCs, which are generated in the process of purchasing or originating mortgage loans held for sale. The Company records all derivative financial instruments at fair value and records changes in fair value in current period income.

36


Table of Contents

The Company had the following derivative financial instruments recorded on its consolidated balance sheets:MSLs:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2016

 

December 31, 2015

 

 

 

 

 

Fair value

 

 

 

Fair value

 

 

 

Notional

 

Derivative

 

Derivative

 

Notional

 

Derivative

 

Derivative

 

Instrument

    

amount

    

assets

    

liabilities

    

amount

    

assets

    

liabilities

 

 

 

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivatives not designated as hedging instruments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate lock commitments

 

3,868,230

 

$

91,607

 

$

1,345

 

3,487,366

 

$

45,885

 

$

2,112

 

Forward purchase contracts

 

13,510,863

 

 

125,358

 

 

119

 

5,254,293

 

 

4,181

 

 

9,004

 

Forward sales contracts

 

13,614,196

 

 

664

 

 

101,772

 

6,230,811

 

 

4,965

 

 

7,497

 

MBS put options

 

3,550,000

 

 

1,777

 

 

 —

 

1,275,000

 

 

404

 

 

 —

 

Put options on interest rate futures purchase contracts

 

1,000,000

 

 

1,618

 

 

2,070

 

1,650,000

 

 

1,832

 

 

203

 

Call options on interest rate futures purchase contracts

 

452,100

 

 

8,279

 

 

234

 

600,000

 

 

1,555

 

 

47

 

Total derivatives before netting

 

 

 

 

229,303

 

 

105,540

 

 

 

 

58,822

 

 

18,863

 

Netting

 

 

 

 

(104,761)

 

 

(101,806)

 

 

 

 

(8,542)

 

 

(9,780)

 

 

 

 

 

$

124,542

 

$

3,734

 

 

 

$

50,280

 

$

9,083

 

Deposits placed with (received from) derivative counterparties, net

 

 

 

$

2,955

 

 

 

 

 

 

$

(1,238)

 

 

 

 

The following table summarizes the notional value activity for derivative contracts used in the Company’s hedging activities:

 

 

 

 

 

 

 

 

 

 

 

 

Quarter ended June 30, 2016

 

 

 

Balance

 

                            

 

                            

 

Balance

 

 

 

beginning of

 

 

 

Dispositions/

 

end of

 

Instrument

    

period

    

Additions

    

expirations

    

period

 

 

 

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

Forward purchase contracts

 

9,464,470

 

46,870,345

 

(42,823,952)

 

13,510,863

 

Forward sale contracts

 

10,418,906

 

56,521,979

 

(53,326,689)

 

13,614,196

 

MBS put options

 

1,375,000

 

6,750,000

 

(4,575,000)

 

3,550,000

 

Put options on interest rate futures purchase contracts

 

1,750,000

 

1,650,000

 

(2,400,000)

 

1,000,000

 

Call options on interest rate futures purchase contracts

 

3,937,500

 

 —

 

(3,485,400)

 

452,100

 

 

 

 

 

 

 

 

 

 

 

 

 

Quarter ended June 30, 2015

 

 

 

Balance

 

                            

 

                            

 

Balance

 

 

 

beginning of

 

 

 

Dispositions/

 

end of

 

Instrument

    

period

    

Additions

    

expirations

    

period

 

 

 

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

Forward purchase contracts

 

5,124,867

 

25,739,853

 

(24,662,302)

 

6,202,418

 

Forward sale contracts

 

7,464,527

 

37,634,838

 

(35,309,801)

 

9,789,564

 

MBS put options

 

450,000

 

457,500

 

(580,000)

 

327,500

 

MBS call options

 

 —

 

160,000

 

 —

 

160,000

 

Put options on interest rate futures purchase contracts

 

1,470,500

 

2,284,500

 

(1,735,500)

 

2,019,500

 

Call options on interest rate futures purchase contracts

 

870,000

 

2,170,000

 

(2,015,000)

 

1,025,000

 

Put options on interest rate futures sale contracts

 

100,000

 

 —

 

(100,000)

 

 —

 

37

 

 

 

 

 

 

 

 

 

June 30, 

 

December 31, 

 

    

2017

    

2016

MSL and pool characteristics:

 

 

 

 

 

 

Carrying value (in thousands)

 

$

18,295

 

$

15,192

Unpaid principal balance of underlying mortgage loans (in thousands)

 

$

1,698,588

 

$

2,074,896

Weighted average servicing fee rate (in basis points)

 

 

25

 

 

25

Key inputs:

 

 

 

 

 

 

Pricing spread (1)

 

 

7.8%

 

 

8.0%

Prepayment speed (2) 

 

 

32.3%

 

 

31.7%

Average life (in years)

 

 

3.6

 

 

3.7

Annual per-loan cost of servicing

 

$

443

 

$

497

Table of Contents

(1)

The Company applies a pricing spread to the United States Dollar LIBOR curve for purposes of discounting cash flows relating to MSLs.

 

 

 

 

 

 

 

 

 

 

 

 

Six months ended June 30, 2016

 

 

 

Balance

 

                            

 

                            

 

Balance

 

 

 

beginning of

 

 

 

Dispositions/

 

end of

 

Instrument

    

period

    

Additions

    

expirations

    

period

 

 

 

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

Forward purchase contracts

 

5,254,293

 

77,682,720

 

(69,426,150)

 

13,510,863

 

Forward sale contracts

 

6,230,811

 

95,918,405

 

(88,535,020)

 

13,614,196

 

MBS put options

 

1,275,000

 

9,450,000

 

(7,175,000)

 

3,550,000

 

Put options on interest rate futures purchase contracts

 

1,650,000

 

4,675,000

 

(5,325,000)

 

1,000,000

 

Call options on interest rate futures purchase contracts

 

600,000

 

3,637,500

 

(3,785,400)

 

452,100

 

 

 

 

 

 

 

 

 

 

 

 

 

Six months ended June 30, 2015

 

 

 

Balance

 

                            

 

                            

 

Balance

 

 

 

beginning of

 

 

 

Dispositions/

 

end of

 

Instrument

    

period

    

Additions

    

expirations

    

period

 

 

 

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

Forward purchase contracts

 

2,634,218

 

45,375,703

 

(41,807,503)

 

6,202,418

 

Forward sale contracts

 

3,901,851

 

64,375,110

 

(58,487,397)

 

9,789,564

 

MBS put options

 

340,000

 

1,242,500

 

(1,255,000)

 

327,500

 

MBS call options

 

 —

 

160,000

 

 —

 

160,000

 

Put options on interest rate futures purchase contracts

 

755,000

 

3,825,000

 

(2,560,500)

 

2,019,500

 

Call options on interest rate futures purchase contracts

 

630,000

 

2,915,000

 

(2,520,000)

 

1,025,000

 

Put options on interest rate futures sale contracts

 

50,000

 

50,000

 

(100,000)

 

 —

 

Call options on interest rate futures sales contracts

 

 —

 

35,100

 

(35,100)

 

 —

 

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 June 30, 

 

Six months ended June 30, 

 

 

Hedged item

    

Income statement line

    

2016

    

2015

    

2016

    

2015

 

 

 

 

 

 

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate lock commitments and mortgage loans held for sale

 

Net gains on mortgage loans held for sale

 

$

(48,943)

 

$

45,029

 

$

(118,119)

 

$

19,241

 

 

Mortgage servicing rights

 

Net mortgage loan servicing fees

 

$

64,948

 

$

(28,317)

 

$

123,668

 

$

(11,196)

 

 

(2)

Prepayment speed is measured using Life Total CPR.

 

 

 

 

 

 

 

38


Table of Contents

Note 10—9—Mortgage Servicing Rights and Mortgage Servicing Liabilities

 

Carried at Fair Value

 

The activity in MSRs carried at fair value is as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

Quarter ended June 30, 

 

Six months ended June 30, 

 

 

 

 

 

 

 

 

 

 

 

 

2016

 

2015

 

2016

 

2015

 

 

Quarter ended June 30, 

 

Six months ended June 30, 

 

(in thousands)

 

    

2017

    

2016

    

2017

 

2016

 

 

 

 

 

 

 

 

 

 

 

 

 

(in thousands)

Balance at beginning of period

    

$

594,403

    

$

361,413

    

$

660,247

    

$

325,383

    

 

$

506,916

 

$

594,403

 

$

515,925

    

$

660,247

Additions:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Purchases

 

 

 —

 

206,996

 

 

11

 

 

270,133

 

 

 

183,586

 

 —

 

 

183,789

 

 

11

Mortgage servicing rights resulting from mortgage loan sales

 

 

4,820

 

 

3,443

 

 

9,288

 

 

6,118

 

 

 

7,945

 

 

4,820

 

 

13,929

 

 

9,288

 

 

4,820

 

 

210,439

 

 

9,299

 

 

276,251

 

 

 

191,531

 

 

4,820

 

 

197,718

 

 

9,299

 

 

 

 

 

 

 

 

 

 

Change in fair value due to:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Changes in valuation inputs used in valuation model (1)

 

 

(51,855)

 

26,308

 

 

(100,731)

 

 

8,593

 

 

 

(1,588)

 

(51,855)

 

 

404

 

 

(100,731)

Other changes in fair value (2)

 

 

(21,074)

 

 

(16,891)

 

 

(42,521)

 

 

(28,958)

 

 

 

(18,418)

 

 

(21,074)

 

 

(35,606)

 

 

(42,521)

Total change in fair value

 

 

(72,929)

 

 

9,417

 

 

(143,252)

 

 

(20,365)

 

 

 

(20,006)

 

 

(72,929)

 

 

(35,202)

 

 

(143,252)

Balance at end of period

 

$

526,294

 

$

581,269

 

$

526,294

 

$

581,269

 

 

$

678,441

 

$

526,294

 

$

678,441

 

$

526,294

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 

 

December 31,

 

 

 

 

 

 

 

 

June 30, 

 

December 31,

 

 

 

 

 

 

 

2016

 

2015

 

 

 

 

 

 

 

 

2017

 

2016

 

 

 

 

 

 

Fair value of mortgage servicing rights pledged to secure:

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets sold under agreements to repurchase

 

$

418,257

 

$

37,705

 

 

 

 

 

 

 

Note payable

 

 

107,160

 

 

20,881

 

 

 

 

 

 

 

 

$

525,417

 

$

58,586

 

 

 

 

 

 

 

 

(in thousands)

 

 

 

 

 

 

Fair value of mortgage servicing rights pledged to secure Assets sold under agreements to repurchase and Notes payable

 

$

468,138

 

$

509,847

 

 

 

 

 

 


(1)

Principally reflects changes in discount rates and prepayment speed inputs, primarily due to changes in market interest rates.rates, and changes in expected borrower performance and servicer losses given default.

(2)

Represents changes due to realization of cash flows.

 

3944


 

Table of Contents

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 June 30, 

 

 

Six months ended June 30, 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

2016

    

2015

    

 

2016

    

2015

 

  

 

Quarter ended June 30, 

 

Six months ended June 30, 

 

 

(in thousands)

 

 

    

2017

    

2016

    

2017

    

2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(in thousands)

 

Amortized cost:

 

                  

 

                  

 

 

 

                  

 

 

 

 

 

 

 

 

 

 

 

 

                  

 

 

 

 

Balance at beginning of period

 

$

866,989

 

$

470,490

 

 

$

798,925

 

$

415,245

 

 

 

$

1,299,093

 

$

866,989

 

$

1,206,694

 

$

798,925

 

Mortgage servicing rights resulting from mortgage loan sales

 

127,652

 

125,561

 

 

 

223,966

 

 

192,842

 

 

 

 

128,927

 

 

127,652

 

 

259,145

 

 

223,966

 

Amortization

 

(33,050)

 

(14,493)

 

 

 

(61,300)

 

 

(26,529)

 

 

 

 

(43,279)

 

 

(33,050)

 

 

(81,098)

 

 

(61,300)

 

Application of valuation allowance to write down mortgage servicing rights with other-than-temporary-impairment

 

 

 —

 

 

 —

 

 

 

 —

 

 

 —

 

 

Balance at end of period

 

 

961,591

 

 

581,558

 

 

 

961,591

 

 

581,558

 

 

 

 

1,384,741

 

 

961,591

 

 

1,384,741

 

 

961,591

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Valuation allowance:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at beginning of period

 

(124,310)

 

(41,492)

 

 

 

(47,237)

 

 

(9,800)

 

 

 

 

(80,948)

 

 

(124,310)

 

 

(94,947)

 

 

(47,237)

 

Additions

 

(72,647)

 

14,175

 

 

 

(149,720)

 

 

(17,517)

 

 

Application of valuation allowance to write down mortgage servicing rights with other-than-temporary-impairment

 

 

 —

 

 

 —

 

 

 

 —

 

 

 —

 

 

Reductions (additions)

 

 

(30,635)

 

 

(72,647)

 

 

(16,636)

 

 

(149,720)

 

Balance at end of period

 

 

(196,957)

 

 

(27,317)

 

 

 

(196,957)

 

 

(27,317)

 

 

 

 

(111,583)

 

 

(196,957)

 

 

(111,583)

 

 

(196,957)

 

Mortgage servicing rights, net

 

$

764,634

 

$

554,241

 

 

$

764,634

 

$

554,241

 

 

Mortgage servicing rights, net at end of period

 

$

1,273,158

 

$

764,634

 

$

1,273,158

 

$

764,634

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair value of mortgage servicing rights at beginning of period

 

$

743,062

 

$

437,824

 

 

$

766,345

 

$

416,802

 

 

 

$

1,227,077

 

$

743,062

 

$

1,112,302

 

$

766,345

 

Fair value of mortgage servicing rights at end of period

 

$

764,634

 

$

569,969

 

 

 

 

 

 

 

 

 

 

$

1,273,364

 

$

764,634

 

$

1,273,364

 

$

764,634

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 

 

December 31,

 

 

 

 

 

 

 

 

 

 

June 30, 

 

December 31,

 

 

 

 

 

 

 

 

2016

 

2015

 

 

 

 

 

 

 

 

 

 

2017

 

2016

 

 

 

 

 

 

 

Fair value of mortgage servicing rights pledged to secure:

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets sold under agreements to repurchase

 

$

739,763

 

$

744,974

 

 

 

 

 

 

 

 

Note payable

 

 

20,520

 

 

 —

 

 

 

 

 

 

 

 

 

 

$

760,283

 

$

744,974

 

 

 

 

 

 

 

 

 

(in thousands)

 

 

 

 

 

 

 

Fair value of mortgage servicing rights pledged to secure assets sold under agreements to repurchase and note payable

 

$

1,267,981

 

$

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 June 30, 20162017 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

 

 

Estimated MSR

Twelve month period ending June 30,

    

amortization

 

    

amortization

 

(in thousands)

 

 

(in thousands)

 

 

 

 

2017

 

$

139,642

 

2018

 

 

114,718

 

 

$

162,473

2019

 

 

97,719

 

 

145,784

2020

 

 

84,154

 

 

131,122

2021

 

 

73,351

 

 

117,708

2022

 

105,638

Thereafter

 

 

452,007

 

 

 

722,016

 

$

961,591

 

 

$

1,384,741

 

 

4045


 

Table of Contents

Mortgage Servicing Liabilities Carried at Fair Value

The activity in MSLs carried at fair value is summarized below:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Quarter ended June 30, 

 

Six months ended June 30, 

 

 

    

2017

    

2016

 

2017

    

2016

    

 

 

(in thousands)

 

Balance at beginning of period

 

$

15,994

 

$

6,747

 

$

15,192

 

$

1,399

 

Mortgage servicing liabilities resulting from mortgage loan sales

 

 

3,810

 

 

 —

 

 

7,869

 

 

5,409

 

Changes in fair value due to:

 

 

 

 

 

 

 

 

 

 

 

 

 

Changes in valuation inputs used in valuation model (1)

 

 

4,705

 

 

 —

 

 

7,995

 

 

 —

 

Other changes in fair value (2) 

 

 

(6,214)

 

 

(2,066)

 

 

(12,761)

 

 

(2,127)

 

Total change in fair value

 

 

(1,509)

 

 

(2,066)

 

 

(4,766)

 

 

(2,127)

 

Balance at end of period

 

$

18,295

 

$

4,681

 

$

18,295

 

$

4,681

 


(1)

Principally reflects changes in expected borrower performance and servicer losses given default.

(2)

Represents changes due to realization of cash flows.

Servicing fees relating to MSRs and MSLs are recorded in Net mortgage loan servicing fees—LoanMortgage 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—LoanMortgage loan servicing fees—Ancillary and other fees on the Company’s consolidated statements of income. The feesSuch amounts are summarized below:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Quarter ended June 30, 

 

Six months ended June 30, 

 

 

    

2016

    

2015

    

2016

    

2015

 

 

 

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Contractual servicing fees

 

$

92,770

 

$

66,867

 

$

184,097

 

$

116,968

 

Ancillary and other fees:

 

 

                  

 

 

                  

 

 

 

 

 

                  

 

Late charges

 

 

1,346

 

 

1,467

 

 

2,881

 

 

3,118

 

Other

 

 

476

 

 

691

 

 

860

 

 

1,402

 

 

 

$

94,592

 

$

69,025

 

$

187,838

 

$

121,488

 

Mortgage Servicing Liabilities Carried at Fair Value

The activity in mortgage servicing liabilities carried at fair value is summarized below:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Quarter ended June 30, 

 

Six months ended June 30, 

 

 

    

2016

    

2015

    

2016

    

2015

 

 

 

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at beginning of period

 

$

6,747

 

$

6,529

 

$

1,399

 

$

6,306

 

Mortgage servicing liabilities resulting from mortgage loan sales

 

 

 —

 

 

9,156

 

 

5,409

 

 

12,084

 

Change in fair value

 

 

(2,066)

 

 

(3,894)

 

 

(2,127)

 

 

(6,599)

 

Balance at end of period

 

$

4,681

 

$

11,791

 

$

4,681

 

$

11,791

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Quarter ended June 30, 

 

Six months ended June 30, 

 

 

    

2017

    

2016

    

2017

    

2016

 

 

 

(in thousands)

 

Contractual servicing fees

 

$

112,348

 

$

92,770

 

$

218,815

 

$

184,097

 

Ancillary and other fees:

 

 

 

 

 

 

 

 

 

 

 

                  

 

Late charges

 

 

5,905

 

 

1,424

 

 

12,589

 

 

3,044

 

Other

 

 

1,101

 

 

488

 

 

2,026

 

 

883

 

 

 

$

119,354

 

$

94,682

 

$

233,430

 

$

188,024

 

 

 

Note 11—10—Carried Interest Due from Investment Funds

 

The activity in the Company’s Carried Interest due from Investment Funds is summarized as follows:

 

 

 

 

 

 

 

 

 

 

 

Quarter ended June 30, 

 

Six months ended June 30, 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

2016

    

2015

    

2016

    

2015

 

 

Quarter ended June 30, 

 

Six months ended June 30, 

 

 

(in thousands)

 

    

2017

    

2016

    

2017

    

2016

 

 

 

 

 

 

 

 

 

 

 

 

(in thousands)

 

Balance at beginning of period

 

$

70,519

 

$

68,531

 

$

69,926

 

$

67,298

 

 

$

70,778

 

$

70,519

 

$

70,906

 

$

69,926

 

Carried Interest recognized during the period

 

244

 

182

 

837

 

1,415

 

 

 

241

 

 

244

 

 

113

 

 

837

 

Proceeds received during the period

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

Balance at end of period

 

$

70,763

 

$

68,713

 

$

70,763

 

$

68,713

 

 

$

71,019

 

$

70,763

 

$

71,019

 

$

70,763

 

 

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.

 

ManagementDuring the quarter ended June 30, 2017, the Investment Funds entered into agreements to sell their remaining assets to a non-affiliate. If the sale settles as anticipated, the Company expects to collect a substantial portion of the Carried Interest to be collected byduring 2017 and the Company when the Investment Funds liquidate.remaining balance during 2018. The Investment Fund limited liability company and limited partnershipsale agreements specify that the funds will continue in existence through December 31, 2016,are subject to three one-year extensions by PCMcontinuing due diligence and closing conditions. There can be no assurance regarding the size of the transaction or whether the transaction will be completed at its discretion.all.

 

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Table of Contents

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 June 30, 2016.2017.

 

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Table of Contents

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 securedbacked 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 for two agreements andor on LIBOR fordepending on the other fourterms of the respective agreements. Mortgage loans and MSRs financed under these agreements may be re-pledged by the lenders.

 

Following is a summary of financial information relating to assetsAssets sold under agreements to repurchase:repurchase are summarized below:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Quarter ended June 30, 

 

Six months ended June 30, 

 

 

Quarter ended June 30, 

 

Six months ended June 30, 

 

 

    

2016

    

2015

    

2016

    

2015

 

    

2017

    

2016

    

2017

    

2016

 

 

 

(dollars in thousands)

 

 

(dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

During the period:

 

 

 

 

 

 

 

 

 

 

 

 

Average balance of assets sold under agreements to repurchase

 

$

1,352,401

 

$

819,988

 

$

1,195,987

 

$

719,003

 

 

$

2,082,668

 

$

1,352,401

 

$

1,801,138

 

$

1,195,987

 

 

Weighted average interest rate (1)

 

 

3.06

%  

 

1.80

%  

 

2.87

%  

 

1.80

%

 

 

3.13

%  

 

3.06

%

 

3.11

%  

 

2.87

%

 

Total interest expense

 

$

12,252

 

$

4,758

 

$

20,912

 

$

8,498

 

 

$

19,101

 

$

12,252

 

$

33,046

 

$

20,912

 

 

Maximum daily amount outstanding

 

$

1,803,371

 

$

1,264,046

 

$

1,863,455

 

$

1,264,046

 

 

$

3,617,164

 

$

1,803,371

 

$

3,617,164

 

$

1,863,455

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 

 

 

December 31, 

 

 

 

 

 

 

 

 

    

2016

    

2015

 

 

 

June 30, 

 

 

December 31, 

 

 

(dollars in thousands)

 

    

2017

    

2016

 

 

 

 

 

 

 

 

 

(dollars in thousands)

 

Carrying value:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unpaid principal balance

 

$

1,591,947

 

$

1,167,405

 

 

$

3,023,288

 

$

1,736,922

 

Unamortized debt issuance costs

 

 

(149)

 

 

(674)

 

 

 

(1,960)

 

 

(1,808)

 

 

$

1,591,798

 

$

1,166,731

 

 

$

3,021,328

 

$

1,735,114

 

Unused amount (2)

 

$

415,053

 

$

40,178

 

Fair value of assets securing repurchase agreements

 

 

 

 

 

 

 

Weighted average interest rate

 

 

2.91

%

 

3.02

%

Available borrowing capacity (2) (3):

 

 

 

 

 

 

 

Committed

 

$

142,723

 

$

347,487

 

Uncommitted

 

 

1,338,989

 

 

857,591

 

 

$

1,481,712

 

$

1,205,078

 

Fair value of assets securing repurchase agreements:

 

 

 

 

 

 

 

Mortgage loans held for sale

 

$

1,302,339

 

$

833,748

 

 

$

2,766,171

 

$

1,422,255

 

Servicing advances

 

$

72,010

 

$

81,306

 

Mortgage servicing rights

 

 

1,158,020

 

 

782,679

 

 

$

1,202,483

 

$

1,479,322

 

 

$

2,460,359

 

$

1,616,427

 

Weighted average interest rate

 

 

2.68

%

 

2.50

%

Margin deposits placed with counterparties (3)

 

$

2,500

 

$

2,500

 

Assets purchased from PennyMac Mortgage Investment Trust under agreements to resell

 

$

150,000

 

$

150,000

 

Margin deposits placed with counterparties (4)

 

$

5,250

 

$

3,000

 


(1)

Excludes the effect of amortization of commitment fees totaling $1.8$2.6 million and $1.0$1.8 million for the quarters ended June 30, 20162017 and 2015,2016, respectively, and $3.6$4.9 million and $2.3$3.6 million for the six months ended June 30, 20162017 and 2015,2016, respectively.

(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 sold.

(3)

At June 30, 2017, available borrowing capacity includes $500 million of temporary increases in credit facility limits expiring on various dates through September 30, 2017.

(4)

Margin deposits are included in Other assets on the Company’s consolidated balance sheet.

47


Table of Contents

Following is a summary of maturities of outstanding advances under repurchase agreements by maturity date:

 

Remaining maturity at June 30, 2016

Balance

(in thousands)

Within 30 days

$

56,338

Over 30 to 90 days

1,535,033

Over 90 days

576

1,591,947

Unamortized debt issuance costs

(149)

Total loans sold under agreements to repurchase

$

1,591,798

Weighted average maturity (in months)

1.8

 

 

 

 

Remaining maturity at June 30, 2017

    

Balance

 

 

(dollars in thousands)

Within 30 days

 

$

591,929

Over 30 to 90 days

 

 

1,973,532

Over 180 days to one year

 

 

457,827

Total loans sold under agreements to repurchase

 

$

3,023,288

Weighted average maturity (in months)

 

 

3.1

 

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Table of Contents

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 mortgage loans held for saleassets sold under agreements to repurchase is summarized by counterparty below as of June 30, 2016:2017:

 

Weighted average

maturity of advances  

under repurchase

Counterparty

Amount at risk

agreement

Facility maturity

(in thousands)

Credit Suisse First Boston Mortgage Capital LLC

$

754,830

September 27, 2016

September 27, 2016

Credit Suisse First Boston Mortgage Capital LLC

$

43,002

September 8, 2016

March 30, 2017

Bank of America, N.A.

$

40,601

September 22, 2016

March 28, 2017

Morgan Stanley Bank, N.A.

$

15,071

August 24, 2016

August 26, 2016

Citibank, N.A.

$

13,851

August 8, 2016

October 20, 2016

Barclays Bank PLC

$

3,931

September 22, 2016

December 2, 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average

 

 

 

 

 

 

 

maturity of advances  

 

 

 

 

 

 

 

under repurchase

 

 

Counterparty

    

Amount at risk

    

agreement

    

Facility maturity

 

 

(in thousands)

 

 

 

 

Credit Suisse First Boston Mortgage Capital LLC

 

$

91,587

 

April 27, 2018

 

April 27, 2018

Credit Suisse First Boston Mortgage Capital LLC

 

$

48,987

 

August 1, 2017

 

April 27, 2018

Bank of America, N.A.

 

$

69,343

 

September 19, 2017

 

May 25, 2018

JP Morgan Chase Bank, N.A.

 

$

41,179

 

August 19, 2017

 

October 13, 2017

Barclays Bank PLC

 

$

13,758

 

September 19, 2017

 

December 1, 2017

Citibank, N.A.

 

$

10,631

    

August 2, 2017

    

March 2, 2018

Morgan Stanley Bank, N.A.

 

$

9,914

 

August 17, 2017

 

August 25, 2017

Royal Bank of Canada

 

$

7,406

 

September 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 and Sale Agreements

 

Certain of the borrowing facilities secured by mortgage loans held for sale are in the form of mortgage loan participation 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 andprice. 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 and sale agreement isagreements are summarized below:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Quarter ended June 30, 

 

Six months ended June 30, 

 

 

    

2016

    

2015

    

2016

    

2015

 

 

 

(dollars in thousands)

 

 

 

 

 

During the period:

 

 

 

 

 

 

 

 

 

 

 

 

 

Average balance

 

$

189,363

 

$

162,150

 

$

178,460

 

$

144,484

 

Weighted average interest rate (1)

 

 

1.69

%  

 

1.43

%  

 

1.68

%  

 

1.43

%

Total interest expense

 

$

917

 

$

651

 

$

1,698

 

$

1,239

 

Maximum daily amount outstanding

 

$

737,319

 

$

199,572

 

$

737,319

 

$

199,572

 

 

 

 

 

 

 

 

 

 

 

June 30, 

 

December 31, 

 

 

    

2016

    

2015

 

 

 

(dollars in thousands)

 

 

 

 

 

 

 

 

 

Carrying value:

 

 

 

 

 

 

 

Unpaid principal balance

 

$

737,319

 

$

234,898

 

Unamortized debt issuance costs

 

 

(143)

 

 

(26)

 

 

 

$

737,176

    

$

234,872

 

Weighted average interest rate

 

 

1.71

%  

 

1.45

%

Fair value of mortgage loans pledged to secure mortgage loan participation and sale agreement

 

$

769,629

 

$

245,741

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Quarter ended June 30, 

 

Six months ended June 30, 

 

    

2017

    

2016

    

2017

    

2016

 

 

 

(dollars in thousands)

Average balance

 

$

180,968

 

$

189,363

 

$

193,326

 

$

178,460

 

Weighted average interest rate (1)

 

 

2.32

%  

 

1.69

%

 

2.12

%  

 

1.68

%

Total interest expense

 

$

1,164

 

$

917

 

$

2,296

 

$

1,698

 

Maximum daily amount outstanding

 

$

286,138

 

$

737,319

 

$

719,434

 

$

737,319

 


(1)

Excludes the effect of amortization of facility fees totaling $107,000$102,000 and $63,000$107,000 for the quarters ended June 30, 20162017 and 2015,2016, respectively, and $185,000$231,000 and $130,000$185,000 for the six months ended June 30, 20162017 and 2015,2016, respectively.

 

4348


 

Table of Contents

 

 

 

 

 

 

 

 

 

 

June 30, 

 

December 31, 

 

 

    

2017

    

2016

    

 

 

(dollars in thousands)

 

Carrying value:

 

 

 

 

 

 

 

Unpaid principal balance

 

$

243,707

 

$

671,562

 

Unamortized debt issuance costs

 

 

(346)

 

 

(136)

 

 

 

$

243,361

    

$

671,426

 

Weighted average interest rate

 

 

2.48

%  

 

2.02

%

Fair value of mortgage loans pledged to secure mortgage loan participation and sale agreements

 

$

252,917

 

$

702,919

 

Notes Payable

 

On February 16, 2017, the Company, through the Issuer Trust, issued an aggregate principal amount of $400 million in Term Notes to qualified institutional buyers under Rule 144A of the Securities Act of 1933, as amended.  The Term Notes bear interest at a rate equal to one-month LIBOR plus 4.75% per annum. The Term Notes will 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 the terms of the Term Notes). The Term Notes rank pari passu with the VFN issued by 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.

The Company entered into a revolving credit agreement, classified as a note payable, 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 (“Credit Agreement”), the lenders have agreed to make revolving loans in an amount not to exceed $100,000,000. Interest on the note payable accrues at an annual rate of interest equal to, at the election of the Company, either LIBOR plus the applicable contract margin or an alternate base rate.  The maturity date of the note payable is 364 days following the date of the revolving credit agreement.$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 accrue 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 accrue at a higher rate. The maturity date of the loans is 364 days following the date of the Credit Agreement.

 

As of June 30, 2016,During December 2015, the Company entered into a second 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.

 

Notes payable are summarized below:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Quarter ended June 30, 

 

Six months ended June 30, 

 

 

    

2016

    

2015

    

2016

    

2015

    

 

 

(dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

During the period:

 

 

 

 

 

 

 

 

 

 

 

 

 

Average balance

 

$

121,941

 

$

214,618

 

$

103,554

 

$

178,152

 

Weighted average interest rate (1)

 

 

4.53

%  

 

3.00

%  

 

4.47

%  

 

2.98

%

Total interest expense

 

$

2,291

 

$

2,463

 

$

3,889

 

$

4,098

 

Maximum daily amount outstanding

 

$

128,849

 

$

257,000

 

$

128,849

 

$

257,000

 

 

 

 

 

 

 

 

 

 

 

June 30, 

 

December 31, 

 

 

    

2016

    

2015

 

 

 

(in thousands)

 

 

 

 

 

 

 

 

 

Carrying value:

 

 

 

 

 

 

 

Unpaid principal balance

 

$

115,006

    

$

62,677

 

Unamortized debt issuance costs

 

 

(771)

 

 

(1,541)

 

 

 

$

114,235

 

$

61,136

 

Unused amount

 

$

84,994

 

$

57,328

 

Assets pledged to secure notes payable:

 

 

 

 

 

 

 

Mortgage servicing rights

 

$

127,680

 

$

20,881

 

Cash

 

$

124,026

 

$

93,757

 

Carried Interest

 

$

70,763

 

$

69,296

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Quarter ended June 30, 

 

Six months ended June 30, 

 

 

    

2017

    

2016

 

2017

    

2016

 

 

 

(dollars in thousands)

 

Average balance

 

$

461,365

 

$

121,941

 

$

378,638

 

$

103,554

 

Weighted average interest rate (1)

 

 

5.79

%  

 

4.53

%

 

5.78

%  

 

4.47

%

Total interest expense

 

$

8,059

 

$

2,291

 

$

12,999

 

$

3,889

 

Maximum daily amount outstanding

 

$

471,868

 

$

128,849

 

$

546,868

 

$

128,849

 


(1)

Excluding the effect of amortization of debt issuance costs totaling $1.1 million and $0.9 million for the quarters ended June 30, 2017 and 2016, respectively, and $2.0 million and $1.5 million during for the quarter and six months ended June 30, 2016.2017 and 2016, respectively.

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Table of Contents

 

 

 

 

 

 

 

 

 

 

June 30, 

 

December 31, 

 

 

    

2017

    

2016

  

 

 

(dollars in thousands)

 

Carrying value:

 

 

 

 

 

 

 

Unpaid principal balance

 

$

433,865

    

$

151,935

 

Unamortized debt issuance costs

 

 

(4,173)

 

 

(993)

 

 

 

$

429,692

 

$

150,942

 

Weighted average interest rate

 

 

4.87

%

 

4.67

%

Unused amount

 

$

246,135

 

$

98,065

 

Assets pledged to secure notes payable:

 

 

 

 

 

 

 

Cash

 

$

50,458

 

$

91,788

 

Carried Interest

 

$

71,019

 

$

70,906

 

Mortgage servicing rights

 

$

533,636

 

$

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 December 9,November 3, 2019 and bears interest at a spread over one monthone-month LIBOR.

 

Obligations under capital lease are summarized below:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Quarter ended June 30, 

 

Six months ended June 30, 

 

 

Quarter ended June 30, 

 

Six months ended June 30, 

 

 

    

2016

    

2015

    

2016

    

2015

 

    

2017

    

2016

    

2017

    

2016

 

 

 

(dollars in thousands)

 

 

(dollars in thousands)

 

 

 

 

 

During the period:

 

 

 

 

 

 

 

 

 

 

 

 

 

Average balance

 

$

17,566

 

$

 —

 

$

15,641

 

$

 —

 

 

$

29,053

 

$

17,566

 

$

25,739

 

$

15,641

 

 

Weighted average interest rate

 

 

2.44

%  

 

 —

%  

 

2.44

%  

 

 —

%  

 

 

2.69

%  

 

2.44

%

 

2.69

%  

 

2.44

%  

 

Total interest expense

 

$

161

 

$

 —

 

$

224

 

$

 —

 

 

$

221

 

$

161

 

$

380

 

$

224

 

 

Maximum daily amount outstanding

 

$

24,720

 

$

 —

 

$

24,720

 

$

 —

 

 

$

30,044

 

$

24,720

 

$

30,044

 

$

24,720

 

 

 

44


Table of Contents

 

 

 

 

 

 

 

 

June 30, 

 

December 31, 

 

 

 

 

 

 

 

 

 

2016

 

2015

 

 

June 30, 

 

December 31, 

 

 

(in thousands)

 

    

2017

    

2016

 

 

 

 

 

(in thousands)

 

Unpaid principal balance

 

$

22,886

    

$

13,579

 

 

$

26,641

    

$

23,424

 

Weighted average interest rate

 

 

2.70

%  

 

2.48

%  

Assets pledged to secure obligations under capital lease:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Furniture, fixtures and equipment

 

$

27,240

 

$

14,034

 

 

$

27,476

 

$

25,134

 

Capitalized software

 

$

986

 

$

783

 

 

$

1,797

 

$

515

 

 

Excess Servicing Spread Financing

 

In conjunction with the Company’s purchase from non-affiliates of certain MSRs relating toon 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 mortgage loans.loans and a fixed base servicing fee. The Company continues to be the servicer of the mortgage loans and providesretains all servicing functions,obligations, including the 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.

 

50


Table of Contents

Following is a summary of ESS:

 

 

 

 

 

 

 

 

 

 

 

Quarter ended June 30, 

 

Six months ended June 30, 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

2016

    

2015

    

2016

    

2015

 

 

Quarter ended June 30, 

 

Six months ended June 30, 

 

 

(in thousands)

 

    

2017

    

2016

 

2017

    

2016

 

 

 

 

 

 

 

 

 

 

 

 

(in thousands)

 

Balance at beginning of period

 

$

321,976

 

$

222,309

 

$

412,425

 

$

191,166

 

 

$

277,484

 

$

321,976

 

$

288,669

 

$

412,425

 

Issuances of excess servicing spread to PennyMac Mortgage Investment Trust:

 

 

 

 

 

 

 

 

 

For cash

 

 —

 

140,875

 

 —

 

187,287

 

Pursuant to a recapture agreement with PennyMac Mortgage Investment Trust

 

1,690

 

1,319

 

3,601

 

2,565

 

Issuances of excess servicing spread to PennyMac Mortgage Investment Trust

 

 

1,380

 

 

1,690

 

 

2,953

 

 

3,601

 

Accrual of interest

 

5,713

 

5,818

 

12,728

 

9,570

 

 

 

4,366

 

 

5,713

 

 

9,013

 

 

12,728

 

Repayment

 

(17,400)

 

(18,352)

 

(38,281)

 

(31,083)

 

 

 

(14,278)

 

 

(17,400)

 

 

(28,910)

 

 

(38,281)

 

Repurchase (1)

 

 —

 

 —

 

(59,045)

 

 —

 

Settlement (1)

 

 

 —

 

 

 —

 

 

 —

 

 

(59,045)

 

Change in fair value

 

 

(17,428)

 

 

7,133

 

 

(36,877)

 

 

(403)

 

 

 

(7,156)

 

 

(17,428)

 

 

(9,929)

 

 

(36,877)

 

Balance at end of period

 

$

294,551

 

$

359,102

 

$

294,551

 

$

359,102

 

 

$

261,796

 

$

294,551

 

$

261,796

 

$

294,551

 


(1)

On February 29, 2016, the Company and PMT terminated that certain master spread acquisition and MSR servicing agreement that the parties entered into effective February 1, 2013 (the “2/2/1/13 Spread Acquisition Agreement”)Agreement and all amendments thereto. In connection with the termination of the 2/1/13 Spread Acquisition Agreement, the Company reacquired from PMT all of its right, title and interest in and to all of the Fannie Mae ESS previously sold by the Company to PMT under the 2/1/13 Spread Acquisition Agreement and then subject to such 2/1/13 Spread Acquisition Agreement. On February 29, 2016, the Company also reacquired from PMT all of its right, title and interest in and to all of the Freddie Mac ESS previously sold to PMT by the Company.

 

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 June 30, 

 

Six months ended June 30, 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

2016

    

2015

    

2016

    

2015

 

 

Quarter ended June 30, 

 

Six months ended June 30, 

 

 

(in thousands)

 

    

2017

    

2016

    

2017

    

2016

 

 

 

 

 

 

 

 

 

 

 

 

(in thousands)

 

Balance at beginning of period

 

$

22,209

 

$

14,689

 

$

20,611

 

$

13,259

 

 

$

19,436

 

$

22,209

 

$

19,067

 

$

20,611

 

Provision for losses on mortgage loans sold

 

2,286

 

1,748

 

4,368

 

3,243

 

Provision for losses on mortgage loans sold:

 

 

 

 

 

 

 

 

 

 

 

 

 

Resulting from sales of mortgage loans

 

 

1,296

 

 

2,286

 

 

2,698

 

 

4,368

 

Reduction in liability due to change in estimate

 

 

(1,020)

 

 

 —

 

 

(1,892)

 

 

 —

 

Incurred losses

 

 

(218)

 

 

(180)

 

 

(702)

 

 

(245)

 

 

 

(144)

 

 

(218)

 

 

(305)

 

 

(702)

 

Balance at end of period

 

$

24,277

 

$

16,257

 

$

24,277

 

$

16,257

 

 

$

19,568

 

$

24,277

 

$

19,568

 

$

24,277

 

Unpaid principal balance of mortgage loans subject to representations and warranties at period end

 

$

72,151,175

 

$

44,794,166

 

 

 

 

 

Unpaid principal balance of mortgage loans subject to representations and warranties at end of period

 

$

106,284,973

 

$

72,151,175

 

 

 

 

 

 

 

 

 

45


Table of Contents

Note 14—13—Income Taxes

 

The Company’s effective tax rates were 11.8%12.4% and 11.5%11.8% for the quarters ended June 30, 20162017 and 2015,2016, respectively, and 11.9%12.4% and 11.5%11.9% for the six months ended June 30, 20162017 and 2015,2016, respectively. The difference between the Company’s effective tax rate and the statutory rate is primarily due to the allocation of earnings to the noncontrolling interest unitholders. As the noncontrolling interest unitholders convert their ownership units into the Company’s shares, 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.

 

51


Table of Contents

Note 15—14—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 June 30, 

 

Six months ended June 30, 

 

 

    

2016

    

2015

    

2016

    

2015

 

 

 

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income attributable to PennyMac Financial Services, Inc. common stockholders

    

$

14,475

 

$

12,749

    

$

19,650

    

$

21,777

 

Increase in the Company's additional paid-in capital for exchanges of Class A units of Private National Mortgage Acceptance Company, LLC to Class A stock of PennyMac Financial Services, Inc.

 

$

2,039

 

$

1,640

 

$

2,640

 

$

2,432

 

Exchange of Class A units of Private National Mortgage Acceptance Company, LLC for Class A stock of PennyMac Financial Services, Inc.

 

 

90

 

 

89

 

 

93

 

 

133

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Quarter ended June 30, 

 

Six months ended June 30, 

 

 

 

    

2017

    

2016

 

2017

    

2016

 

 

 

 

(in thousands)

 

 

Net income attributable to PennyMac Financial Services, Inc. common stockholders

 

$

10,479

 

$

14,475

 

$

21,358

    

$

19,650

 

 

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.

 

$

8,164

 

$

2,039

 

$

16,927

 

$

2,640

 

 

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

 

 

555

 

 

90

 

 

1,046

 

 

93

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 

 

 

December 31, 

 

 

    

 

2016

    

 

2015

 

Percentage of noncontrolling interest in Private National Mortgage Acceptance Company, LLC

 

 

70.9

%  

 

71.1

%

 

 

 

 

 

 

 

 

 

 

June 30, 

 

December 31, 

 

 

    

2017

    

2016

 

Percentage of noncontrolling interest in Private National Mortgage Acceptance Company, LLC

 

 

69.4

%  

 

70.6

%

 

 

Note 16—15—Net Gains on Mortgage Loans Held for Sale

 

Net gains on mortgage loans held for sale at fair value is summarized below:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Quarter ended June 30, 

 

Six months ended June 30, 

 

 

Quarter ended June 30, 

 

Six months ended June 30, 

 

   

2016

    

2015

   

2016

    

2015

 

    

2017

    

2016

 

2017

    

2016

 

 

(in thousands)

 

 

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

From non-affiliates:

 

 

 

 

 

 

 

 

 

 

Cash (loss) gain:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage loans

    

$

20,830

    

$

(38,944)

 

$

42,231

    

$

(36,214)

 

 

$

1,904

 

$

20,830

 

$

(56,777)

    

$

42,231

 

Hedging activities

 

 

(77,593)

 

 

17,995

 

 

(150,133)

 

 

(334)

 

 

 

5,317

 

 

(77,593)

 

 

6,424

 

 

(150,133)

 

 

(56,763)

 

(20,949)

 

(107,902)

 

(36,548)

 

 

 

7,221

 

 

(56,763)

 

 

(50,353)

 

 

(107,902)

 

Non-cash gain:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage servicing rights resulting from mortgage loan sales

 

 

132,472

 

129,004

 

 

233,254

 

198,960

 

Mortgage servicing liabilities resulting from mortgage loan sales

 

 

 —

 

(9,156)

 

 

(5,409)

 

(12,084)

 

Provision for losses relating to representations and warranties on loans sold

 

 

(2,286)

 

(1,748)

 

 

(4,368)

 

(3,243)

 

From non-affiliates:

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage servicing rights and mortgage servicing liabilities resulting from mortgage loan sales

 

 

133,062

 

 

132,472

 

 

265,205

 

 

227,845

 

Provision for losses relating to representations and warranties:

 

 

 

 

 

 

 

 

 

 

 

 

 

Pursuant to mortgage loan sales

 

 

(1,296)

 

 

(2,286)

 

 

(2,698)

 

 

(4,368)

 

Reduction in liability due to change in estimate

 

 

1,020

 

 

 —

 

 

1,892

 

 

 —

 

Change in fair value relating to mortgage loans and hedging derivatives held at period end:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate lock commitments

 

 

18,377

 

(26,654)

 

 

46,488

 

(4,663)

 

 

 

(19,849)

 

 

18,377

 

 

(13,234)

 

 

46,488

 

Mortgage loans

 

 

11,669

 

(12,120)

 

 

31,517

 

81

 

 

 

(13,326)

 

 

11,669

 

 

(5,930)

 

 

31,517

 

Hedging derivatives

 

 

28,649

 

 

27,034

 

 

32,014

 

 

19,575

 

 

 

(7,235)

 

 

28,649

 

 

(6,634)

 

 

32,014

 

 

 

132,118

 

85,411

 

 

225,594

 

162,078

 

 

 

99,597

 

 

132,118

 

 

188,248

 

 

225,594

 

Recapture payable to PennyMac Mortgage Investment Trust

 

 

(1,915)

 

 

(1,456)

 

 

(3,867)

 

 

(2,745)

 

 

 

(1,506)

 

 

(1,915)

 

 

(3,201)

 

 

(3,867)

 

 

$

130,203

 

$

83,955

 

$

221,727

 

$

159,333

 

 

$

98,091

 

$

130,203

 

$

185,047

 

$

221,727

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4652


 

Table of Contents

Note 17—16—Net Interest Expense

 

Net interest expense is summarized below:

 

 

 

 

 

 

 

 

 

 

 

Quarter ended June 30, 

 

Six months ended June 30, 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

2016

    

2015

    

2016

    

2015

 

 

Quarter ended June 30, 

 

Six months ended June 30, 

 

 

(in thousands)

 

    

2017

    

2016

 

2017

    

2016

 

 

 

 

 

 

 

 

 

 

 

 

(in thousands)

 

Interest income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

From non-affiliates:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Short-term investments

 

$

284

 

$

204

 

$

456

 

$

334

 

 

$

657

 

$

284

 

$

994

 

$

456

 

Mortgage loans held for sale at fair value

 

 

13,262

 

11,718

 

 

23,743

 

 

20,139

 

 

 

23,714

 

 

13,262

 

 

40,329

 

 

23,743

 

Custodial funds

 

 

4,786

 

 

729

 

 

6,060

 

 

1,111

 

Placement fees relating to custodial funds

 

 

8,577

 

 

4,786

 

 

13,679

 

 

6,060

 

 

 

18,332

 

12,651

 

 

30,259

 

21,584

 

 

 

32,948

 

 

18,332

 

 

55,002

 

 

30,259

 

From PennyMac Mortgage Investment Trust—Note receivable

 

 

2,222

 

 

533

 

 

3,824

 

 

533

 

From PennyMac Mortgage Investment Trust—Financings receivable

 

 

2,025

 

 

2,222

 

 

3,830

 

 

3,824

 

 

 

20,554

 

 

13,184

 

 

34,083

 

 

22,117

 

 

 

34,973

 

 

20,554

 

 

58,832

 

 

34,083

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

To non-affiliates:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets sold under agreements to repurchase

 

 

12,252

 

4,758

 

 

20,912

 

8,498

 

 

 

19,101

 

 

12,252

 

 

33,046

 

 

20,912

 

Mortgage loan participation and sale agreement

 

 

917

 

651

 

 

1,698

 

1,239

 

Mortgage loan participation and sale agreements

 

 

1,164

 

 

917

 

 

2,296

 

 

1,698

 

Notes payable

 

 

2,291

 

2,463

 

 

3,889

 

4,098

 

 

 

8,059

 

 

2,291

 

 

12,999

 

 

3,889

 

Obligations under capital lease

 

 

161

 

 —

 

 

224

 

 —

 

 

 

221

 

 

161

 

 

380

 

 

224

 

Interest shortfall on repayments of mortgage loans serviced for Agency securitizations

 

 

3,422

 

1,676

 

 

5,527

 

3,200

 

 

 

3,304

 

 

3,422

 

 

6,927

 

 

5,527

 

Interest on mortgage loan impound deposits

 

 

710

 

 

983

 

 

1,475

 

 

1,573

 

 

 

662

 

 

710

 

 

1,690

 

 

1,475

 

 

 

19,753

 

10,531

 

 

33,725

 

18,608

 

 

 

32,511

 

 

19,753

 

 

57,338

 

 

33,725

 

To PennyMac Mortgage Investment Trust—Excess servicing spread financing at fair value

 

 

5,713

 

 

5,818

 

 

12,728

 

 

9,570

 

 

 

4,366

 

 

5,713

 

 

9,013

 

 

12,728

 

 

 

25,466

 

 

16,349

 

 

46,453

 

 

28,178

 

 

 

36,877

 

 

25,466

 

 

66,351

 

 

46,453

 

 

$

(4,912)

 

$

(3,165)

 

$

(12,370)

 

$

(6,061)

 

 

$

(1,904)

 

$

(4,912)

 

$

(7,519)

 

$

(12,370)

 

 

 

Note 18—17—Stock-based Compensation

 

Following is a summary of the stock-based compensation expense by type of instrument awarded:

 

 

 

 

 

 

 

 

 

 

 

Quarter ended June 30, 

 

Six months ended June 30, 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

2016

    

2015

    

2016

    

2015

 

 

Quarter ended June 30, 

 

Six months ended June 30, 

 

 

(in thousands)

 

    

2017

    

2016

 

2017

    

2016

 

 

 

 

 

 

 

 

 

 

 

 

(in thousands)

 

Performance-based RSUs

 

$

1,644

 

$

2,474

 

$

4,433

 

$

4,345

 

 

$

2,409

 

$

1,644

 

$

5,712

 

$

4,433

 

Stock options

 

1,423

 

1,516

 

2,503

 

2,996

 

 

 

1,163

 

 

1,423

 

 

2,439

 

 

2,503

 

Time-based RSUs

 

641

 

602

 

1,348

 

1,137

 

 

 

1,294

 

 

641

 

 

2,239

 

 

1,348

 

Exchangeable PNMAC units

 

 

18

 

 

58

 

 

43

 

 

120

 

 

 

 —

 

 

18

 

 

 —

 

 

43

 

 

$

3,726

 

$

4,650

 

$

8,327

 

$

8,598

 

 

$

4,866

 

$

3,726

 

$

10,390

 

$

8,327

 

 

Following is a summary of equity award activity:

 

 

 

 

 

 

 

 

 

 

 

 

Quarter ended June 30, 2017

 

    

Performance-

    

Stock

    

Time-based

 

    

based RSUs

    

options

    

RSUs

 

 

(in thousands)

March 31, 2017

 

 

3,160

 

 

3,571

 

 

646

Granted

 

 

 —

 

 

 —

 

 

 —

Vested units and exercised options

 

 

(446)

 

 

(5)

 

 

(22)

Forfeited or canceled

 

 

(308)

 

 

(17)

 

 

(6)

June 30, 2017

 

 

2,406

 

 

3,549

 

 

618

4753


 

Table of Contents

Following is a summary of equity award activity:

 

 

 

 

 

 

 

 

 

 

 

 

Quarter ended June 30, 2016

 

    

Performance-

    

Stock

    

Time-based

 

 

based RSUs

    

options

    

RSUs

 

 

(in thousands)

March 31, 2016

 

 

2,686

 

 

2,799

 

 

454

Granted

 

 

 —

 

 

 —

 

 

 —

Vested units and exercised options

 

 

 —

 

 

 —

 

 

(49)

Forfeited or canceled

 

 

(13)

 

 

(13)

 

 

(7)

June 30, 2016

 

 

2,673

 

 

2,786

 

 

398

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Quarter ended June 30, 2016

 

 

    

Performance-

    

Stock

    

Time-based

 

Exchangeable

 

 

    

based RSUs

    

options

    

RSUs

    

PNMAC units

 

 

 

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2016

 

 

2,686

 

 

2,799

 

 

454

 

 

76,057

 

Granted

 

 

 —

 

 

 —

 

 

 —

 

 

52

 

Vested

 

 

 —

 

 

 —

 

 

(49)

 

 

 —

 

Exercised

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

Forfeited or canceled

 

 

(13)

 

 

(13)

 

 

(7)

 

 

 —

 

June 30, 2016

 

 

2,673

 

 

2,786

 

 

398

 

 

76,109

 

 

 

 

 

 

 

 

 

 

 

 

 

Six months ended June 30, 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

 

 

(446)

 

 

(25)

 

 

(160)

Forfeited or canceled

 

 

(317)

 

 

(25)

 

 

(9)

June 30, 2017

 

 

2,406

 

 

3,549

 

 

618

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Quarter ended June 30, 2015

 

 

    

Performance-

    

Stock

    

Time-based

 

Exchangeable

 

 

 

based RSUs

    

options

    

RSUs

    

PNMAC units

 

 

 

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2015

 

 

2,398

    

 

1,881

    

 

289

 

 

75,971

 

Granted

 

 

 —

 

 

 —

 

 

32

 

 

44

 

Vested

 

 

 —

 

 

 —

 

 

(40)

 

 

 —

 

Exercised

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

Forfeited or canceled

 

 

(17)

 

 

(12)

 

 

(5)

 

 

 —

 

June 30, 2015

 

 

2,381

 

 

1,869

 

 

276

 

 

76,015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six months ended June 30, 2016

 

 

    

Performance-

    

Stock

    

Time-based

 

Exchangeable

 

 

 

based RSUs

    

options

    

RSUs

    

PNMAC units

 

 

 

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2015

 

 

2,351

    

 

1,845

    

 

271

 

 

76,029

 

Granted

 

 

813

 

 

962

 

 

251

 

 

80

 

Vested

 

 

 

 

 

 —

 

 

(115)

 

 

 —

 

Exercised

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

Forfeited or canceled

 

 

(491)

 

 

(21)

 

 

(9)

 

 

 —

 

June 30, 2016

 

 

2,673

 

 

2,786

 

 

398

 

 

76,109

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six months ended June 30, 2015

 

 

 

 

 

 

 

 

 

 

    

Performance-

    

Stock

    

Time-based

 

Exchangeable

 

 

Six months ended June 30, 2016

 

based RSUs

    

options

    

RSUs

    

PNMAC units

 

    

Performance-

    

Stock

    

Time-based

 

(in thousands)

 

 

based RSUs

    

options

    

RSUs

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(in thousands)

December 31, 2015

 

 

1,257

    

 

1,167

    

 

202

 

 

75,936

 

 

 

2,351

    

 

1,845

    

 

271

Granted

 

 

1,143

 

 

715

 

 

150

 

 

79

 

 

 

813

 

 

962

 

 

251

Vested

 

 

 —

 

 

 —

 

 

(71)

 

 

 —

 

Exercised

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

Vested units and exercised options

 

 

 —

 

 

 —

 

 

(115)

Forfeited or canceled

 

 

(19)

 

 

(13)

 

 

(5)

 

 

 —

 

 

 

(491)

 

 

(21)

 

 

(9)

June 30, 2015

 

 

2,381

 

 

1,869

 

 

276

 

 

76,015

 

June 30, 2016

 

 

2,673

 

 

2,786

 

 

398

 

 

48


 

Table of Contents

Note 19—18—Supplemental Cash Flow Information

 

 

 

 

 

 

 

Six months ended June 30, 

 

 

 

 

 

 

 

 

    

2016

    

2015

 

 

Six months ended June 30, 

 

 

(in thousands)

 

    

2017

    

2016

 

 

 

 

 

 

 

 

(in thousands)

 

Cash paid for interest

 

$

44,065

   

$

27,231

 

 

$

68,884

   

$

44,065

 

Cash paid for income taxes

 

$

43

 

$

1,907

 

 

$

36

 

$

43

 

Non-cash investing activity:

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage servicing rights resulting from mortgage loan sales

 

$

233,254

 

$

198,960

 

 

$

273,074

 

$

233,254

 

Mortgage servicing liabilities resulting from mortgage loan sales

 

$

5,409

 

$

12,084

 

 

$

7,869

 

$

5,409

 

Unsettled portion of MSR acquisitions

 

$

24,323

 

$

 —

 

Non-cash financing activity:

 

 

 

 

 

 

 

 

 

 

 

 

Transfer of excess servicing spread to PennyMac Mortgage Investment Trust pursuant to a recapture agreement

 

$

3,601

 

$

2,565

 

Transfer of excess servicing spread pursuant to a recapture agreement with PennyMac Mortgage Investment Trust

 

$

2,953

 

$

3,601

 

Issuance of common stock in settlement of director fees

 

$

149

 

$

149

 

 

$

169

 

$

149

 

 

 

 

 

 

 

 

 

Note 20—19—Regulatory Capital and Liquidity Requirements

 

The Company, through PLS and PennyMac, is required to maintain specified levels of liquiditycapital and equityliquidity 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.

 

54


Table of Contents

The Agencies’ capital and liquidity requirements, the calculations of which are specified by each Agency, are summarized below:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2016

 

December 31, 2015

 

 

June 30, 2017

 

December 31, 2016

 

Agency–company subject to requirement

    

Balance (1)

    

Requirement

    

Balance (1)

    

Requirement

 

    

Actual (1)

    

Requirement

    

Actual (1)

    

Requirement

 

 

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

(dollars in thousands)

 

Capital

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fannie Mae & Freddie Mac - PLS

 

$

1,034,006

 

$

301,900

 

$

835,157

 

$

283,655

 

 

$

1,395,498

 

$

407,095

 

$

1,289,464

 

$

335,883

 

Ginnie Mae - PLS

 

$

826,031

 

$

383,702

 

$

633,222

 

$

386,732

 

 

$

1,164,514

 

$

612,896

 

$

1,085,549

 

$

455,542

 

Ginnie Mae - PennyMac

 

$

1,006,192

 

$

422,072

 

$

894,731

 

$

425,405

 

 

$

1,356,831

 

$

674,186

 

$

1,261,565

 

$

501,097

 

HUD - PLS

 

$

826,031

 

$

2,500

 

$

633,222

 

$

2,500

 

 

$

1,164,514

 

$

2,500

 

$

1,085,549

 

$

2,500

 

Liquidity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fannie Mae & Freddie Mac - PLS

 

$

162,194

 

$

41,221

 

$

145,431

 

$

38,936

 

 

$

217,281

 

$

55,623

 

$

179,230

 

$

45,930

 

Ginnie Mae - PLS

 

$

162,194

 

$

102,216

 

$

145,431

 

$

95,868

 

 

$

217,281

 

$

143,568

 

$

179,230

 

$

115,304

 

Tangible net worth / Total assets ratio

 

 

 

 

 

 

 

 

 

 

 

 

 

Fannie Mae and Freddie Mac – PLS

 

 

22

%  

 

 6

%  

 

26

%  

 

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. PennyMac and PLS had Agency capital and liquidity in excess of the respective Agencies’ requirements at June 30, 2016.

 

Note 21—20—Commitments and Contingencies

Commitments to Fund and Sell Mortgage Loans

June 30, 2016

(in thousands)

Commitments to purchase mortgage loans from PennyMac Mortgage Investment Trust

$

2,031,517

Commitments to fund mortgage loans

1,836,713

$

3,868,230

49


Table of Contents

 

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 June 30, 2016,2017, 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.

 

Commitments to Purchase and Fund Mortgage Loans

 

 

 

 

 

 

June 30, 2017

 

    

(in thousands)

Commitments to purchase mortgage loans from PennyMac Mortgage Investment Trust

 

$

1,973,346

Commitments to fund mortgage loans

 

 

2,026,415

 

 

$

3,999,761

55


Table of Contents

Leases

The Company leases office facilities. Rent expense was $4.2 million and $2.6 million for the quarters ended June 30, 2017 and 2016, respectively and $7.6 million and $5.0 milllion for the six months ended June 30, 2017 and 2016, respectively.

The following table provides a summary of future minimum lease payments required under lease agreements, which may also contain renewal options as of June 30, 2017:

 

 

 

 

Twelve months ended June 30:

 

Future minimum lease payments

 

 

(in thousands)

2018

 

$

12,158

2019

 

 

14,296

2020

 

 

14,650

2021

 

 

13,185

2022

 

 

10,633

Thereafter

 

 

37,033

 

 

$

101,955

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, are generally made quarterly. 

Note 21—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. The Company expects to completedid not repurchase any of its Class A common stock during the calculation of estimated PennyMac taxable incomequarter and to determine the amount of any tax distribution obligation in September 2016. six months ended June 30, 2017.

 

 

Note 22—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 (“EBO”) loanstransactions 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.

 

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.

 

5056


 

Table of Contents

Financial performance and results by segment are as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Quarter ended June 30, 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage Banking

 

Investment

 

 

 

 

 

Quarter ended June 30, 2017

 

    

Production

    

Servicing

    

Total

    

Management

    

Total

 

 

Mortgage Banking

 

Investment

 

 

 

 

 

(in thousands)

 

    

Production

    

Servicing

    

Total

    

Management

    

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(in thousands)

 

Revenue: (1)

 

 

 

 

 

 

 

 

 

 

 

                    

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

                    

 

 

 

 

Net gains on mortgage loans held for sale at fair value

 

$

115,894

 

$

14,309

 

$

130,203

 

$

 —

 

$

130,203

 

 

$

74,706

 

$

23,385

 

$

98,091

 

$

 —

 

$

98,091

 

Mortgage loan origination fees

 

 

28,907

 

 

 —

 

 

28,907

 

 

 —

 

 

28,907

 

 

 

30,193

 

 

 —

 

 

30,193

 

 

 —

 

 

30,193

 

Fulfillment fees from PennyMac Mortgage Investment Trust

 

 

19,111

 

 

 —

 

 

19,111

 

 

 —

 

 

19,111

 

 

 

21,107

 

 

 —

 

 

21,107

 

 

 —

 

 

21,107

 

Net mortgage loan servicing fees

 

 

 —

 

 

26,555

 

 

26,555

 

 

 —

 

 

26,555

 

 

 

 —

 

 

46,913

 

 

46,913

 

 

 —

 

 

46,913

 

Management fees

 

 

 —

 

 

 —

 

 

 —

 

 

5,730

 

 

5,730

 

 

 

 —

 

 

 —

 

 

 —

 

 

6,007

 

 

6,007

 

Carried Interest from Investment Funds

 

 

 —

 

 

 —

 

 

 —

 

 

244

 

 

244

 

 

 

 —

 

 

 —

 

 

 —

 

 

241

 

 

241

 

Net interest income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 —

 

 

 —

 

 

 —

 

 

 

 

 

 

 

Interest income

 

 

11,528

 

 

9,026

 

 

20,554

 

 

 —

 

 

20,554

 

 

 

15,279

 

 

19,694

 

 

34,973

 

 

 —

 

 

34,973

 

Interest expense

 

 

6,825

 

 

18,625

 

 

25,450

 

 

16

 

 

25,466

 

 

 

11,330

 

 

25,534

 

 

36,864

 

 

13

 

 

36,877

 

 

 

4,703

 

 

(9,599)

 

 

(4,896)

 

 

(16)

 

 

(4,912)

 

 

 

3,949

 

 

(5,840)

 

 

(1,891)

 

 

(13)

 

 

(1,904)

 

Other

 

 

849

 

 

851

 

 

1,700

 

 

268

 

 

1,968

 

 

 

531

 

 

446

 

 

977

 

 

96

 

 

1,073

 

Total net revenue

 

 

169,464

 

 

32,116

 

 

201,580

 

 

6,226

 

 

207,806

 

 

 

130,486

 

 

64,904

 

 

195,390

 

 

6,331

 

 

201,721

 

Expenses

 

 

64,959

 

 

53,085

 

 

118,044

 

 

5,504

 

 

123,548

 

 

 

63,780

 

 

76,117

 

 

139,897

 

 

3,864

 

 

143,761

 

Income (loss) before provision for income taxes and non-segment activities

 

 

104,505

 

 

(20,969)

 

 

83,536

 

 

722

 

 

84,258

 

Non-segment activities

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

Income (loss) before provision for income taxes

 

$

104,505

 

$

(20,969)

 

$

83,536

 

$

722

 

$

84,258

 

Income before provision for income taxes

 

$

66,706

 

$

(11,213)

 

$

55,493

 

$

2,467

 

$

57,960

 

Segment assets at period end (2)

 

$

2,222,007

 

$

2,289,922

 

$

4,511,929

 

$

95,141

 

$

4,607,070

 

 

$

2,732,947

 

$

3,574,239

 

$

6,307,186

 

$

94,525

 

$

6,401,711

 


(1)

All revenues are from external customers.

(2)

Excludes parent Company assets, which consist primarily of working capital of $3.0 million.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Quarter ended June 30, 2016

 

 

 

Mortgage Banking

 

Investment

 

 

 

 

 

    

Production

    

Servicing

    

Total

    

Management

    

 Total

 

 

 

(in thousands)

 

Revenue: (1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net gains on mortgage loans held for sale at fair value

 

$

115,894

 

$

14,309

 

$

130,203

 

$

 —

 

$

130,203

 

Mortgage loan origination fees

 

 

28,907

 

 

 —

 

 

28,907

 

 

 —

 

 

28,907

 

Fulfillment fees from PennyMac Mortgage Investment Trust

 

 

19,111

 

 

 —

 

 

19,111

 

 

 —

 

 

19,111

 

Net mortgage loan servicing fees

 

 

 —

 

 

26,555

 

 

26,555

 

 

 —

 

 

26,555

 

Management fees

 

 

 —

 

 

 —

 

 

 —

 

 

5,730

 

 

5,730

 

Carried Interest from Investment Funds

 

 

 —

 

 

 —

 

 

 —

 

 

244

 

 

244

 

Net interest income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

11,528

 

 

9,026

 

 

20,554

 

 

 —

 

 

20,554

 

Interest expense

 

 

6,825

 

 

18,625

 

 

25,450

 

 

16

 

 

25,466

 

 

 

 

4,703

 

 

(9,599)

 

 

(4,896)

 

 

(16)

 

 

(4,912)

 

Other

 

 

849

 

 

851

 

 

1,700

 

 

268

 

 

1,968

 

Total net revenue

 

 

169,464

 

 

32,116

 

 

201,580

 

 

6,226

 

 

207,806

 

Expenses

 

 

64,959

 

 

53,085

 

 

118,044

 

 

5,504

 

 

123,548

 

Income (loss) before provision for income taxes

 

$

104,505

 

$

(20,969)

 

$

83,536

 

$

722

 

$

84,258

 

Segment assets at period end (2)

 

$

2,222,007

 

$

2,289,922

 

$

4,511,929

 

$

95,141

 

$

4,607,070

 


(1)

All revenues are from external customers.

(2)

Excludes parent Company assets, which consist primarily of Deferred tax asset of $4.9 million and working capital of $4.4 million.

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Table of Contents

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six months ended June 30, 2017

 

 

 

Mortgage Banking

 

Investment

 

 

 

 

 

    

Production

    

Servicing

    

Total

    

Management

    

Total

 

 

 

(in thousands)

 

Revenue: (1)

 

 

 

 

 

 

 

 

 

 

 

                    

 

 

 

 

Net gains (losses) on mortgage loans held for sale at fair value

 

$

137,543

 

$

47,504

 

$

185,047

 

$

 —

 

$

185,047

 

Loan origination fees

 

 

55,767

 

 

 —

 

 

55,767

 

 

 —

 

 

55,767

 

Fulfillment fees from PennyMac Mortgage Investment Trust

 

 

37,677

 

 

 —

 

 

37,677

 

 

 —

 

 

37,677

 

Net servicing fees

 

 

 —

 

 

121,076

 

 

121,076

 

 

 —

 

 

121,076

 

Management fees

 

 

 —

 

 

 —

 

 

 —

 

 

11,381

 

 

11,381

 

Carried Interest from Investment Funds

 

 

 —

 

 

 —

 

 

 —

 

 

113

 

 

113

 

Net interest income (expense):

 

 

 —

 

 

 —

 

 

 

 

 

 —

 

 

 

 

Interest income

 

 

28,215

 

 

30,617

 

 

58,832

 

 

 —

 

 

58,832

 

Interest expense

 

 

20,152

 

 

46,175

 

 

66,327

 

 

24

 

 

66,351

 

 

 

 

8,063

 

 

(15,558)

 

 

(7,495)

 

 

(24)

 

 

(7,519)

 

Other

 

 

1,476

 

 

917

 

 

2,393

 

 

259

 

 

2,652

 

Total net revenue

 

 

240,526

 

 

153,939

 

 

394,465

 

 

11,729

 

 

406,194

 

Expenses

 

 

126,316

 

 

151,736

 

 

278,052

 

 

8,150

 

 

286,202

 

Income before provision for income taxes

 

$

114,210

 

$

2,203

 

$

116,413

 

$

3,579

 

$

119,992

 

Segment assets at period end (2)

 

$

2,732,947

 

$

3,574,239

 

$

6,307,186

 

$

94,525

 

$

6,401,711

 


(1)

All revenues are from external customers.

(2)

Excludes parent Company assets, which consist primarily of deferred tax asset of $4.9 million and working capital of $4.4$3.0 million.

 

51


Table of Contents

 

 

 

 

 

 

 

 

 

 

 

 

Quarter ended June 30, 2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage Banking

 

Investment

 

 

 

 

Six months ended June 30, 2016

 

    

Production

    

Servicing

    

Total

    

Management

    

 Total

 

 

Mortgage Banking

 

Investment

 

 

 

 

 

(in thousands)

 

    

Production

    

Servicing

    

Total

    

Management

    

 Total

  

 

 

 

 

 

 

 

 

 

 

 

 

 

(in thousands)

 

Revenue: (1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net gains on mortgage loans held for sale at fair value

 

$

86,377

 

$

(2,422)

 

$

83,955

 

$

 —

 

$

83,955

 

 

$

194,108

 

$

27,619

 

$

221,727

 

$

 —

 

$

221,727

 

Mortgage loan origination fees

 

24,421

 

 —

 

24,421

 

 —

 

24,421

 

Loan origination fees

 

 

51,341

 

 

 —

 

 

51,341

 

 

 —

 

 

51,341

 

Fulfillment fees from PennyMac Mortgage Investment Trust

 

15,333

 

 —

 

15,333

 

 —

 

15,333

 

 

 

32,046

 

 

 —

 

 

32,046

 

 

 —

 

 

32,046

 

Net mortgage loan servicing fees

 

 —

 

68,549

 

68,549

 

 —

 

68,549

 

Net servicing fees

 

 

 —

 

 

44,074

 

 

44,074

 

 

 —

 

 

44,074

 

Management fees

 

 —

 

 —

 

 —

 

6,963

 

6,963

 

 

 

 —

 

 

 —

 

 

 —

 

 

11,642

 

 

11,642

 

Carried Interest from Investment Funds

 

 —

 

 —

 

 —

 

182

 

182

 

 

 

 —

 

 

 —

 

 

 —

 

 

837

 

 

837

 

Net interest income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

10,200

 

2,984

 

13,184

 

 —

 

13,184

 

 

 

19,905

 

 

14,177

 

 

34,082

 

 

 1

 

 

34,083

 

Interest expense

 

 

5,200

 

 

11,149

 

 

16,349

 

 

 —

 

 

16,349

 

 

 

11,708

 

 

34,769

 

 

46,477

 

 

26

 

 

46,503

 

 

5,000

 

(8,165)

 

(3,165)

 

 —

 

(3,165)

 

 

 

8,197

 

 

(20,592)

 

 

(12,395)

 

 

(25)

 

 

(12,420)

 

Other

 

 

235

 

 

101

 

 

336

 

 

(223)

 

 

113

 

 

 

1,088

 

 

619

 

 

1,707

 

 

204

 

 

1,911

 

Total net revenue

 

131,366

 

58,063

 

189,429

 

6,922

 

196,351

 

 

 

286,780

 

 

51,720

 

 

338,500

 

 

12,658

 

 

351,158

 

Expenses

 

 

55,085

 

 

60,508

 

 

115,593

 

 

5,959

 

 

121,552

 

 

 

113,867

 

 

112,151

 

 

226,018

 

 

10,792

 

 

236,810

 

Income (loss) before provision for income taxes

 

$

76,281

 

$

(2,445)

 

$

73,836

 

$

963

 

$

74,799

 

Segment assets at period end (2)

 

$

1,631,661

 

$

1,671,371

 

$

3,303,032

 

$

88,050

 

$

3,391,082

 

Income before provision for income taxes and non-segment activities

 

 

172,913

 

 

(60,431)

 

 

112,482

 

 

1,866

 

 

114,348

 

Non-segment activities (2)

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

49

 

Income before provision for income taxes

 

$

172,913

 

$

(60,431)

 

$

112,482

 

$

1,866

 

$

114,397

 

Segment assets at period end (3)

 

$

2,222,007

 

$

2,289,922

 

$

4,511,929

 

$

95,141

 

$

4,607,070

 


(1)All revenues are from external customers.

(2)Excludes parent Company assets, which consist primarily of deferred tax asset of $34.2 million.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six months ended June 30, 2016

 

 

 

Mortgage Banking

 

Investment

 

 

 

 

 

    

Production

    

Servicing

    

Total

    

Management

    

Total

 

 

 

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue: (1)

 

 

 

 

 

 

 

 

 

 

 

                    

 

 

 

 

Net gains (losses) on mortgage loans held for sale at fair value

 

$

194,108

 

$

27,619

 

$

221,727

 

$

 —

 

$

221,727

 

Loan origination fees

 

 

51,341

 

 

 —

 

 

51,341

 

 

 —

 

 

51,341

 

Fulfillment fees from PennyMac Mortgage Investment Trust

 

 

32,046

 

 

 —

 

 

32,046

 

 

 —

 

 

32,046

 

Net servicing fees

 

 

 —

 

 

44,074

 

 

44,074

 

 

 —

 

 

44,074

 

Management fees

 

 

 —

 

 

 —

 

 

 —

 

 

11,642

 

 

11,642

 

Carried Interest from Investment Funds

 

 

 —

 

 

 —

 

 

 —

 

 

837

 

 

837

 

Net interest income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

19,905

 

 

14,177

 

 

34,082

 

 

1

 

 

34,083

 

Interest expense

 

 

11,708

 

 

34,769

 

 

46,477

 

 

26

 

 

46,503

 

 

 

 

8,197

 

 

(20,592)

 

 

(12,395)

 

 

(25)

 

 

(12,420)

 

Other

 

 

1,088

 

 

619

 

 

1,707

 

 

204

 

 

1,911

 

Total net revenue

 

 

286,780

 

 

51,720

 

 

338,500

 

 

12,658

 

 

351,158

 

Expenses

 

 

113,867

 

 

112,151

 

 

226,018

 

 

10,792

 

 

236,810

 

Income (loss) before provision for income taxes and non-segment activities

 

 

172,913

 

 

(60,431)

 

 

112,482

 

 

1,866

 

 

114,348

 

Non-segment activities (2)

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

49

 

Income (loss) before provision for income taxes

 

$

172,913

 

$

(60,431)

 

$

112,482

 

$

1,866

 

$

114,397

 

Segment assets at period end (3)

 

$

2,222,007

 

$

2,289,922

 

$

4,511,929

 

$

95,141

 

$

4,607,070

 


52


Table of Contents

(1)

All revenues are from external customers.

(2)

Relates to parent Company interest expenseexpenses eliminated in consolidation.

58


Table of Contents

(3)

Excludes parent Company assets, which consist primarily of deferred tax asset of $4.9 million and working capital of $4.4 million.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six months ended June 30, 2015

 

 

 

Mortgage Banking

 

Investment

 

 

 

 

 

    

Production

    

Servicing

    

Total

    

Management

    

 Total

  

 

 

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue: (1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net gains on mortgage loans held for sale at fair value

 

$

163,356

 

$

(4,023)

 

$

159,333

 

$

 —

 

$

159,333

 

Loan origination fees

 

 

41,103

 

 

 —

 

 

41,103

 

 

 —

 

 

41,103

 

Fulfillment fees from PennyMac Mortgage Investment Trust

 

 

28,199

 

 

 —

 

 

28,199

 

 

 —

 

 

28,199

 

Net servicing fees

 

 

 —

 

 

95,325

 

 

95,325

 

 

 —

 

 

95,325

 

Management fees

 

 

 —

 

 

 —

 

 

 —

 

 

15,452

 

 

15,452

 

Carried Interest from Investment Funds

 

 

 —

 

 

 —

 

 

 —

 

 

1,415

 

 

1,415

 

Net interest income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

16,813

 

 

5,304

 

 

22,117

 

 

 —

 

 

22,117

 

Interest expense

 

 

8,841

 

 

19,337

 

 

28,178

 

 

 —

 

 

28,178

 

 

 

 

7,972

 

 

(14,033)

 

 

(6,061)

 

 

 —

 

 

(6,061)

 

Other

 

 

1,148

 

 

719

 

 

1,867

 

 

32

 

 

1,899

 

Total net revenue

 

 

241,778

 

 

77,988

 

 

319,766

 

 

16,899

 

 

336,665

 

Expenses

 

 

98,065

 

 

98,550

 

 

196,615

 

 

12,013

 

 

208,628

 

Income (loss) before provision for income taxes

 

$

143,713

 

$

(20,562)

 

$

123,151

 

$

4,886

 

$

128,037

 

Segment assets at period end (2)

 

$

1,631,661

 

$

1,671,371

 

$

3,303,032

 

$

88,050

 

$

3,391,082

 


(1)All revenues are from external customers.

(2)Excludes parent Company assets, which consist primarily of deferred tax asset of $34.2 million.

 

Note 23—Recently Issued Accounting Pronouncements

In February 2015,May 2014, the FASB issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers (Subtopic 606) (“ASU 2015-02,2014-09”), which supersedes the guidance in the Consolidation (Topic 810): AmendmentsRevenue 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 Consolidation Analysis (“guidance in effect before adoption and an explanation of the reasons for significant changes in these amounts.

The FASB has issued several amendments to the new revenue standard ASU 2015-02”). ASU 2015-02 affects reporting entities2014-09, including:

·

In August 2015, ASU 2015-14, Revenue From Contracts With Customers (“ASU 2015-14”). This update deferred the initial effective date of ASU 2014-09. As a result of the issuance of ASU 2015-14, ASU 2014-09 is effective for annual reporting periods beginning on or after December 15, 2017, and interim periods within those annual periods. Early adoption is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period.

·

In March 2016, ASU 2016-08, Principal Versus Agent Considerations (Reporting Revenue Gross versus Net). The amendments to this update are intended to improve the implementation guidance on principal versus agent considerations in ASU 2014-09 by clarifying how an entity should identify the unit of accounting (i.e. the specified good or service) and how an entity should apply the control principle to certain types of arrangements.

·

In May 2016, ASU 2016-12, Narrow-Scope Improvements and Practical Expedients. The amendments to this update clarify certain core recognition principles and provide practical expedients available at transition. The improvements address collectability, sales tax presentation, noncash consideration, contract modifications and completed contracts at transition.

·

In December 2016, ASU 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers. The amendments to this update:

o

Clarify that guarantee fees within the scope of the Guarantees topic of the ASC (other than product or service warranties) are not within the scope of the Revenue from Contracts with Customers topic of the ASC. Entities should see the Derivatives and Hedging topic, for guarantees accounted for as derivatives.

o

Clarify guidance contained in the Other Assets and Deferred Costs—Contracts with Customers subtopic of the ASC that when performing impairment testing an entity should (a) consider expected contract renewals and extensions and (b) include both the amount of consideration it already has received but has not recognized as revenue and the amount it expects to receive in the future.

o

Clarify the interaction of impairment testing with guidance in other ASC topics that impairment testing first should be performed on assets not within the scope of the Other Assets and Deferred Costs, Intangibles-GoodwillandOther or the Property, Plant, and Equipment  topics of the ASC (such as assets within the Inventory topic of the ASC), then assets within the scope of the Other Assets and Deferred Costs topic of the ASC, then asset groups and reporting units within the scope of the Other Assets and Deferred Costs, Intangibles-Goodwill and Other and the Property, Plant, and Equipment topics of the ASC.

59


Table of Contents

o

Clarify that all contracts within the scope of the Financial Services – Insurance topic are of the ASC excluded from the scope of the Revenue from Contracts with Customers topic.

o

Provide optional exemptions from the disclosure requirement for remaining performance obligations for specific situations in which an entity need not estimate variable consideration to recognize revenue and expands the information that is required to be disclosed when an entity applies one of the optional exemptions.

o

Clarify that the disclosure of revenue recognized from performance obligations satisfied (or partially satisfied) in previous periods applies to all performance obligations and is not limited to performance obligations with corresponding contract balances.

o

Align the cost-capitalization guidance for advisors to both public funds and private funds in the Financial Services— Investment Companies—Other Expenses subtopic of the ASC.

·

In February 2017, ASU 2017-05, Other Income—Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20) (“ASU 2017-05”). The amendments to this update clarify the scope of the Other Income—Gains and Losses from the Derecognition of Nonfinancial Assets subtopic of the ASC, and add guidance for partial sales of nonfinancial assets. ASU 2017-05 clarifies that:

o

A financial asset is within the scope of the Other Income—Gains and Losses from the Derecognition of Nonfinancial Assets subtopic of the ASC if it meets the definition of an in substance nonfinancial asset and defines the term in substance nonfinancial asset, in part, as a financial asset promised to a counterparty in a contract if substantially all of the fair value of the assets (recognized and unrecognized) that are promised to the counterparty in the contract is concentrated in nonfinancial assets.

o

It excludes all businesses and nonprofit activities from the scope of the Other Income – Gains and Losses from the Derecognition of Nonfinancial Assets subtopic of the ASC. Derecognition of all businesses and nonprofit activities should be accounted for in accordance with the Consolidation—Overall subtopic of the ASC.

o

An entity should identify each distinct nonfinancial asset or in substance nonfinancial asset promised to a counterparty and derecognize each asset when a counterparty obtains control of it.

o

An entity should allocate consideration to each distinct asset by applying the guidance in the Revenue from Contracts with Customers topic of the ASC on allocating the transaction price to performance obligations.

o

An entity must derecognize a distinct nonfinancial asset or distinct in substance nonfinancial asset in a partial sale transaction when it (1) does not have (or ceases to have) a controlling financial interest in the legal entity that holds the asset in accordance with the Consolidations topic of the ASC and (2) transfers control of the asset in accordance with the Revenue from Contracts with Customers topic of the ASC. Once an entity transfers control of a distinct nonfinancial asset or distinct in substance nonfinancial asset, it is required to measure any noncontrolling interest it receives (or retains) at fair value.

The Company’s revenues from contracts with customers that are requiredsubject to evaluate whether they should consolidateASU 2014-09 include fulfillment fees, mortgage servicing fees, management fees, Carried Interest and certain legal entities. ASU 2015-02 modifies the evaluation of whether limited partnerships and similar legal entities are VIEs or voting interest entities, eliminates the presumption that a general partner should consolidate a limited partnership and affects the consolidation analysis of reporting entities that are involved with VIEs, particularly those that have fee arrangements and related party relationships. ASU 2015-02 is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2015.reimbursed overhead costs. The Company adoptedhas concluded that:

·

The recognition and measurement of fulfillment fees, mortgage servicing fees and management fees is not expected to change as a result of the Company’s adoption of ASU 2014-09.

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Table of Contents

·

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 will recharacterize its Carried Interest as financial instruments under the equity method of accounting. This change is not expected to change the timing or amount of the Company’s recognition of Carried Interest.

·

The effect of the adoption of ASU 2014-09 on the presentation of overhead reimbursements will be to increase Other income and the Company’s overhead expense categories by offsetting amounts. Under the Management Agreement, 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. The Company recognizes such reimbursements as expense offsets in its consolidated statements of income. ASU 2014-09 requires such reimbursements to be treated as revenues. The Company included $1.6 million and $2.4 million and $3.0 million and $5.0 million of such common overhead as expense offsets in the quarter and six month periods ended June 30, 2017 and 2016, respectively.

The Company intends to adopt ASU 2015-02 effective January 1, 2016.2014-09 using the modified retrospective method. The Company does not expect to record a cumulative effect adjustment to its beginning retained earnings as a result of adoption of ASU 2015-02 had no effect on the Company’s consolidated financial statements.2014-09.

OnIn January 5, 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:

•  All equity investments in unconsolidated entities (other than those accounted for using the equity method of accounting) with readily determinable fair values will generally be measured at fair value through earnings.

·

All equity investments in unconsolidated entities (other than those accounted for using the equity method of accounting) with readily determinable fair values will generally be measured at fair value through earnings.

53

·

When the fair value option has been elected for financial liabilities, changes in fair value due to instrument-specific credit risk will be recognized separately in other comprehensive income. The accumulated gains and losses due to these changes will be reclassified from accumulated other comprehensive income to earnings if the financial liability is settled before maturity.


·

For financial instruments measured at amortized cost, public business entities will be required to use the exit price when measuring the fair value of financial instruments for disclosure purposes.

·

Financial assets and financial liabilities shall be presented separately in the notes to the financial statements, grouped by measurement category (e.g., fair value, amortized cost, lower of cost or fair value) and form of financial asset (e.g., loans, securities).

When the fair value option has been elected for financial liabilities, changes in fair value due to instrument-specific credit risk will be recognized separately in other comprehensive income. The accumulated gains and losses due to these changes will be reclassified from accumulated other comprehensive income to earnings if the financial liability is settled before maturity.

•  For financial instruments measured at amortized cost, public business entities will be required to use the exit price when measuring the fair value of financial instruments for disclosure purposes.

•  Financial assets and financial liabilities shall be presented separately in the notes to the financial statements, grouped by measurement category (e.g., fair value, amortized cost, lower of cost or fair value) and form of financial asset (e.g., loans, securities).

Public business entities will no longer be required to disclose the methods and significant assumptions used to estimate the fair value of financial instruments carried at amortized cost.

Entities will have to assess the realizability of a deferred tax asset related to a debt security classified as available for sale in combination with the entity’s other deferred tax assets.

·

Public business entities will no longer be required to disclose the methods and significant assumptions used to estimate the fair value of financial instruments carried at amortized cost.

·

Entities will have to assess the realizability of a deferred tax asset related to a debt security classified as available for sale in combination with the entity’s other deferred tax assets.

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 Company is currently assessing the potential effect that the adoption of ASU 2016-01 willis not expected to have an effect on itsthe Company’s consolidated financial statements.

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OnIn February 25, 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 or not 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 impact that the adoption of ASU 2016-02 will have on its consolidated financial statements. As shown in Note 20 - Commitments and Contingencies, the Company had approximately $102.0 million in future minimum lease payment commitments as of March 31, 2017. Were the Company to adopt ASU 2016-02 as of June 30, 2017, 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 June 30, 2017. The Company does not expect to recognize a significant cumulative effect adjustment to its stockholders’ equity as a result of adopting ASU 2016-02.

 

In March of 2016, Thethe FASB issued ASU 2016-09, Compensation—Stock Compensation (Topic(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:

 

·

Modifies the accounting for income taxes relating to share-based payments. All excess tax benefits and tax deficiencies (including tax benefits of dividends on share-based payment awards) will be recognized as income tax expense or benefit in the consolidated income statement. The tax effects of exercised or vested awards will be treated as discrete items in the reporting period in which they occur. An entity will recognize excess tax benefits regardless of whether the benefit reduces taxes payable in the current period. Under current GAAP, excess tax benefits are recognized in additional paid-in capital; tax deficiencies are recognized either as an offset to accumulated excess tax benefits, if any, or in the consolidated income statement in the period they reduce income taxes payable.

 

·

Changes the classification of excess tax benefits on the consolidated statement of cash flows. In the consolidated statement of cash flows, excess tax benefits will be classified along with other income tax cash flows as an operating activity. Under current GAAP, excess tax benefits are separated from other income tax cash flows and classified as a financing activity.

 

·

Changes the requirement to estimate the number of awards that are expected to vest. Under ASCASU 2016-09, an entity can make an entity-wide accounting policy election to either estimate the number of awards that are expected to vest as presently required or account for forfeitures when they occur. Under current GAAP, accruals of compensation cost are based on the number of awards that are expected to vest.

 

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·

Changes the tax withholding requirements for share-based payment awards to qualify for equity accounting. The threshold to qualify for equity classification permits withholding up to the maximum statutory tax rates in the applicable jurisdictions. Under current GAAP, for an award to qualify for equity classification is that an entity cannot partially settle the award in cash in excess of the employer’s minimum statutory withholding requirements.

 

·

Establishes GAAP for the classification of employee taxes paid when an employer withholds shares for tax withholding purposes. Cash paid by an employer when directly withholding shares for tax- withholding purposes should be classified as a financing activity. This guidance establishes GAAP related to the classification of withholding taxes in the statement of cash flows as there is no such guidance under current GAAP.

 

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 Company is currently assessing the potential effect that the adoption of ASU 2016-09 willdid not have a significant effect on itsthe Company’s consolidated financial statements.

 

Note 24—Subsequent Events

During July 2016, the Company entered into a letter of intent to acquire approximately $1.0 billion in UPB of MSRs related to defaulted government loans from a third party.  The MSR acquisition by the Company is subject to the negotiation and execution of definitive documentation, continuing due diligence and customary closing conditions.  There can be no assurance that the committed amounts will ultimately be acquired or that the transaction will be completed at all.

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Note 24—Subsequent Events

The Company has evaluated the impacts of events that have occurred subsequent to June 30, 2017 through the filing date of the Consolidated Financial Statements with the SEC. Based on this evaluation, the Company has determined none of these events were required to be recognized or disclosed in the Consolidated Financial Statements and related Notes.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationOperationss

 

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-sponsored entity (“GSE”). It 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”). 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 mortgage loans in all 50 states, the District of Columbia, Guam and the U.S. Virgin Islands, and originate mortgage 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, 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 Advisors Act of 1940, as amended,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, PNMAC Mortgage Opportunity Fund, LLC and PNMAC Mortgage Opportunity Fund, LP, both registered under the Investment

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Company Act of 1940 (“Investment Company Act”), as amended, an affiliate of these Funds and PNMAC Mortgage Opportunity Fund Investors, LLC. We refer to these funds collectively as our “Investment Funds” and, together with PMT, as our “Advised Entities.”

 

Mortgage Banking

Loan Production

Our loan production segment sources mortgage loans through two channels: correspondent production and consumer direct lending.

In correspondent production we manage, on behalf of PMT and for our own account, the acquisition of newly originated, prime credit quality, first-lien residential mortgage loans that have been underwritten to investor guidelines. PMT acquires, from approved correspondent sellers, newly originated mortgage loans, including both conventional and government-insured or guaranteed residential mortgage loans that qualify for inclusion in securitizations that are guaranteed by the Agencies. For conventional mortgage loans, we perform fulfillment activities for PMT and earn a fulfillment fee for each mortgage loan purchased by PMT. In the case of government insured mortgage loans, we purchase them from PMT at PMT’s cost plus a sourcing fee and fulfill them for our own account.

Through our consumer direct lending channel, we originate new prime credit quality, first-lien residential conventional and government-insured or guaranteed mortgage loans on a national basis to allow customers to purchase or refinance their homes. The consumer direct model relies on the Internet and call center-based staff to acquire and interact with customers across the country. We do not have a “brick and mortar” branch network and have been developing our consumer direct operations with call centers strategically positioned across the United States.

For loans originated through our consumer direct lending channel, we conduct our own fulfillment, earn interest income and gains or losses during the holding period and upon the sale or securitization of these loans, and retain the associated MSRs (subject to sharing with PMT a portion of such MSRs or cash with respect to certain consumer direct originated loans that refinance loans for which the related mortgage servicing rights (“MSRs”) or excess servicing spread (“ESS”) was held by PMT).

Our loan production activity is summarized below:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Quarter ended June 30, 

 

Six months ended June 30, 

 

 

    

2016

    

2015

    

2016

    

2015

 

 

 

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unpaid principal balance of mortgage loans purchased and originated for sale:

 

 

                      

 

 

                      

 

 

                      

 

 

                      

 

Government-insured or guaranteed mortgage loans acquired from PennyMac Mortgage Investment Trust

 

$

9,409,399

 

$

8,082,764

 

$

15,905,121

 

$

12,818,138

 

Mortgage loans sourced through our consumer direct channel

 

 

1,501,234

 

 

1,138,269

 

 

2,708,217

 

 

2,035,267

 

 

 

$

10,910,633

 

$

9,221,033

 

$

18,613,338

 

$

14,853,405

 

Unpaid principal balance of mortgage loans fulfilled for PennyMac Mortgage Investment Trust

 

$

5,174,020

 

$

3,579,078

 

$

8,433,383

 

$

6,469,210

 

Loan Servicing

Our mortgage loan servicing segment performs mortgage loan administration, collection, and default management activities, including the collection and remittance of mortgage loan payments; response to customer inquiries; accounting for principal and interest; holding custodial (impounded) funds for the payment of property taxes and insurance premiums; counseling delinquent mortgagors; and supervising foreclosures and property dispositions. We service a diverse portfolio of mortgage loans both as the owner of MSRs and on behalf of other MSR or mortgage owners. We provide servicing for conventional and government-insured or guaranteed mortgage loans (“prime servicing”), as well as servicing for distressed mortgage loans that have been acquired as investments by our Advised Entities (“special servicing”). As of June 30, 2016, the portfolio of mortgage loans that we serviced or subserviced

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totaled approximately $171.7 billion in unpaid principal balance (“UPB”).

Investment Management

We are an investment manager through our subsidiary, PCM. PCM currently manages the Advised Entities. The Advised Entities had combined net assets of approximately $1.6 billion as of June 30, 2016. For these activities, we earn management fees as a percentage of net assets and incentive compensation based on the entities’ performance.

Observations on Current Market Conditions

Our business is affected by macroeconomic conditions in the United States, including economic growth, unemployment rates, the residential housing market and interest rate levels and expectations. The U.S. economy continues to grow, albeit at a slower pace, as reflected in recent economic data. During the second quarter of 2016, U.S. real gross domestic product expanded at an annual rate of 1.2% compared to 2.6% for the second quarter of 2015 and 0.8% for the first quarter of 2016. The national seasonally adjusted unemployment rate was 4.9% at June 30, 2016 compared to 5.0% at March 31, 2016 and 5.3% at June 30, 2015. Delinquency rates on residential real estate loans remain elevated compared to historical rates, but have been steadily declining. As reported by the Federal Reserve Bank, during the first quarter of 2016, the delinquency rate on residential real estate loans held by commercial banks was 4.8%, a reduction from 6.2% during the first quarter of 2015.

Residential real estate activity appears to be expanding. The seasonally adjusted annual rate of existing home sales for June 2016 was 3.0% higher than for June 2015, and the national median existing home price for all housing types was $247,700, a 4.8% increase from June 2015 (Source: National Association of Realtors®). On a national level, foreclosure filings during the quarter ended June 30, 2016 decreased by 14% as compared to the quarter ended June 30, 2015. However, foreclosure activity is expected to remain above historical average levels through 2016 and beyond.

Changes in fixed-rate residential mortgage loan interest rates generally follow changes in long-term U.S. Treasury yields. Thirty-year fixed mortgage interest rates ranged from a low of 3.48% to a high of 3.66% during the second quarter of 2016 while during the second quarter of 2015, thirty-year fixed mortgage interest rates ranged from a low of 3.65% to a high of 4.04% (Source: Freddie Mac’s Weekly Primary Mortgage Market Survey). Interest rates generally declined in the second quarter of 2016 and generally increased in the second quarter of 2015. This impacted MSR and other interest rate sensitive asset valuations and production activity.

Mortgage lenders originated an estimated $510 billion of home loans during the second quarter of 2016, up 4.1% from the second quarter of 2015. Total mortgage originations are forecast to be somewhat higher in 2016 versus 2015, with current industry estimates for 2016 averaging $1.8 trillion (Source: average of Fannie Mae, Freddie Mac and Mortgage Bankers Association forecasts).

We believe there is long-term market opportunity for the production of non-Agency jumbo mortgage loans. However, most new jumbo mortgage loans are either being originated or purchased by banks, and the current market for jumbo mortgage loan securitizations is limited, as evidenced by weak demand and inconsistent pricing observed throughout 2015 and the first half of 2016. Prime jumbo MBS securitizations totaled $0.9 billion in UPB during the second quarter of 2016, a decrease from $2.8 billion during the second quarter of 2015. During the six months ended June 30, 2016, we produced approximately $13 million in UPB of jumbo loans compared to $91 million in UPB of jumbo loans produced during the six months ended June 30, 2015.

In our capacity as an investment manager, we expect to see a continued supply of distressed whole loans; however, we believe the pricing for recent transactions has been less attractive for buyers. We are transitioning PMT’s portfolio away from distressed whole loans to correspondent-related investments such as CRT and MSRs, and we continue to monitor the market to assess best execution opportunities for distressed portfolio investments held by the Advised Entities.

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Results of Operations

 

Our results of operations are summarized below:

 

 

 

 

 

 

 

 

 

 

 

Quarter ended June 30, 

 

Six months ended June 30, 

 

 

 

 

 

 

 

 

 

 

    

2016

    

2015

    

2016

    

2015

 

 

Quarter ended June 30, 

 

Six months ended June 30, 

 

 

(in thousands)

 

    

2017

    

2016

   

2017

    

2016

 

 

 

 

 

 

 

 

 

 

 

(in thousands)

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net gains on mortgage loans held for sale at fair value

 

$

130,203

 

$

83,955

 

$

221,727

 

$

159,333

 

 

$

98,091

 

$

130,203

 

$

185,047

 

$

221,727

 

Mortgage loan origination fees

 

 

28,907

 

24,421

 

 

51,341

 

41,103

 

 

 

30,193

 

28,907

 

 

55,767

 

51,341

 

Fulfillment fees from PennyMac Mortgage Investment Trust

 

 

19,111

 

15,333

 

 

32,046

 

28,199

 

 

 

21,107

 

19,111

 

 

37,677

 

32,046

 

Net mortgage loan servicing fees

 

 

26,555

 

68,549

 

 

44,074

 

95,325

 

 

 

46,913

 

26,555

 

 

121,076

 

44,074

 

Management fees

 

 

5,730

 

6,963

 

 

11,642

 

15,452

 

Carried Interest from Investment Funds

 

 

244

 

182

 

 

837

 

1,415

 

Management fees & Carried Interest

 

 

6,248

 

5,974

 

 

11,494

 

12,479

 

Net interest expense

 

 

(4,912)

 

(3,165)

 

 

(12,370)

 

(6,061)

 

 

 

(1,904)

 

(4,912)

 

 

(7,519)

 

(12,370)

 

Other

 

 

1,968

 

 

113

 

 

1,910

 

 

1,899

 

 

 

1,073

 

 

1,968

 

 

2,652

 

 

1,910

 

Total net revenue

 

 

207,806

 

196,351

 

 

351,207

 

336,665

 

 

 

201,721

 

207,806

 

 

406,194

 

351,207

 

Expenses

 

 

123,548

 

121,552

 

 

236,810

 

208,628

 

 

 

143,761

 

123,548

 

 

286,202

 

236,810

 

Provision for income taxes

 

 

9,963

 

 

8,619

 

 

13,559

 

 

14,733

 

 

 

7,214

 

 

9,963

 

 

14,860

 

 

13,559

 

Net income

 

$

74,295

 

$

66,180

 

$

100,838

 

$

113,304

 

 

$

50,746

 

$

74,295

 

$

105,132

 

$

100,838

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income before provision for income taxes by segment:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage banking:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Production

 

$

104,505

 

$

76,281

 

$

172,913

 

$

143,713

 

 

$

66,706

 

$

104,505

 

$

114,210

 

$

172,913

 

Servicing

 

 

(20,969)

 

 

(2,445)

 

 

(60,431)

 

 

(20,562)

 

 

 

(11,213)

 

 

(20,969)

 

 

2,203

 

 

(60,431)

 

Total mortgage banking

 

 

83,536

 

73,836

 

 

112,482

 

123,151

 

 

 

55,493

 

83,536

 

 

116,413

 

112,482

 

Investment management

 

 

722

 

963

 

 

1,866

 

4,886

 

 

 

2,467

 

722

 

 

3,579

 

1,866

 

Non-segment activities (1)

 

 

 —

 

 

 —

 

 

49

 

 

 —

 

 

 

 —

 

 

 —

 

 

 —

 

 

49

 

 

$

84,258

 

$

74,799

 

$

114,397

 

$

128,037

 

 

$

57,960

 

$

84,258

 

$

119,992

 

$

114,397

 

During the period:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate lock commitments issued

 

$

12,924,700

 

$

11,588,488

 

$

21,665,118

 

$

19,381,813

 

 

$

13,489,651

 

$

12,924,700

 

$

24,595,550

 

$

21,665,118

 

Fair value of mortgage loans purchased and originated for sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Government-insured or guaranteed loans acquired from PennyMac Mortgage Investment Trust

 

$

9,933,264

 

$

8,524,895

 

$

16,783,840

 

$

13,514,733

 

 

$

11,227,406

 

$

9,933,264

 

$

21,244,194

 

$

16,783,840

 

Mortgage loans originated through consumer direct channel

 

 

1,512,546

 

 

1,148,435

 

 

2,730,709

 

 

2,052,648

 

 

 

1,292,687

 

 

1,513,858

 

 

2,353,899

 

 

2,736,621

 

Commercial real estate

 

 

1,312

 

 

 —

 

 

5,912

 

 

 —

 

 

$

11,447,122

 

$

9,673,330

 

$

19,520,461

 

$

15,567,381

 

 

$

12,520,093

 

$

11,447,122

 

$

23,598,093

 

$

19,520,461

 

Unpaid principal balance of mortgage loans fulfilled for PennyMac Mortgage Investment Trust

 

$

5,174,020

 

$

3,579,078

 

$

8,433,383

 

$

6,469,210

 

 

$

5,918,027

 

$

5,174,020

 

$

10,549,933

 

$

8,433,383

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 

 

December 31, 

 

 

 

 

 

 

2016

 

2015

 

 

 

 

 

 

Unpaid principal balance of mortgage loan servicing portfolio:

 

 

 

 

 

 

 

 

 

 

 

 

Unpaid principal balance of mortgage loan servicing portfolio at period end:

 

 

 

 

 

 

 

 

 

 

 

 

Owned:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage servicing rights

 

$

117,036,803

 

$

110,602,704

 

 

 

 

 

 

 

 

$

157,223,909

 

$

117,036,803

 

 

 

 

 

 

 

Mortgage servicing liabilities

 

 

751,193

 

 

806,897

 

 

 

 

 

 

 

 

 

1,698,588

 

 

751,193

 

 

 

 

 

 

 

Mortgage loans held for sale

 

 

1,971,903

 

 

1,052,485

 

 

 

 

 

 

 

 

 

2,915,346

 

 

1,971,903

 

 

 

 

 

 

 

 

 

119,759,899

 

 

112,462,086

 

 

 

 

 

 

 

 

 

161,837,843

 

 

119,759,899

 

 

 

 

 

 

 

Subserviced

 

 

51,958,636

 

 

47,810,632

 

 

 

 

 

 

 

Subserviced for Advised Entities

 

 

67,125,932

 

 

51,958,636

 

 

 

 

 

 

 

 

$

171,718,535

 

$

160,272,718

 

 

 

 

 

 

 

$

228,963,775

 

$

171,718,535

 

 

 

 

 

 

 

Net assets of Advised Entities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

PennyMac Mortgage Investment Trust

 

$

1,360,826

 

$

1,496,113

 

 

 

 

 

 

 

 

$

1,454,832

 

$

1,360,826

 

 

 

 

 

 

 

Investment Funds

 

 

201,490

 

 

231,745

 

 

 

 

 

 

 

 

 

144,744

 

 

201,490

 

 

 

 

 

 

 

 

$

1,562,316

 

$

1,727,858

 

 

 

 

 

 

 

$

1,599,576

 

$

1,562,316

 

 

 

 

 

 

 


(1)

Relates to parent Company interest expense eliminated in consolidation.

 

Net income increased $8.1 million and decreased $12.5$23.5 million during the quarter ended June 30, 2017 compared to the same period in 2016 and increased $4.3 million during the six months ended June 30, 2016, respectively,2017 compared to the same periodsperiod in 2015.2016. These changes reflect the effects on our mortgage banking activities of decreasinghigher market interest rates during the first six months of 2016 asended June 30, 2017 compared to the same period of 2015.  in 2016.

The increase in net income duringdecrease for the quarter ended in June 30, 2016, compared to the same quarter ended June 30, 2015,2017 was primarily due to an increasea decrease in gainNet gains on mortgage loans held for sale at fair value that was partially offset by resulting froma decrease in netour profit margin that more than offset an increase in mortgage loan servicing fees.production volume. The decrease in net income for the six month period ended June 30, 2016, as compared to the six month period ended June 30, 2015, was due to a decrease in net mortgage loan servicing fees partly offset by an increase in gainNet gains on mortgage loans held for sale at fair value.

value was partially

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offset by an increase in  Net mortgage loan servicing fees which reflects both growth in the our servicing portfolio and reduced fair value adjustments net of hedging losses.

The increase in net income for the six months ended in June 30, 2017 was primarily due to an increase in  Net mortgage loan servicing fees resulting from lower amortization and losses in change in fair value of MSRs due to less adverse interest rate movements along with an increase in mortgage loan servicing fees from a larger servicing portfolio that was partially offset by a decrease in Net gains on mortgage loans held for sale at fair value and an increase in expenses due to the larger scale of our business.

Net Gains on Mortgage Loans Held for Sale at Fair Value

 

Most of our mortgage loan production is centered in government-insured or guaranteed loans. Over recent periods, the margins on correspondent government-insured or guaranteed mortgage loans have tended to be higher than those on conventional correspondent production. Government-insured or guaranteed mortgage lending is not as competitive as conventional conforming mortgage lending due to the added complexity involved in the origination and servicing of government-insured or guaranteed mortgage loans. We source the majority of our government-insured or guaranteed mortgage loan production 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 guaranteed mortgage loans that PMT acquires through its correspondent lending activities and pay PMT a sourcing fee ofranging from two to three and one-half basis points on the UPB of such mortgage loans.

 

During the quarter and six months ended June 30, 2016,2017, we recognized net gains on mortgage loans held for sale at fair value totaling $130.2 million and $221.7 million, respectively, increases of $46.2 million and $62.4 million from the same periods in 2015. The increase was due to growth in the volume of mortgage loans that we committed to purchase or originate and an improvement in production margins resulting from an increase in volume of our consumer direct channel, which earns higher margins than our correspondent production channel.

Our net gains on mortgage loans held for sale at fair value include both cash and non-cash elements. We receive proceeds on sale that include both cash and our estimate of the fair value of the MSRs and mortgage servicing liabilities created or incurred in such transactions. During the quarter and six months ended June 30, 2016, the net gains on mortgage loans held for sale at fair value included $132.5 million and $227.8 million, respectively, in fair value of MSRs received as proceeds on sales, net of mortgage servicing liabilities incurred. During the quarter and six months ended June 30, 2015, the net gains on mortgage loans held for sale at fair value included $119.8 million and $186.9 million, respectively, in fair value of MSRs received as proceeds on sale, net of mortgage servicing liabilities incurred.

We also recognize a liability for our estimate of the losses we expect to incur in the future as a result of claims made against us in connection with the representations and warranties that we made in the loan sales transactions.  During the quarter and six months ended June 30, 2016, we included provisions for losses relating to the representations and warranties we provided totaling $2.3 million and $4.4 million, respectively, in our Net gains on mortgage loans held for sale at fair value. During the quarter totaling $98.1 million and six months ended June 30, 2015, we included provisions for losses relating$185.1 million, respectively, a decrease of $32.1 million and $36.7 million, respectively, compared to the representations and warranties we provided totaling $1.7 million and $3.2 million, respectively,same periods in 2016. The decrease was primarily due to a decrease in our Net gainsprofit margin on mortgage loans held for sale at fair value.loan production partially offset by growth in our mortgage loan production volume.

 

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Our net gains on mortgage loans held for sale are summarized below:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Quarter ended June 30, 

 

Six months ended June 30, 

 

 

Quarter ended June 30, 

 

Six months ended June 30, 

 

 

    

2016

    

2015

    

2016

    

2015

 

    

2017

    

2016

    

2017

    

2016

 

 

 

(in thousands)

 

 

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

Cash (loss) gain:

 

                       

 

                       

 

                       

 

                       

 

From non affiliates:

 

 

 

 

 

 

 

 

 

 

 

Cash gain (loss) :

 

                       

 

                       

 

                       

 

                       

 

 

Mortgage loans

 

$

20,830

 

$

(38,944)

 

$

42,231

 

$

(36,214)

 

 

$

1,904

 

$

20,830

 

$

(56,777)

 

$

42,231

 

 

Hedging activities

 

 

(77,593)

 

 

17,995

 

 

(150,133)

 

 

(334)

 

 

 

5,317

 

 

(77,593)

 

 

6,424

 

 

(150,133)

 

 

 

 

(56,763)

 

 

(20,949)

 

 

(107,902)

 

 

(36,548)

 

 

 

7,221

 

 

(56,763)

 

 

(50,353)

 

 

(107,902)

 

 

Non-cash gain:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage servicing rights resulting from mortgage loan sales

 

 

132,472

 

129,004

 

 

233,254

 

198,960

 

Mortgage servicing liabilities resulting from mortgage loan sales

 

 

 —

 

(9,156)

 

 

(5,409)

 

(12,084)

 

Provision for losses relating to representations and warranties on mortgage loans sold

 

 

(2,286)

 

(1,748)

 

 

(4,368)

 

(3,243)

 

Change in fair value relating to mortgage loans and derivative financial instruments outstanding at period end:

 

 

 

 

 

 

 

 

 

 

 

Mortgage servicing rights and mortgage servicing liabilities resulting from mortgage loan sales

 

 

133,062

 

132,472

 

 

265,205

 

227,845

 

 

Provision for losses relating to representations and warranties:

 

 

 

 

 

 

 

 

 

 

 

 

Pursuant to mortgage loan sales

 

 

(1,296)

 

(2,286)

 

 

(2,698)

 

(4,368)

 

 

Reduction in liability due to change in estimate

 

 

1,020

 

 —

 

 

1,892

 

 —

 

 

Change in fair value of mortgage loans and derivative financial instruments outstanding at period end:

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate lock commitments

 

 

18,377

 

(26,654)

 

 

46,488

 

(4,663)

 

 

 

(19,849)

 

18,377

 

 

(13,234)

 

46,488

 

 

Mortgage loans

 

 

11,669

 

(12,120)

 

 

31,517

 

81

 

 

 

(13,326)

 

11,669

 

 

(5,930)

 

31,517

 

 

Hedging derivatives

 

 

28,649

 

 

27,034

 

 

32,014

 

 

19,575

 

 

 

(7,235)

 

 

28,649

 

 

(6,634)

 

 

32,014

 

 

 

 

132,118

 

 

85,411

 

 

225,594

 

 

162,078

 

 

 

99,597

 

 

132,118

 

 

188,248

 

 

225,594

 

 

Recapture payable to PennyMac Mortgage Investment Trust

 

 

(1,915)

 

 

(1,456)

 

 

(3,867)

 

 

(2,745)

 

From PennyMac Mortgage Investment Trust - Recapture payable

 

 

(1,506)

 

 

(1,915)

 

 

(3,201)

 

 

(3,867)

 

 

 

$

130,203

 

$

83,955

 

$

221,727

 

$

159,333

 

 

$

98,091

 

$

130,203

 

$

185,047

 

$

221,727

 

 

During the period:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unpaid principal balance of mortgage loans sold

 

$

10,766,503

 

$

9,416,468

 

$

18,381,560

 

$

14,925,336

 

 

$

12,017,983

 

$

10,766,503

 

$

23,474,792

 

$

18,381,560

 

 

Interest rate lock commitments issued:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Conventional mortgage loans

 

$

847,051

 

$

1,652,242

 

$

1,394,368

 

$

3,436,009

 

 

$

804,501

 

$

847,051

 

$

1,473,086

 

$

1,394,368

 

 

Government-insured or guaranteed mortgage loans

 

 

12,077,649

 

 

9,936,246

 

 

20,270,750

 

 

15,945,804

 

 

 

12,685,150

 

 

12,077,649

 

 

23,122,464

 

 

20,270,750

 

 

 

$

12,924,700

 

$

11,588,488

 

$

21,665,118

 

$

19,381,813

 

 

$

13,489,651

 

$

12,924,700

 

$

24,595,550

 

$

21,665,118

 

 

Period end:

 

 

 

 

 

 

 

 

 

At period end:

 

 

 

 

 

 

 

 

 

 

Mortgage loans held for sale at fair value

 

$

2,097,138

 

$

1,594,262

 

 

 

 

 

 

 

$

3,037,602

 

$

2,097,138

 

 

 

 

 

 

 

Commitments to fund and purchase mortgage loans

 

$

3,868,230

 

$

4,296,134

 

 

 

 

 

 

 

$

3,999,761

 

$

3,868,230

 

 

 

 

 

 

 

 

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 in connection with the representations and warranties we provide to the purchasers and insurers of the mortgage loans we sell 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. The representations and 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 identified defects or indemnify the purchaser or insurer.insurer against future credit losses. 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 lendersoriginators that sold such mortgage loans and breached similar or other representations and warranties. In such event, we have the right to seek a recovery of related repurchase losses from that correspondent lender.seller.

 

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The method usedwe use 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 defaults and the probability of

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reimbursement by the correspondent mortgage loan seller. We establish a liability at the time loans are sold and review our liability estimate on a periodic basis.

 

We recorded provisions for losses under representations and warranties as a component of Net gains on mortgage loans held for sale at fair value totaling $276,000 and $806,000 during the quarter and six months ended June 30, 2017, respectively, compared to $2.3 million and $4.4 million during the quarter and six months ended June 30, 2016, respectively, compared to $1.7 million and $3.2 million during the quarter and six months ended June 30, 2015.2016. The increasedecrease in provision for losses under representations and warranties during the quarter and six months ended June 30, 20162017 compared to the same periods in 20152016 was primarily due to an increasea $1.0 million and $1.9 million, respectively, reduction in the volumeliability estimate resulting from changes in estimates relating to better-than anticipated credit performance of seasoned mortgage loan sales activity, partly offsetpools along with additional reductions relating to mortgage loans meeting previously announced limitations on pursuit by lower expected loss ratesthe Agencies of claims on our new production during 2016 as compared to 2015.mortgage loans with certain performance histories.

 

Following is a summary of mortgage loan repurchase and loss activity and the UPB of mortgage loans subject to representations and warranties:

 

 

 

 

 

 

 

 

 

 

 

Quarter ended June 30, 

 

Six months ended June 30, 

 

 

 

 

 

 

 

 

 

 

    

2016

    

2015

    

2016

    

2015

 

 

Quarter ended June 30, 

 

Six months ended June 30, 

 

 

(in thousands)

 

    

2017

    

2016

    

2017

    

2016

 

 

 

 

 

 

 

 

 

 

 

 

(in thousands)

 

During the period:

 

                       

 

                       

 

                       

 

                       

 

 

 

                       

 

                       

 

                       

 

                       

 

Indemnification activity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage loans indemnified by PFSI at beginning of period

 

$

3,540

 

$

2,202

 

$

3,470

 

$

1,521

 

 

$

6,288

 

$

3,540

 

$

5,599

 

$

3,470

 

New indemnifications

 

1,716

 

868

 

1,855

 

1,549

 

 

 

723

 

1,716

 

1,412

 

1,855

 

Less:

 

 

 

 

 

 

 

 

 

Indemnified mortgage loans repurchased

 

 —

 

 —

 

 —

 

 —

 

Indemnified mortgage loans repaid or refinanced

 

 

384

 

 

 —

 

 

453

 

 

 —

 

 

 

214

 

 

384

 

 

214

 

 

453

 

Mortgage loans indemnified by PFSI at end of period

 

$

4,872

 

$

3,070

 

$

4,872

 

$

3,070

 

 

$

6,797

 

$

4,872

 

$

6,797

 

$

4,872

 

Repurchase activity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total mortgage loans repurchased by PFSI

 

$

4,486

 

$

7,291

 

$

11,399

 

$

11,781

 

 

$

6,217

 

$

4,486

 

$

11,520

 

$

11,399

 

Less:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage loans repurchased by correspondent lenders

 

3,075

 

7,756

 

6,340

 

8,276

 

 

 

4,827

 

3,075

 

7,410

 

6,340

 

Mortgage loans repaid by borrowers or resold with defects resolved

 

 

814

 

 

1,585

 

 

1,141

 

 

1,958

 

 

 

2,332

 

 

814

 

 

5,551

 

 

1,141

 

Net mortgage loans repurchased by PFSI with losses chargeable to liability for representations and warranties

 

$

597

 

$

(2,050)

 

$

3,918

 

$

1,547

 

Losses charged to liability for representations and warranties

 

$

218

 

$

180

 

$

702

 

$

245

 

Period end:

 

 

 

 

 

 

 

 

 

Net mortgage loans (repaid or resold) repurchased by PFSI with losses chargeable to liability for representations and warranties

 

$

(942)

 

$

597

 

$

(1,441)

 

$

3,918

 

Net losses charged to liability for representations and warranties

 

$

144

 

$

218

 

$

305

 

$

702

 

 

 

 

 

 

 

 

 

 

 

At period end:

 

 

 

 

 

 

 

 

 

 

Unpaid principal balance of mortgage loans subject to representations and warranties

 

$

72,151,175

 

$

44,794,166

 

 

 

 

 

 

$

106,284,973

 

$

72,151,175

 

 

 

 

 

Liability for representations and warranties

 

$

24,277

 

$

16,257

 

 

 

 

 

 

$

19,568

 

$

24,277

 

 

 

 

 

 

During the quarter and six months ended June 30, 2016,2017, we repurchased mortgage loans totaling $4.5$6.2 million and $11.4$11.5 million, respectively, in UPB, respectively.UPB. We recorded losses of $218,000$144,000 and $702,000,$305,000, respectively, net of recoveries from correspondent lenders,sellers as a result of these repurchases.repurchases during the quarter and six months ended June 30, 2017. 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 tomay 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,

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purchaser or insurer loss mitigation strategies, and other external conditions that may change over the lives of the

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underlying mortgage loans. Our estimate of the liability for representations and warranties is developed by our credit administration staff.staff The liability estimate is reviewed 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. We did not record any adjustments to previously recorded liabilities for representations and warranties during any of the periods presented.

   

 

Our representations and warranties are generally not subject to stated limits of exposure. However, we believe that the current UPB of mortgage loans sold by us to date represents the maximum exposure to repurchases related to representations and warranties.

 

Other mortgage loan production-related revenues

 

LoanMortgage loan origination fees increased $4.5$1.3 million and $10.2$4.4 million during the quarter and six months ended June 30, 2016,2017, respectively, compared to the same periods in 20152016 primarily due to growth in the volume of correspondent purchases in our loan production activities.

 

Fulfillment fees from PMT, which represent fees we collect for services we perform on behalf of PMT in connection with its acquisition, packaging and sale of mortgage loans, are calculated as a percentage of the UPB of the mortgage loans we fulfill for PMT. Fulfillment fees increased $3.8$2.0 million and $5.6 million during the quarter and six months ended June 30, 20162017, respectively, compared to the same periods in 2015.  The effect of the increase in2016 due to increased mortgage loan production volume of mortgage loans we fulfilled for PMT was partially offset by a reduction in the average fulfillment fee rate we charged during 20162017 as compared to 2015 resulting from contractual discretionary reductions in fulfillment fees made to facilitate certain transactions.2016. 

 

Summarized below are our fulfillment fees:

 

 

 

 

 

 

 

 

 

 

 

Quarter ended June 30, 

 

Six months ended June 30, 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

2016

    

2015

    

2016

    

2015

 

 

Quarter ended June 30, 

 

Six months ended June 30, 

 

 

(in thousands)

 

    

2017

    

2016

    

2017

    

2016

 

 

 

 

 

 

 

 

 

 

 

 

(in thousands)

 

Fulfillment fee revenue

 

$

19,111

 

$

15,333

 

$

32,046

 

$

28,199

 

 

$

21,107

 

$

19,111

 

$

37,677

 

$

32,046

 

Unpaid principal balance of mortgage loans fulfilled

 

$

5,174,020

 

$

3,579,078

 

$

8,433,383

 

$

6,469,210

 

 

$

5,918,027

 

$

5,174,020

 

$

10,549,933

 

$

8,433,383

 

Average fulfillment fee rate (in basis points)

 

 

37

 

43

 

 

38

 

44

 

 

 

36

 

 

37

 

 

36

 

 

38

 

 

Net mortgage loan servicing fees

 

Our net mortgage loan servicing fees are summarized below:

 

 

 

 

 

 

 

 

 

 

 

Quarter ended June 30, 

 

Six months ended June 30, 

 

 

 

 

 

 

 

 

 

 

    

2016

    

2015

    

2016

    

2015

 

 

Quarter ended June 30, 

 

Six months ended June 30, 

 

 

(in thousands)

 

    

2017

    

2016

    

2017

    

2016

 

 

 

 

 

 

 

 

 

 

 

 

(in thousands)

 

Net mortgage loan servicing fees:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage loan servicing fees:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

From non-affiliates

 

$

92,770

 

$

66,867

 

$

184,097

 

$

116,968

 

 

$

112,348

 

$

92,770

 

$

218,815

 

$

184,097

 

From PennyMac Mortgage Investment Trust

 

 

16,427

 

12,136

 

 

27,880

 

22,806

 

 

 

10,099

 

16,427

 

 

20,585

 

27,880

 

From Investment Funds

 

 

723

 

153

 

 

1,424

 

1,121

 

 

 

543

 

723

 

 

1,039

 

1,424

 

Ancillary and other fees

 

 

10,818

 

 

11,850

 

 

22,270

 

 

23,035

 

 

 

11,202

 

 

10,818

 

 

23,068

 

 

22,270

 

 

120,738

 

91,006

 

235,671

 

163,930

 

 

134,192

 

120,738

 

263,507

 

235,671

 

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

 

 

(94,183)

 

 

(22,457)

 

 

(191,597)

 

 

(68,605)

 

Net loan servicing fees

 

$

26,555

 

$

68,549

 

$

44,074

 

$

95,325

 

Amortization, impairment and change in fair value of mortgage servicing rights and excess servicing spread financing net of hedging results

 

 

(87,279)

 

 

(94,183)

 

 

(142,431)

 

 

(191,597)

 

Net mortgage loan servicing fees

 

$

46,913

 

$

26,555

 

$

121,076

 

$

44,074

 

Average mortgage loan servicing portfolio

 

$

167,966,390

 

$

125,390,557

 

$

165,413,607

 

$

117,979,004

 

 

$

212,671,694

 

$

167,966,390

 

$

206,055,588

 

$

165,413,607

 

 

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Amortization, impairment and change in fair value of mortgage servicing rights and mortgage servicing liabilities are summarized below:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Quarter ended June 30, 

 

Six months ended June 30, 

 

 

    

2017

    

2016

    

2017

    

2016

 

 

 

(in thousands)

 

Amortization and realization of cash flows

 

$

(55,482)

 

$

(51,092)

 

$

(103,942)

 

$

(97,767)

 

Other changes, in fair value of, and reversal of (provision for) impairment of mortgage servicing rights and mortgage servicing liabilities

 

 

(36,927)

 

 

(125,467)

 

 

(24,226)

 

 

(254,375)

 

Change in fair value of excess servicing spread

 

 

7,156

 

 

17,428

 

 

9,929

 

 

36,877

 

Hedging results

 

 

(2,026)

 

 

64,948

 

 

(24,192)

 

 

123,668

 

Total fair value adjustments, net of hedging results

 

 

(31,797)

 

 

(43,091)

 

 

(38,489)

 

 

(93,830)

 

Total amortization, impairment and change in fair value of mortgage servicing rights, mortgage servicing liabilities and excess servicing spread

 

$

(87,279)

 

$

(94,183)

 

$

(142,431)

 

$

(191,597)

 

Average mortgage servicing rights balances:

 

 

 

 

 

 

 

 

 

 

 

 

 

Carried at lower of amortized cost or fair value

 

$

1,235,077

 

$

772,734

 

$

1,199,327

 

$

759,286

 

Carried at fair value

 

 

551,740

 

 

571,074

 

 

534,918

 

 

595,124

 

 

 

$

1,786,817

 

$

1,343,808

 

$

1,734,245

 

$

1,354,410

 

Average mortgage servicing liabilities

 

$

15,241

 

$

5,286

 

$

15,084

 

$

4,130

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage servicing rights at period end:

 

 

 

 

 

 

 

 

 

 

 

 

 

Carried at lower of amortized cost or fair value

 

$

1,273,158

 

$

764,634

 

 

 

 

 

 

 

Carried at fair value

 

 

678,441

 

 

526,294

 

 

 

 

 

 

 

 

 

$

1,951,599

 

$

1,290,928

 

 

 

 

 

 

 

Mortgage servicing liabilities at period end

 

$

18,295

 

$

4,681

 

 

 

 

 

 

 

Following is a summary of our mortgage loan servicing portfolio in UPB:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 

 

December 31, 

 

 

June 30, 

 

December 31, 

 

    

2016

    

2015

 

    

2017

    

2016

 

 

(in thousands)

 

 

(in thousands)

 

 

 

 

 

 

Mortgage loans serviced at period end:

 

 

 

 

 

 

Mortgage loans serviced

 

 

 

 

 

 

Prime servicing:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Owned

 

 

 

 

 

 

 

Owned:

 

 

 

 

 

 

 

Mortgage servicing rights

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Originated

 

$

71,436,178

 

$

59,880,349

 

 

$

105,296,264

 

$

89,516,155

 

Acquired

 

 

45,600,625

 

 

50,722,355

 

 

 

51,927,645

 

 

39,660,951

 

 

 

117,036,803

 

 

110,602,704

 

 

 

157,223,909

 

 

129,177,106

 

Mortgage servicing liabilities–Originated

 

 

751,193

 

 

806,897

 

Mortgage servicing liabilities

 

 

1,698,588

 

 

2,074,896

 

Mortgage loans held for sale

 

 

1,971,903

 

 

1,052,485

 

 

 

2,915,346

 

 

2,101,283

 

 

 

119,759,899

 

 

112,462,086

 

 

 

161,837,843

 

 

133,353,285

 

Subserviced for Advised Entities

 

 

48,894,531

 

 

43,963,378

 

 

 

64,924,592

 

 

58,327,748

 

Total prime servicing

 

 

168,654,430

 

 

156,425,464

 

 

 

226,762,435

 

 

191,681,033

 

Special servicing–Subserviced for Advised Entities

 

 

3,064,105

 

 

3,847,254

 

Special servicing – Subserviced for Advised Entities

 

 

2,201,340

 

 

2,558,969

 

Total mortgage loans serviced

 

$

171,718,535

 

$

160,272,718

 

 

$

228,963,775

 

$

194,240,002

 

 

MortgageNet mortgage loan servicing fees increased approximately $29.7$20.4 million and $71.7$77.0 million during the quarter and six months ended June 30, 2016,2017, respectively, compared to the same periods in 2015, primarily2016. The increases were due to an increase ina combination of increased mortgage loan servicing fees from nonaffiliates resulting from growth in our portfolio of MSRs.  

Amortization, impairment and changedecreased net losses in fair value and impairment of mortgageMSRs and MSLs, net of hedging results. Mortgage loan servicing rights are summarized below:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Quarter ended June 30, 

 

Six months ended June 30, 

 

 

    

2016

    

2015

    

2016

    

2015

 

 

 

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortization of mortgage servicing rights carried at lower of amortized cost or fair value and realization of cash flows of mortgage servicing rights carried at fair value

 

$

(54,126)

 

$

(31,384)

 

$

(103,822)

 

$

(55,488)

 

Other changes in fair value of mortgage servicing rights and mortgage servicing liabilities carried at  fair value and provision for impairment of mortgage servicing rights carried at lower of amortized cost or fair value

 

 

(122,433)

 

 

44,377

 

 

(248,320)

 

 

(2,324)

 

Change in fair value of excess servicing spread

 

 

17,428

 

 

(7,133)

 

 

36,877

 

 

403

 

Hedging results

 

 

64,948

 

 

(28,317)

 

 

123,668

 

 

(11,196)

 

Total fair value adjustments, net of hedging results

 

 

(40,057)

 

 

8,927

 

 

(87,775)

 

 

(13,117)

 

Total amortization, impairment and change in fair value of mortgage servicing rights and excess servicing spread

 

$

(94,183)

 

$

(22,457)

 

$

(191,597)

 

$

(68,605)

 

Average mortgage servicing rights balances:

 

 

 

 

 

 

 

 

 

 

 

 

 

Carried at lower of amortized cost or fair value

 

$

772,734

 

$

488,354

 

 

 

 

 

 

 

Carried at fair value

 

 

571,074

 

 

467,328

 

 

 

 

 

 

 

 

 

$

1,343,808

 

$

955,682

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 

 

December 31, 

 

 

 

 

 

 

 

 

 

2016

 

2015

 

 

 

 

 

 

 

Mortgage servicing rights

 

 

 

 

 

 

 

 

 

 

 

 

 

Carried at lower of amortized cost or fair value

 

$

764,634

 

$

751,688

 

 

 

 

 

 

 

Carried at fair value

 

 

526,294

 

 

660,247

 

 

 

 

 

 

 

 

 

$

1,290,928

 

$

1,411,935

 

 

 

 

 

 

 

Amortization, impairment and change in fair value of mortgage servicing rightsfees increased $71.7$13.5 million and $123.0$27.8 million during the quarter and six months ended June 30, 2016,2017, respectively, compared to the same periods in 2016 reflecting increases in our average servicing portfolio of 26.6% and 24.6% for the quarter and six months ended June 30, 2017, respectively, compared to the same periods in 2016. The increase was partially offset by decreasing mortgage loan servicing fees from the Advised Entities due to activity fees we earned relating to sale of distressed mortgage loans during 2016 that have not occurred

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during 2017 and as their distressed mortgage loan portfolios continue to liquidate. The Investment Funds’ investment period ended December 31, 2011 and PMT has not acquired any distressed mortgage loans since 2015. This increase was primarily dueThe decrease of $6.9 million and $49.2 million in amortization, impairment and MSR, MSL and ESS valuation adjustments during the quarter and six months ended June 30, 2017, respectively, compared to the same periods in 2016 reflect the effect of interest rates, which did not decline as steeply during 2017 compared to 2016. Higher interest rates discourage refinancings which contribute to increased amortization caused by both a growing mortgage servicing asset and a shorter amortization period resulting from increased prepayment expectations, and increased impairment of MSRs resulting from the effect on fair value of the decreasing interest rate environment that prevailed during the first half of 2016.MSRs.

 

Management fees and Carried Interest

 

Management fees and Carried Interest are summarized below:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Quarter ended June 30, 

 

 

Six months ended June 30, 

 

 

Quarter ended June 30, 

 

Six months ended June 30, 

 

2016

   

2015

   

 

2016

 

2015

 

 

2017

   

2016

    

2017

    

2016

 

(in thousands)

 

 

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Management fees:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

PennyMac Mortgage Investment Trust:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Base management

    

$

5,199

    

$

5,709

 

 

$

10,551

    

$

11,439

 

    

$

5,334

    

$

5,199

 

$

10,342

    

$

10,551

Performance incentive fee

 

 

 —

 

 

70

 

 

 

 —

 

 

1,343

 

Performance incentive

 

 

304

 

 

 —

 

 

304

 

 

 —

 

 

5,199

 

 

5,779

 

 

 

10,551

 

 

12,782

 

 

 

5,638

 

 

5,199

 

 

10,646

 

 

10,551

Investment Funds

 

 

531

 

 

1,184

 

 

 

1,091

 

 

2,670

 

 

 

369

 

 

531

 

 

735

 

 

1,091

Total management fees

 

 

5,730

 

 

6,963

 

 

 

11,642

 

 

15,452

 

 

 

6,007

 

 

5,730

 

 

11,381

 

 

11,642

Carried Interest

 

 

244

 

 

182

 

 

 

837

 

 

1,415

 

 

 

241

 

 

244

 

 

113

 

 

837

Total management fees and Carried Interest

 

$

5,974

 

$

7,145

 

 

$

12,479

 

$

16,867

 

 

$

6,248

 

$

5,974

 

$

11,494

 

$

12,479

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30,

 

December 31,

 

 

 

 

 

 

 

 

 

June 30, 

 

December 31, 

 

 

 

 

 

 

 

2016

 

2015

 

 

 

 

 

 

 

 

 

2017

 

2016

 

 

 

 

 

 

 

(in thousands)

 

 

 

 

 

 

Net assets of Advised Entities at period end:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

PennyMac Mortgage Investment Trust

 

$

1,360,826

 

$

1,496,113

 

 

 

 

 

 

 

 

 

$

1,454,832

 

$

1,351,114

 

 

 

 

 

 

Investment Funds

 

 

201,490

 

 

231,745

 

 

 

 

 

 

 

 

 

 

144,744

 

 

197,550

 

 

 

 

 

 

 

$

1,562,316

 

$

1,727,858

 

 

 

 

 

 

 

 

 

$

1,599,576

 

$

1,548,664

 

 

 

 

 

 

 

ManagementBase management fees from PMT increased $135,000 and decreased $580,000 and $2.2 million$209,000 during the quarter and six months ended June 30, 2016,2017, respectively, compared to the same periods in 2015.2016. The decrease waschanges were due to fluctuations in PMT’s average shareholders’ equity, upon which its base management fees are calculated. The increase of PMT’s average shareholders’ equity during the quarter ended June 30, 2017 compared to the same period in 2016 is primarily due to:

·

a decrease in base management fees of $510,000 and $888,000, respectively, due primarily to the effect of a share repurchase program on PMT’s shareholders’ equity upon which its base management fee is based; and

·

a decrease in performance incentive fees of $70,000 and $1.3 million resulting from a decline in PMT’s financial performance over the four-quarter period for which incentive fees wereto an issuance of additional equity by PMT. The performance incentive fees increased $304,000 during the quarter and six months ended June 30, 2017 resulting from an increase in PMT’s net income during the period over which incentive fees are calculated.

 

Management fees from the Investment Funds decreased $653,000$162,000 and $1.6 million$356,000, respectively, during the quarter and six months ended June 30, 2016, respectively,2017, compared to the same periods in 2015.2016. The decrease wasdecreases were due to a reduction in the Investment Funds’ net asset values as a result of continued distributions to the Investment Funds’ investors following the end of the Investment Funds’ commitment period. 

 

Carried Interest income from Investment Funds increased $62,000decreased $3,000 and decreased $578,000$724,000 during the quarter and six months ended June 30, 2016,2017, respectively, compared to the same periods in 2015.2016. The decreases were due to a decline in the performance of the Funds compared to the same periods in 2016, and to a shrinking investment base on which returns are generated.

 

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Other revenues

 

Net interest expense increased $1.7decreased $3.0 million and $6.3$4.9 million during the quarter and six months ended June 30, 2016,2017, respectively, compared to the same periods in 20152016. The decrease is primarily due to an increase in interest income on mortgage loans held for sale as a result of an increase in average mortgage loan inventory and an increase in the placement fees we receive relating to the custodial funds that we manage, partially offset by an increase in interest expense incurred to fund the growth in financingour average inventory of mortgage loans held for sale and to finance our investments in non-interest earning assets, primarily MSRs.

The results of our holdings of common shares of PMT, which is included in Changes in fair value of investment in and dividends received from PMT are summarized below:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Quarter ended June 30, 

 

Six months ended June 30, 

 

 

    

2016

    

2015

    

2016

    

2015

 

 

 

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends received from PennyMac Mortgage Investment Trust

 

$

36

 

$

46

 

$

71

 

$

138

 

Change in fair value of investment in PennyMac Mortgage Investment Trust

 

 

193

 

 

(290)

 

 

72

 

 

(275)

 

 

 

$

229

 

$

(244)

 

$

143

 

$

(137)

 

Fair value of PennyMac Mortgage Investment Trust shares at period end

 

$

1,217

 

$

1,307

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in fair value of investment in and dividends received from PMT increased $473,000 and $280,000decreased $153,000 during the quarter ended June 30, 2017 compared to the same period in 2016 and increased $72,000 during the six months ended June 30, 2016, respectively,2017, compared to the same periodsperiod in 2015 due to an increase2016. The changes reflect the share price fluctuations in the fair value of our investment in PMT. We held 75,000 common shares of PMT during each of the periods ended June 30, 2017 and 2016, with fair value of $1.4 million and 2015.$1.2 million, respectively, at the end of each period.

 

Expenses

Compensation

 

Our compensation expense is summarized below:

 

 

 

 

 

 

 

 

 

 

 

Quarter ended June 30, 

 

Six months ended June 30, 

 

 

 

 

 

 

 

 

 

 

    

2016

    

2015

    

2016

    

2015

 

 

Quarter ended June 30, 

 

Six months ended June 30, 

 

 

(in thousands)

 

    

2017

    

2016

    

2017

    

2016

 

 

 

 

 

 

 

 

 

 

 

 

(in thousands)

 

Salaries and wages

 

$

50,110

 

$

40,207

 

$

98,223

 

$

75,649

 

 

$

55,971

 

$

50,110

 

$

112,874

 

$

98,223

 

Incentive compensation

 

 

19,421

 

 

18,134

 

 

25,751

 

 

28,484

 

 

 

12,100

 

 

19,421

 

 

23,628

 

 

25,751

 

Taxes and benefits

 

 

8,663

 

 

7,117

 

 

17,545

 

 

13,842

 

 

 

10,031

 

 

8,663

 

 

21,315

 

 

17,545

 

Stock and unit-based compensation

 

 

4,953

 

 

4,964

 

 

9,926

 

 

10,591

 

 

 

4,865

 

 

4,953

 

 

10,390

 

 

9,926

 

 

$

83,147

 

$

70,422

 

$

151,445

 

$

128,566

 

 

$

82,967

 

$

83,147

 

$

168,207

 

$

151,445

 

Head count:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average

 

2,636

 

2,186

 

2,594

 

2,046

 

 

2,912

 

2,636

 

2,944

 

2,594

 

Period end

 

2,682

 

2,354

 

 

 

 

 

 

2,976

 

2,682

 

 

 

 

 

 

Compensation expense decreased $180,000 during the quarter ended June 30, 2017 compared to the same period in 2016 and increased $12.7$16.8 million during the six months ended June 30, 2017 compared to the same period in 2016. The increase was primarily due to an increase in base salaries due to increased average head count resulting from the growth in our mortgage banking activities partially offset by a decrease in incentive compensation due to lower than expected attainment of profitability targets during the six months ended June 30, 2017 compared to the same period in 2016. 

Servicing

Servicing expense increased $11.3 million and $22.9$17.2 million during the quarter and six months ended June 30, 20162017, respectively, compared to the same periods in 2015. 2016. The increase in compensation expense wasincreases were primarily due to increased early buyouts of delinquent mortgage loans from Ginnie Mae guaranteed pools for the growth in our mortgage banking segments.

Incentive compensation decreased primarily due to lower attainment of profitability targets during the first quarter of 2016and six months ended June 30, 2017 as compared to the first quartersame periods in 2016. The early buyout program reduces the ultimate cost of 2015. servicing such 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.

 

ServicingTechnology

Technology expense decreased $15.2increased $3.8 million and $4.0$8.4 million during the quarter and six months ended June 30, 2016 compared to the same periods in 2015.  The decrease was primarily due to the increase in expected losses (provision for servicing advance losses) during the second quarter of 2015 based on observed performance as compared to a more modest increase during the second quarter of 2016. 

Technology expense increased $1.2 million and $3.2 million during the quarter and six months ended June 30, 2016,2017, respectively, compared to the same periods in 20152016 primarily due to increased software costs as part of our continued investment in loan production and servicing infrastructure.

 

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Expenses Allocated to PMT

 

We are reimbursed by PMT for other expenses, including common overhead expenses we have incurred on PMT’s behalf, in accordance with the terms of our management agreementthe Management Agreement with PMT.  We present the expense amounts in the consolidated statements of income net of these allocations.

 

Common overhead expense amounts allocated to PMT during the periods ended June 30, 2016 and 2015 are summarized below:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Quarter ended June 30, 

 

Six months ended June 30, 

 

 

    

2016 (1)

    

2015

    

2016

    

2015

 

 

 

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Technology

 

$

1,125

 

$

1,178

 

$

2,270

 

$

2,316

 

Occupancy

 

 

512

 

 

487

 

 

1,085

 

 

966

 

Depreciation and amortization

 

 

407

 

 

537

 

 

806

 

 

1,109

 

Other

 

 

391

 

 

500

 

 

835

 

 

1,040

 

Total expenses

 

$

2,435

 

$

2,702

 

$

4,996

 

$

5,431

 


(1)

For the quarter ended June 30, 2015, reimbursement of common overhead incurred by us included a discretionary waiver, in accordance with the terms of the management agreement, of $700,000 of overhead expenses otherwise allocable to PMT.  On December 15, 2015, we amended the management agreement to provide that the total overhead costs and expenses incurred by us in any quarter and reimbursable by PMT is capped at an amount equal to the product of (A) 70 basis points (0.0070), multiplied by (B) PMT’s shareholders’ equity (as defined in the management agreement) as of the last day of such quarter, divided by four (4).

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Quarter ended June 30, 

 

Six months ended June 30, 

 

 

    

2017

    

2016

    

2017

    

2016

    

 

 

(in thousands)

 

Technology

 

$

424

 

$

1,125

 

$

881

 

$

2,270

 

Occupancy

 

 

443

 

 

512

 

 

822

 

 

1,085

 

Depreciation and amortization

 

 

396

 

 

407

 

 

804

 

 

806

 

Other

 

 

330

 

 

391

 

 

520

 

 

835

 

Total expenses

 

$

1,593

 

$

2,435

 

$

3,027

 

$

4,996

 

 

Provision for Income Taxes

 

Our effective tax rates were 11.8% and 11.9%12.4% during the quarter and six months ended June 30 2016, respectively,2017, compared to 11.5%11.8% and 11.9% during the same periods in 2015.2016, respectively. The difference between our effective tax rate and the statutory rate is primarily due to the allocation of earnings to the noncontrolling interest unitholders. As the noncontrolling interest unitholders convert their ownership units into our shares, we expect an increase in allocated earnings that will be subject to corporate federal and state statutory tax rates, which will in turn increase our effective income tax rate.

 

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Balance Sheet Analysis

 

Following is a summary of key balance sheet items as of the dates presented:

 

 

 

 

 

 

 

June 30, 

 

December 31, 

 

 

 

 

 

 

 

 

    

2016

    

2015

 

 

June 30, 

 

December 31, 

 

 

(in thousands)

 

    

2017

    

2016

 

 

 

 

 

 

 

 

(in thousands)

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and short-term investments

 

$

184,778

 

$

151,791

 

 

$

221,418

 

$

185,331

 

Mortgage loans held for sale at fair value

 

2,097,138

 

1,101,204

 

 

 

3,037,602

 

 

2,172,815

 

Servicing advances, net

 

296,581

 

299,354

 

 

 

291,907

 

 

348,306

 

Receivable from affiliates

 

173,342

 

170,281

 

Investments in and advances to affiliates

 

 

170,427

 

 

168,863

 

Carried Interest due from Investment Funds

 

70,763

 

69,926

 

 

 

71,019

 

 

70,906

 

Mortgage servicing rights

 

1,290,928

 

1,411,935

 

 

 

1,951,599

 

 

1,627,672

 

Mortgage loans eligible for repurchase

 

 

462,487

 

 

382,268

 

Other

 

 

502,790

 

 

300,803

 

 

 

198,279

 

 

177,741

 

Total assets

 

$

4,616,320

 

$

3,505,294

 

 

$

6,404,738

 

$

5,133,902

 

 

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

Borrowings

 

$

2,466,095

 

$

1,462,739

 

 

$

3,721,022

 

$

2,580,906

 

Payable to affiliates

 

558,322

 

679,548

 

 

 

482,825

 

 

555,052

 

Liability for mortgage loans eligible for repurchase

 

 

462,487

 

 

382,268

 

Other

 

 

421,050

 

 

300,657

 

 

 

227,152

 

 

216,320

 

Total liabilities

 

 

3,445,467

 

2,442,944

 

 

 

4,893,486

 

 

3,734,546

 

Stockholders' equity

 

 

1,170,853

 

 

1,062,350

 

 

 

1,511,252

 

 

1,399,356

 

Total liabilities and stockholders' equity

 

$

4,616,320

 

$

3,505,294

 

 

$

6,404,738

 

$

5,133,902

 

 

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Table of Contents

Total assets increased $1.1$1.3 billion from $3.5$5.1 billion at December 31, 20152016 to $4.6$6.4 billion at June 30, 2016.2017. The increase was primarily due to an increase of $1.0 billion$864.8 million in mortgage loans held for sale at fair value resulting from growth in our mortgage loan production.production inventory, an increase of $323.9 million in our investment in MSRs reflecting continued additions from our mortgage loan production activities and servicing portfolio acquisitions and an $80.2 million increase in mortgage loans eligible for repurchase, partially offset by a $56.4 million decrease in servicing advances.

 

Total liabilities increased by $1.0$1.2 billion from $2.4$3.7 billion as of December 31, 20152016 to $3.4$4.9 billion as of June 30, 2016.2017. The increase was primarily attributable to an increase in borrowings to fund growth in our inventory of mortgage loans held for sale at fair value and to finance our MSRs.

 

Cash Flows

 

Our cash flows for the six months ended June 30, 20162017 and 20152016 are summarized below:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six months ended June 30, 

 

    

Six months ended June 30,

 

    

2016

    

2015

    

Change

 

 

2017

    

2016

    

Change

 

 

(in thousands)

 

 

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

Cash flow activities:

 

 

 

 

 

 

 

 

 

 

Operating

 

$

(958,795)

 

$

(421,410)

 

$

(537,385)

 

 

$

(853,044)

 

$

(958,795)

 

$

105,751

 

Investing

 

 

109,802

 

 

(316,047)

 

 

425,849

 

 

 

(274,348)

 

 

109,802

 

 

(384,150)

 

Financing

 

 

887,236

 

 

735,929

 

 

151,307

 

 

 

1,104,003

 

 

887,236

 

 

216,767

 

Net cash flows

 

$

38,243

 

$

(1,528)

 

$

39,771

 

Net (decrease) increase in cash

 

$

(23,389)

 

$

38,243

 

$

(61,632)

 

 

Our cash flows resulted in a net increasedecrease in cash of $38.2$23.4 million during the six months ended June 30, 20162017 as discussed below.

 

Operating activities

 

Net cash used in operating activities totaled $958.8$853.0 million and $421.4$958.8 million during the six months ended June 30, 20162017 and 2015,2016, respectively, primarily due to the growth of our inventory of mortgage loans held for sale at fair value.

 

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Investing activities

 

Net cash used in investing activities during the six months ended June 30, 2017 totaled $274.3 million primarily due to purchases of MSRs totaling $181.6 million. Net cash provided by investing activities during the six months ended June 30, 2016 totaled $109.8 million primarily due to $138.8 million in net settlements of derivative financial instruments received in our hedging of MSRs partially offset by acquisitions of fixed assets and capitalized software. Net cash used in investing activities during the six months ended June 30, 2015 totaled $316.0 million primarily due to our purchase of MSRs during the period.

 

Financing activities

 

Net cash provided by financing activities totaled $887.2  million$1.1 billion and $735.9$887.2 million during the six months ended June 30, 20162017 and 2015,2016, respectively, primarily due to increased financing forfinance the growth in our inventory of mortgage loans held for sale at fair value.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, margin calls relating to hedges, tax receivable agreement payments to exchanged Private National Mortgage Acceptance Company LLC unitholders and tax distributions to noncontrolling interest holders), fund new originations and purchases, and make investments as we identify them. We expect our primary sources of liquidity to be through cash flows from business activities, proceeds from borrowings and/or additional equity offerings. We believe that our liquidity is sufficient to meet our current liquidity needs.

 

Our current leverage strategy is to finance our assets where we believe such borrowing is prudent, appropriate and available. Our borrowing activities are in the form of assets sold under agreements to repurchase, sales of mortgage loan participation certificates, a notenotes payable, a revolving credit agreement,the Credit Agreement, ESS and a capital lease. AllWhile the GMSR term note,

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Table of our borrowings other than Contents

ESS and the capital lease have intermediate to long-term maturities, most of our borrowings 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 June 30, 

 

Six months ended June 30, 

 

 

 

 

 

 

 

 

 

 

 

    

2016

    

2015

    

2016

    

2015

 

 

Quarter ended June 30, 

 

Six months ended June 30, 

 

(in thousands)

 

    

2017

    

2016

    

2017

    

2016

 

 

 

 

 

 

 

 

 

 

 

 

 

(in thousands)

 

(in thousands)

Repurchase agreements outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average balance

 

$

1,352,401

 

$

819,988

 

$

1,195,987

 

$

719,003

 

 

$

2,082,668

 

$

1,352,401

 

$

1,801,138

 

$

1,195,987

 

Maximum daily balance

 

$

1,803,371

 

$

1,264,046

 

$

1,863,455

 

$

1,264,046

 

 

$

3,617,164

 

$

1,803,371

 

$

3,617,164

 

$

1,863,455

 

Balance at period end

 

$

1,591,947

 

$

1,264,046

 

 

 

 

 

 

Balance at end of period

 

$

3,023,288

 

$

1,591,047

 

 

 

 

 

 

 

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 eachfor any calendar quarter;

·

a minimum in unrestricted cash and cash equivalents of $20$40 million;

·

a minimum tangible net worth of $200$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 similar to those being financed under one of our existing secured financing agreements.

 

With respect to servicing performed for PMT, PLS is also subject to certain covenants under its debt agreements. Covenants of PLS in PMT’s debt agreements are at least equal to, or less restrictive, than the covenants described above.

 

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In addition to the covenants noted above, our revolving credit agreementCredit 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;Credit Agreement;

 

·

a minimum of unrestricted cash and cash equivalents equal to $25$40 million;

 

·

a minimum 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.

 

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.

 

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We are also subject to liquidity and net worth requirements established by FHFA and GNMA for Agency seller/servicers. Effective December 31, 2015,servicers and Ginnie Mae for single-family issuers. FHFA and Ginnie Mae have established new minimum liquidity requirements and revised their net worth requirements for their approved non-depository single-family sellers/servicers in the case of Fannie MaeFHFA, and 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

 

·

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.

 

The Repurchase Program allows us to repurchase up to $50 million of the Company’s Class A common stock using open market stock purchases or privately negotiated transactions in accordance with applicable rules and regulations.  The 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 Repurchase Program through cash on hand.  We did not repurchase any of our Class A common stock during the quarter and six months ended June 30, 2017.

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.

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Table of Contents

 

Off-Balance Sheet Arrangements and Aggregate Contractual Obligations

 

Off-Balance Sheet Arrangements and Guarantees

 

As of June 30, 2016,2017, we have not entered into any off-balance sheet arrangements or guarantees.arrangements.

 

Contractual Obligations

 

As of June 30, 2016,2017, we had on-balance contractual obligations of $1.6 billion to finance assets under agreements to repurchase and $737.3 million to finance assets under our mortgage loan participation and sale agreement. We also had contractual obligations aggregating $8.3 billion, comprised of $115.0 million relatingborrowings, commitments to notes payable. Additionally, we entered into ESS transactionspurchase and originate mortgage loans, a capital lease transaction secured by certain fixed assetspayable to exchanged Private National Mortgage Acceptance Company, LLC unitholders under a tax receivable agreement, and capitalized software of which $22.9 million was outstanding as of June 30, 2016.anticipated payments related to excess servicing spread financing. We also lease our primary office facilities under an agreement that expires on April 30, 2026 and we license certain software to support our loan servicing operations.

All agreements to repurchase assets and mortgage loan participation and sale agreements that matured between June 30, 2017 and the date of this Report have been renewed, extended or repaid and are described in Note 11—Borrowings in the accompanying consolidated financial statements.

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Table of Contents

 

Payment obligations under these agreements are summarized below:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Payments due by period

 

 

Payments due by period

 

 

 

 

Less than

 

1-3

 

3-5

 

More than

 

 

 

 

Less than

 

1-3

 

3-5

 

More than

 

Contractual obligations

    

Total

    

1 year

    

years

    

years

    

5 years

  

    

Total

    

1 year

    

years

    

years

    

5 years

  

 

(in thousands)

 

 

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

Commitments to purchase and originate mortgage loans

 

$

3,999,761

 

$

3,999,761

 

$

 —

 

$

 —

 

$

 —

 

Assets sold under agreements to repurchase

 

$

1,591,947

 

$

1,591,947

 

$

 —

 

$

 —

 

$

 —

 

 

3,023,288

 

 

3,023,288

 

 

 —

 

 

 —

 

 

 —

 

Mortgage loan participation and sale agreements

 

737,319

 

 

737,319

 

 

 —

 

 

 —

 

 

 —

 

 

243,707

 

 

243,707

 

 

 —

 

 

 —

 

 

 —

 

Notes payable

 

115,006

 

 

115,006

 

 

 —

 

 

 —

 

 

 —

 

 

433,865

 

 

33,865

 

 

400,000

 

 

 —

 

 

 —

 

Obligations under capital lease

 

22,886

 

 

8,743

 

 

14,143

 

 

 —

 

 

 —

 

 

26,641

 

 

12,475

 

 

14,166

 

 

 —

 

 

 —

 

Excess servicing spread financing at fair value payable to PennyMac Mortgage Investment Trust (1)

 

294,551

 

 

 —

 

 

 —

 

 

 —

 

 

294,551

 

 

261,796

 

 

 —

 

 

 —

 

 

 —

 

 

261,796

 

Payable to exchanged Private National Mortgage Acceptance Company, LLC unitholders under tax receivable agreement

 

74,850

 

 

 —

 

 

 —

 

 

 —

 

 

74,850

 

 

73,084

 

 

1,078

 

 

18,051

 

 

10,906

 

 

43,049

 

Anticipated interest payments related to excess servicing spread financing at fair value

 

120,495

 

 

18,004

 

 

28,829

 

 

21,559

 

 

52,103

 

 

98,511

 

 

15,073

 

 

24,322

 

 

18,160

 

 

40,956

 

Software licenses (2)

 

3,280

 

 

3,280

 

 

 —

 

 

 —

 

 

 —

 

 

35,423

 

 

15,181

 

 

20,242

 

 

 —

 

 

 —

 

Office leases

 

 

82,195

 

 

7,864

 

 

20,923

 

 

21,019

 

 

32,389

 

 

 

101,955

 

 

12,158

 

 

28,946

 

 

23,818

 

 

37,033

 

Total

 

$

3,042,529

 

$

2,482,163

 

$

63,895

 

$

42,578

 

$

453,893

 

 

$

8,298,031

 

$

7,356,586

 

$

505,727

 

$

52,884

 

$

382,834

 


(1)

The ESS financing obligation payable to PMT does not have a stated contractual maturity date and will pay down as the underlying MSRs receive the excess servicing fee rate due to PMT.

(2)

Software licenses include both volume and activity based fees that are dependent on the number of loans serviced during each period and include a base fee of approximately $820,000$1.3 million per month. Estimated payments for software licenses above are based on the number of loans currently serviced by us, which totaled approximately 902,0001.0 million at June 30, 2016.2017. Future amounts due may significantly fluctuate based on changes in the number of loans serviced by us. For the six months ended June 30, 2016,2017, software license fees totaled $6.6$9.9 million. All figures contained in this footnote are in actual amounts and not in thousands (in contrast to the table above).

 

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Table of Contents

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 June 30, 2016:2017:

 

Weighted average

maturity of 

advances under 

Counterparty

Amount at risk

repurchase agreement

Facility Maturity

(in thousands)

Credit Suisse First Boston Mortgage Capital LLC

$

754,830

September 27, 2016

September 27, 2016

Credit Suisse First Boston Mortgage Capital LLC

$

43,002

September 8, 2016

March 30, 2017

Bank of America, N.A.

$

40,601

September 22, 2016

March 28, 2017

Morgan Stanley Bank, N.A.

$

15,071

August 24, 2016

August 26, 2016

Citibank, N.A.

$

13,851

August 8, 2016

October 20, 2016

Barclays Bank PLC

$

3,931

September 22, 2016

December 2, 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average

 

 

 

 

 

 

 

maturity of 

 

 

 

 

 

 

 

advances under 

 

 

Counterparty

    

Amount at risk

    

repurchase agreement

   

Facility Maturity

 

 

(in thousands)

 

 

 

 

Credit Suisse First Boston Mortgage Capital LLC

 

$

91,587

 

April 27, 2018

 

April 27, 2018

Credit Suisse First Boston Mortgage Capital LLC

 

$

48,987

 

August 1, 2017

 

April 27, 2018

Bank of America, N.A.

 

$

69,343

 

September 19, 2017

 

May 25, 2018

JP Morgan Chase Bank, N.A.

 

$

41,179

 

August 19, 2017

 

October 13, 2017

Barclays Bank PLC

 

$

13,758

 

September 19, 2017

 

December 1, 2017

Citibank, N.A.

 

$

10,631

 

August 2, 2017

 

March 2, 2018

Morgan Stanley Bank, N.A.

 

$

9,914

 

August 17, 2017

 

August 25, 2017

Royal Bank of Canada

 

$

7,406

 

September 12, 2017

 

September 18, 2017

 

Management Agreements

PMT Management Agreement

We externally manage and advise PMT pursuant to a management agreement. Our management agreement with PMT requires us to oversee PMT’s business affairs in conformity with the investment policies that are approved and monitored by its board of trustees. We are responsible for PMT’s day-to-day management and perform such services and activities related to PMT’s assets and operations as may be appropriate. Pursuant to our management agreement, we collect a base management fee and may collect a performance incentive fee.

The management agreement provides that:

·

The base management fee is calculated quarterly and is equal to the sum of (i) 1.5% per year of PMT’s shareholders’ equity up to $2 billion, (ii) 1.375% per year of shareholders’ equity in excess of $2 billion and up to $5 billion, and (iii) 1.25% per year of PMT’s shareholders’ equity in excess of $5 billion.

·

The performance incentive fee is calculated at a defined annualized percentage of the amount by which PMT’s “net income,” on a rolling four‑quarter basis and before deducting the incentive fee, exceeds certain levels of return on “equity.”

The performance incentive fee is calculated quarterly and is equal to the sum of: (a) 10% of the amount by which PMT’s net income for the quarter exceeds (i) an 8% return on equity plus the “high watermark,” up to (ii) a 12% return on PMT’s equity; plus (b) 15% of the amount by which PMT’s net income for the quarter exceeds (i) a 12% return on PMT’s equity plus the “high watermark,” up to (ii) a 16% return on PMT’s equity; plus (c) 20% of the amount by which PMT’s net income for the quarter exceeds a 16% return on equity plus the “high watermark.”

For the purpose of determining the amount of the performance incentive fee:

“Net income” is defined as net income or loss computed in accordance with U.S. GAAP and certain other non‑cash charges determined after discussions between us and PMT’s independent trustees and approval by a majority of PMT’s independent trustees.

“Equity” is the weighted average of the issue price per common share of all of PMT’s public offerings, multiplied by the weighted average number of common shares outstanding (including restricted share units) in the four‑quarter period.

The “high watermark” starts at zero and is adjusted quarterly. The quarterly adjustment reflects the amount by which the net income (stated as a percentage of return on equity) in that quarter exceeds or falls short of the lesser of 8% and the average Fannie Mae 30‑year MBS yield (the “target yield”) for the four quarters then ended. If the net income is lower than the target yield, the high watermark is increased by the difference. If the net income is higher than the target yield, the high watermark is reduced by the difference. Each time a performance incentive fee is earned, the high watermark returns to zero. As a result, the threshold amounts required for us to earn a performance incentive fee are adjusted cumulatively based on the performance of PMT’s net income over (or under) the target yield, until the net income in excess of

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the target yield exceeds the then‑current cumulative high watermark amount, and a performance incentive fee is earned.

The base management fee and the performance incentive fee are both receivable quarterly in arrears. The performance incentive fee may be paid in cash or in PMT’s common shares (subject to a limit of no more than 50% paid in common shares), at PMT’s option.

Under our management agreement, we are entitled to reimbursement of our organizational and operating expenses, including third-party expenses, incurred on PMT’s behalf. Additionally, on December 15, 2015, we amended our management agreement to provide that the total overhead costs and expenses incurred by us in any quarter and reimbursable by PMT is capped at an amount equal to the product of (A) 70 basis points (0.0070), multiplied by (B) PMT’s shareholders’ equity (as defined in the management agreement) as of the last day of such quarter, divided by four (4).

The term of the management agreement, as amended, expires on February 1, 2017, subject to automatic renewal for additional 18‑month periods, unless terminated earlier in accordance with the terms of the management agreement.

In the event of termination by PMT, we may be entitled to a termination fee in certain circumstances. The termination fee is equal to three times the sum of (a) the average annual base management fee, and (b) the average annual performance incentive fee earned by us, in each case during the 24-month period before termination.

Investment Funds Management Agreements

We have investment management agreements with the Investment Funds pursuant to which we receive management fees consisting of base management fees and carried interest. The Investment Funds will continue in existence through December 31, 2016, subject to three one-year extensions by PCM at its discretion, in accordance with the terms of the limited liability company and limited partnership agreements that govern the Investment Funds.

Loan Servicing Agreements

PMT Loan Servicing Agreement

We have a loan servicing agreement with PMT, pursuant to which we provide loan servicing for its portfolio of residential mortgage loans. The servicing agreement provides for servicing fees payable to us based on the delinquency, bankruptcy and/or foreclosure status of the serviced loan or whether the underlying mortgage property has become REO.

·

The base servicing fee rates for distressed whole mortgage loans are charged based on a monthly per‑loan dollar amount, with the actual dollar amount for each loan based on the delinquency, bankruptcy and/or foreclosure status of such loan or whether the underlying mortgage property has become REO. Presently, the base servicing fee rates for distressed whole mortgage loans range from $30 per month for current loans up to $125 per month for mortgage loans that are in foreclosure. The base servicing fee rate for REO and REO rentals is $75 and $30 per month, respectively. To the extent that we rent PMT’s REO under its REO rental program, we collect an REO rental fee of $30 per month per REO, an REO lease renewal fee of $100 per lease renewed, and a property management fee in an amount equal to our cost if property management services and/or any related software costs are outsourced to a third-party property management firm or 9% of gross rental income if we provide property management services directly. We are also entitled to retain any tenant paid application fees,  late rent fees and to seek reimbursement for certain third party vendor fees

·

The base servicing fee rates for non‑distressed mortgage loans subserviced by us on PMT’s behalf are also calculated through a monthly per‑loan dollar amount, with the actual dollar amount for each mortgage loan based on whether the mortgage loan is a fixed‑rate or adjustable‑rate loan. The base servicing fee rates for mortgage loans subserviced on PMT’s behalf are $7.50 per month for fixed‑rate mortgage loans and $8.50 per month for adjustable rate mortgage loans. To the extent that these mortgage loans become delinquent, we are entitled to an additional servicing fee per mortgage loan falling within a range of $10 to $55 per month based on the delinquency, bankruptcy and foreclosure status of the mortgage loan or $75 per month if the underlying mortgaged property becomes REO.

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·

We are required to provide a range of services and activities significantly greater in scope than the services provided in connection with a customary servicing arrangement because PMT does not have any employees or infrastructure. For these services, we receive a supplemental servicing fee of $25 per month for each distressed whole loan.  We are also entitled to reimbursement for all customary, good faith reasonable and necessary out‑of‑pocket expenses incurred in performance of our servicing obligations.

·

We, on behalf of PMT, currently participate in the Home Affordable Modification Program (“HAMP”) of the U.S. Department of the Treasury and U.S. Department of Housing and Urban Development (“HUD”) (and other similar mortgage loan modification programs). HAMP establishes standard loan modification guidelines for “at risk” homeowners and provides incentive payments to certain participants, including mortgage loan servicers, for achieving modifications and successfully remaining in the program. The mortgage loan servicing agreement entitles us to retain any incentive payments made to us and to which we are entitled under HAMP; provided, however, that with respect to any such incentive payments paid to us under HAMP in connection with a mortgage loan modification for which PMT previously paid us a modification fee, we shall reimburse PMT an amount equal to the incentive payments.

We also remain entitled to market‑based fees and charges, including boarding and deboarding fees, liquidation and disposition fees, assumption, modification and origination fees and late charges relating to loans we service for PMT.

Investment Funds Loan Servicing Agreements

We have also entered into loan servicing agreements with the Investment Funds. Our servicing agreements with the Investment Funds generally provide for fee revenue, which varies depending on the type and quality of the loans being serviced. We are also entitled to certain customary market-based fees and charges. This arrangement was modified, effective January 1, 2012, with respect to one of the Investment Funds. At that time, we settled our accrued servicing fee rebate and amended our servicing agreement with such fund to charge scheduled servicing fees in place of the previous “at cost” servicing arrangement.

Mortgage Banking and Warehouse Services Agreement

We have also entered into a mortgage banking and warehouse services agreement (the “MBWS agreement”), pursuant to which we provide PMT with certain mortgage banking services, including fulfillment and disposition-related services, with respect to loans acquired by PMT from correspondent lenders, and certain  warehouse lending services, including fulfillment and administrative services, with respect to loans financed by PMT for its warehouse lending clients.

The MBWS agreement provides for a fulfillment fee paid to us based on the type of mortgage loan that PMT acquires. The fulfillment fee is equal to a percentage of the UPB of mortgage loans purchased by PMT, with the addition of potential fee rate discounts applicable to PMT’s monthly purchase volume in excess of designated thresholds. We have also agreed to provide such services exclusively for PMT’s benefit, and we and our affiliates are prohibited from providing such services for any other third party.

Presently, the applicable fulfillment fee percentages are (i) 0.50% for conventional mortgage loans, (ii) 0.88% for loans saleable in accordance with the Ginnie Mae Mortgage‑Backed Securities Guide, and (iii) 0.50% for all other mortgage loans not contemplated above; provided, however, that we may, in our sole discretion, reduce the amount of the applicable fulfillment fee and credit the amount of such reduction to the reimbursement otherwise due as described below. This reduction may only be credited to the reimbursement applicable to the month in which the related mortgage loan was funded.

In the event that PMT purchases mortgage loans with a total UPB in any month greater than $2.5 billion and less than $5 billion, we have agreed to discount the amount of such fulfillment fees by reimbursing PMT an amount equal to the product of (i) 0.025%, (ii) the amount of UPB in excess of $2.5 billion and less than or equal to $5 billion, and (iii) the percentage of the total UPB relating to mortgage loans for which we collected fulfillment fees in such month. In the event PMT purchases mortgage loans with a total UPB in any month greater than $5 billion, we have agreed to further discount the amount of fulfillment fees by reimbursing PMT an amount equal to the product of (i) 0.05%, (ii) the amount of UPB in excess of $5 billion, and (iii) the percentage of the total UPB relating to mortgage loans for which we collected fulfillment fees in such month.

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PMT does not hold the Ginnie Mae approval required to issue Ginnie Mae MBS and act as a servicer. Accordingly, under the MBWS agreement, we currently purchase loans saleable in accordance with the Ginnie Mae Mortgage‑Backed Securities Guide “as is” and without recourse of any kind to PMT at its cost, plus accrued interest and a sourcing fee of three basis points, in each case on the UPB of the loan, less loan administrative fees collected by PMT from the seller.

In consideration for the mortgage banking services provided by us with respect to PMT’s acquisition of mortgage loans under PLS’s early purchase program, we are entitled to fees (i) accruing at a rate equal to $1,500 per year per early purchase facility administered by us, and (ii) in the amount of $35 for each mortgage loan PMT acquires thereunder. In consideration for the warehouse services provided by us with respect to mortgage loans that PMT finances for its warehouse lending clients, with respect to each facility, we are entitled to fees (i) accruing at a rate equal to $40,000 per annum for each of the first twenty (20) warehouse lending facilities active in any month and $10,000 per annum for each additional warehouse lending facility active in any month, and (ii) in the amount of $50 for each mortgage loan that PMT finances thereunder. Where PMT has entered into both an early purchase agreement and a warehouse lending agreement with the same client, we shall only be entitled to the applicable warehouse lending fees.

The term of the MBWS agreement expires on February 1, 2017, subject to automatic renewal for additional 18‑month periods, unless terminated earlier in accordance with the terms of the agreement.

MSR Recapture Agreement

Pursuant to the terms of a MSR recapture agreement, as amended, if we refinance through our consumer direct lending business mortgage loans for which PMT previously held the MSRs, we are generally required to transfer and convey to one of PMT’s wholly‑owned subsidiaries, without cost to PMT, the MSRs with respect to new mortgage loans originated in those refinancings (or, under certain circumstances, other mortgage loans) that have a total UPB that is not less than 30% of the total UPB of all such mortgage loans so originated.

Where the fair value of the aggregate MSRs to be transferred for the applicable month is less than $200,000, we may, at our option, pay cash to PMT in an amount equal to such fair market value instead of transferring such MSRs. The MSR recapture agreement expires, unless terminated earlier in accordance with the agreement, on February 1, 2017, subject to automatic renewal for additional 18‑month periods.

Spread Acquisition and MSR Servicing Agreements

Effective February 1, 2013, we entered into a master spread acquisition and MSR servicing agreement (the “2/1/13 Spread Acquisition Agreement”), pursuant to which we previously sold to PMT or one of its wholly owned subsidiaries the rights to receive certain ESS from MSRs acquired by us from banks and other third party financial institutions. We were generally required to service or subservice the related mortgage loans for the applicable agency or investor. We only used the 2/1/13 Spread Acquisition Agreement for the purpose of selling ESS relating to Fannie Mae MSRs. The specific terms of each transaction under the 2/1/13 Spread Acquisition Agreement were subject to the terms thereof, as modified and supplemented by the terms of a confirmation executed in connection with such transaction.

To the extent we 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 we transfer to PMT, at no cost, the ESS relating to a certain percentage of the UPB of the newly originated mortgage loans. To the extent the fair value of the aggregate ESS to be transferred for the applicable month was less than $200,000, we were, at our 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, we reacquired from PMT all of its right, title and interest in and to all of the Fannie Mae ESS previously sold by us to PMT and then subject to such 2/1/13 Spread Acquisition Agreement.

On December 19, 2014, we entered into a second master spread acquisition and MSR servicing agreement with PMT (the “12/19/14 Spread Acquisition Agreement”). The terms of the 12/19/14 Spread Acquisition Agreement are

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substantially similar to the terms of the 2/1/13 Spread Acquisition Agreement, except that we only intend to sell ESS relating to Freddie Mac MSRs under the 12/19/14 Spread Acquisition Agreement.

To the extent we refinance any of the mortgage loans relating to the ESS we sell to PMT, the 12/19/14 Spread Acquisition Agreement also contains recapture provisions requiring that we transfer to PMT, at no cost, the ESS relating to a certain percentage of the UPB of the newly originated mortgage loans. To the extent the fair market value of the aggregate ESS to be transferred for the applicable month is less than $200,000, we may, at our option, pay cash to PMT in an amount equal to such fair market value in lieu of transferring such ESS.

On February 29, 2016, we reacquired from PMT all of its right, title and interest in and to all of the Freddie Mae ESS previously sold by us 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 April 30, 2015, we amended and restated a third master spread acquisition and MSR servicing agreement with PMT (the “4/30/15 Spread Acquisition Agreement”). The terms of the 4/30/15 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 we only intend to sell ESS relating to Ginnie Mae MSRs under the 4/30/15 Spread Acquisition Agreement. The primary purpose of the amendment and restatement to the 4/30/15 Spread Agreement was to evidence the ownership of the ESS under participation certificates and to otherwise incorporate the terms of previously executed amendments.

To the extent we refinance any of the mortgage loans relating to the ESS we sell to PMT, the 4/30/15 Spread Acquisition Agreement also contains recapture provisions requiring that we transfer to PMT, at no cost, the ESS relating to a certain percentage of the UPB of the newly originated mortgage loans. However, under the 4/30/15 Spread Acquisition Agreement, in any month where the transferred ESS relating to newly originated Ginnie Mae mortgage loans is not equivalent to at least 90% of the product of the excess servicing fee rate and the UPB of the refinanced mortgage loans, we are also required to transfer additional ESS or cash in the amount of such shortfall. Similarly, in any month where the transferred ESS relating to modified Ginnie Mae mortgage loans is not equivalent to at least 90% of the product of the excess servicing fee rate and the UPB of the modified mortgage loans, the 4/30/15 Spread Acquisition Agreement contains provisions that require us to transfer additional ESS or cash in the amount of such shortfall. To the extent the fair value of the aggregate ESS to be transferred for the applicable month is less than $200,000, we may, at our option, pay cash to PMT in an amount equal to such fair value instead of transferring such ESS.

In connection with our entry into the 4/30/15 Spread Acquisition Agreement, we were also required to (i) amend and restate the terms of a loan and security agreement (the “LSA”) with Credit Suisse First Boston Mortgage Capital LLC (“CSFB”), pursuant to which we pledged to CSFB all of our rights and interests in the Ginnie Mae MSRs we own or acquire, enabling us to finance certain of such MSRs and servicing advance receivables, and (ii) enter into a separate acknowledgement agreement with respect thereto, by and among Ginnie Mae, CSFB and us. Under the terms of the amendment and restatement to the LSA, the maximum loan amount was increased from $257 million to $407 million. The $150 million increase was implemented for the purpose of facilitating the financing of ESS by PMT. On November 10, 2015, the LSA was further amended and restated to convert the form of the borrowing into a repurchase agreement (as amended and restated, the “MSR Repo”). The aggregate loan amount outstanding under the MSR Repo and relating to advances outstanding with PMT is guaranteed in full by PMT.

Separately, as a condition to permitting us to transfer to PMT the ESS relating to a portion of our pledged Ginnie Mae MSRs, CSFB required PMT to enter into a Security and Subordination Agreement (the “Security Agreement”), pursuant to which PMT pledged to CSFB its rights under the 4/30/15 Spread Acquisition Agreement and its interest in any ESS purchased thereunder. CSFB’s lien on the ESS remains subordinate to the rights and interests of Ginnie Mae pursuant to the provisions of the 4/30/15 Spread Acquisition Agreement and the terms of the acknowledgement agreement.

The Security Agreement permits CSFB to liquidate PMT’s ESS along with the related MSRs to the extent there exists an event of default under the MSR Repo, and it contains certain trigger events, including breaches of representations, warranties or covenants and defaults under other of PMT’s credit facilities, that would require us to either (i) repay in full the outstanding loan amount under the MSR Repo or (ii) repurchase the ESS from PMT at fair value. To the extent we are unable to repay the loan under the MSR Repo or repurchase the ESS, an event of default would exist under the MSR Repo, thereby entitling CSFB to liquidate the ESS and the related MSRs. In the event the

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ESS is liquidated as a result of certain actions or inactions by us, PMT generally would be entitled to seek indemnity from us under the 4/30/15 Spread Acquisition Agreement.

Note Receivable from PMT

In connection with certain of the amendments and restatements described above, we entered into an underlying loan and security agreement with PMT, dated as of April 30, 2015, pursuant to which PMT may borrow up to $150 million from us for the purpose of financing ESS (the “Underlying LSA”).

The principal amount of the borrowings under the Underlying LSA is 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 us a security interest in all of its right, title and interest in, to and under the ESS pledged to secure the borrowings.

We have agreed with PMT in connection with the Underlying LSA that PMT is required to repay us the principal amount of borrowings plus accrued interest to the date of such repayment, and we are required, in turn, to repay CSFB the corresponding amount under the MSR Repo. Interest accrues on the note receivable from PMT 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 us a fee for the structuring of the Underlying LSA in an amount equal to the portion of the corresponding fee paid by us to CSFB allocable to the increase in the maximum loan amount under the MSR Repo resulting from the ESS financing.

Loan Purchase Agreements

We have entered into a mortgage loan purchase agreement and a flow commercial mortgage loan purchase agreement with PMT. Currently, we use the mortgage loan purchase agreement for the purpose of selling to PMT prime jumbo residential mortgage loans and conventional mortgage loans eligible for delivery into Agency credit risk transfer securities, in each case originated by us through our consumer direct lending business. We use the flow commercial mortgage loan purchase agreement for the purpose of selling to PMT small balance commercial mortgage loans, including multifamily mortgage loans, originated by us as part of our commercial lending business. Each of the loan purchase agreements contains customary terms and provisions, including representations and warranties, covenants, repurchase remedies and indemnities. The purchase prices paid to us by PMT for such loans are market-based.

Commercial Mortgage Servicing Oversight Agreement

We have also entered into a commercial mortgage servicing oversight agreement with PMT that governs our oversight of the master and/or special servicing performed by third party servicers in connection with certain commercial mortgage loans acquired by PMT. For the oversight services performed under this agreement, we are entitled to collect a fee equal to 5 basis points per annum based on the UPB of the related commercial mortgage loans for which we provide oversight servicing.

Reimbursement Agreement

In connection with the IPO of PMT’s common shares on August 4, 2009, we entered into an agreement with PMT pursuant to which PMT agreed to reimburse us for the $2.9 million payment that it made to the underwriters in such offering (the “Conditional Reimbursement”) if PMT satisfied certain performance measures over a specified period of time. Effective February 1, 2013, the parties amended the terms of the reimbursement agreement to provide for the reimbursement to us of the Conditional Reimbursement if PMT is required to pay us performance incentive fees under the management agreement at a rate of $10 in reimbursement for every $100 of performance incentive fees earned. The reimbursement of the Conditional Reimbursement is subject to a maximum reimbursement in any particular 12 month period of $1.0 million and the maximum amount that may be reimbursed under the agreement is $2.9 million.

In the event the termination fee is payable to us under the management agreement and we have not received the full amount of the reimbursements and payments under the reimbursement agreement, such amount will be paid in full. The term of the reimbursement agreement expires on February 1, 2019.

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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 and sale agreements, two 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.

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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 June 30, 2016,2017, 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.

 

All of theThe borrowings discussed above have short-term maturities that expire as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Outstanding

 

Total

 

Committed

 

 

 

 

Outstanding

 

Total

 

Committed

 

 

Lender

    

indebtedness (4)

    

facility size

    

Facility

    

Maturity date

 

    

indebtedness (1)

    

facility size (2)

    

facility (2)

    

Maturity date (2)

 

(dollar amounts in thousands)

 

                                        

 

 

(dollar amounts in thousands)

 

                                        

Assets sold under agreements to repurchase (1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Credit Suisse First Boston Mortgage Capital LLC

 

$

407,000

 

$

407,000

 

$

407,000

 

September 27, 2016

 

 

$

773,496

 

$

850,000

 

$

293,000

 

April 27, 2018

Credit Suisse First Boston Mortgage Capital LLC(3)

 

$

448,963

 

$

500,000

 

$

300,000

 

March 30, 2017

 

 

$

457,827

 

$

650,000

 

$

407,000

 

April 27, 2018

Bank of America, N.A.(5)

 

$

372,742

 

$

500,000

 

$

225,000

 

March 28, 2017

 

 

$

766,544

 

$

800,000

 

$

225,000

 

May 25, 2018

Morgan Stanley Bank, N.A.

 

$

168,200

 

$

200,000

 

$

125,000

 

August 26, 2016

 

 

$

131,399

 

$

500,000

 

$

175,000

 

August 25, 2017

JP Morgan Chase Bank, N.A.

 

$

489,474

 

$

500,000

 

$

50,000

 

October 13, 2017

Citibank, N.A.

 

$

157,201

 

$

200,000

 

$

150,000

 

October 20, 2016

 

 

$

175,878

 

$

700,000

 

$

275,000

 

March 2, 2018

Barclays Bank PLC (2)

 

$

37,842

 

$

200,000

 

$

 —

 

December 2, 2016

 

Barclays Bank PLC (4)

 

$

135,757

 

$

370,000

 

$

 —

 

December 1, 2017

Royal Bank of Canada

 

$

92,913

 

$

135,000

 

$

75,000

 

September 18, 2017

Mortgage loan participation and sale agreements

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Bank of America, N.A.

 

$

737,319

 

$

800,000

 

$

 —

 

March 28, 2017

 

 

$

243,707

 

$

250,000

 

$

 —

 

May 25, 2018

Barclays Bank PLC (2)

 

$

 —

 

$

 —

 

$

 —

 

December 2, 2016

 

Notes payable (3)

 

 

 

 

 

 

 

 

 

 

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)

 

$

33,865

 

$

130,000

 

$

130,000

 

December 1, 2017

Credit Suisse AG

 

$

50,000

 

$

100,000

 

$

100,000

 

December 28, 2016

 

 

$

 —

 

$

150,000

 

$

150,000

 

November 17, 2017

Barclays Bank PLC (2)

 

$

65,006

 

$

100,000

 

$

100,000

 

December 2, 2016

 

Obligations under capital lease

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Banc of America Leasing and Capital LLC

 

$

22,886

 

$

25,000

 

$

25,000

 

December 9, 2019

 

 

$

26,641

 

$

 —

 

$

 —

 

March 22, 2020


(1)

The borrowing with Credit Suisse First Boston Mortgage Capital LLC (with a committed amountOutstanding indebtedness as of $407 million) is in the form of sales of participation certificates representing beneficial ownership in MSRs and ESS under agreements to repurchase. The other borrowings are in the form of sales of mortgage loans under agreements to repurchase.June 30, 2017.

 

(2)

The borrowings with Barclays Bank PLC are subject to a total aggregateTotal facility amountsize, committed facility and maturity date include contractual changes through the date of $300 million, of which $100 million represents the maximum amount for MSRs.this Report.

 

(3)

The borrowing with Credit Suisse AG (withFirst Boston Mortgage Capital LLC facility size is a committed amounttotal of $100 million)$1.5 billion that the Company can allocate as needed. The borrowing of $458 million is in the form of a revolving creditsale of a variable funding note under an agreement which is secured by cashto repurchase, with a maximum allowable borrowing of $650 million through September 28, 2017, declining to a maximum allowable borrowing of $407 million thereafter.

(4)

Pursuant to amendments of a master repurchase agreement and carried interesta loan and classifiedsecurity agreement, each dated as a note payable. The borrowing withof June 16, 2017, Barclays Bank PLC (with a totalagreed to temporarily increase the maximum aggregate facility sizeamount to $500 million from $300 million until September 30, 2017 of $100 million) is inwhich $130 million represents the form of a note payable secured bymaximum amount for MSRs. The aggregate facility amount will be reset to $300 million after September 30, 2017.

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(4)(5)

Except with respectPursuant to the Credit Suisse AG note payable, which is secured primarily by cash collateral, amounts shown represent outstanding indebtedness reduced by cash collateralan amendment of a master repurchase agreement dated as of June 30, 2016.May 23, 2017, Bank of America, N.A. agreed to temporarily increase the maximum aggregate principal amount to $800 million from $500 million until August 31, 2017, at which time the aggregate principal amount will be reset to $500 million.

 

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.

 

Mortgage Servicing Rights

 

The following tables summarize the estimated change in fair value of MSRs accounted for using the amortization method as of June 30, 2016,2017, 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%

 

    

-20%

    

-10%

    

-5%

    

+5%

    

+10%

    

+20%

 

 

(dollar amounts in thousands)

 

 

(dollar amounts in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair value

 

$

821,558

 

$

792,059

 

$

778,100

 

$

751,636

 

$

739,083

 

$

715,229

 

 

$

1,384,405

 

$

1,326,599

 

$

1,299,443

 

$

1,248,305

 

$

1,224,210

 

$

1,178,710

 

Change in fair value:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

 

$

56,924

 

$

27,425

 

$

13,466

 

$

(12,998)

 

$

(25,551)

 

$

(49,405)

 

 

$

111,041

 

$

53,235

 

$

26,078

 

$

(25,059)

 

$

(49,154)

 

$

(94,654)

 

%

 

 

7.4

%  

 

3.6

%  

 

1.8

%  

 

(1.7)

%  

 

(3.3)

%  

 

(6.5)

%

 

 

8.7

%  

 

4.2

%  

 

2.0

%  

 

(2.0)

%  

 

(3.9)

%  

 

(7.4)

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Prepayment speed shift in %

    

-20%

    

-10%

    

-5%

    

+5%

    

+10%

    

+20%

 

 

 

(dollar amounts in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair value

 

$

1,360,597

 

$

1,315,460

 

$

1,294,052

 

$

1,253,361

 

$

1,234,008

 

$

1,197,128

 

Change in fair value:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

 

$

87,233

 

$

42,095

 

$

20,687

 

$

(20,003)

 

$

(39,356)

 

$

(76,236)

 

%

 

 

6.9

%  

 

3.3

%  

 

1.6

%  

 

(1.6)

%  

 

(3.1)

%  

 

(6.0)

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Prepayment speed shift in %

    

-20%

    

-10%

    

-5%

    

+5%

    

+10%

    

+20%

 

 

 

(dollar amounts in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair value

 

$

846,911

 

$

803,848

 

$

783,790

 

$

746,322

 

$

728,804

 

$

695,960

 

Change in fair value:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

 

$

82,277

 

$

39,214

 

$

19,157

 

$

(18,312)

 

$

(35,830)

 

$

(68,674)

 

%

 

 

10.8

%  

 

5.1

%  

 

2.5

%  

 

(2.4)

%  

 

(4.7)

%  

 

(9.0)

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

$

791,356

 

$

777,995

 

$

771,314

 

$

757,954

 

$

751,273

 

$

737,912

 

 

$

1,313,222

 

$

1,293,293

 

$

1,283,329

 

$

1,263,400

 

$

1,253,435

 

$

1,233,506

 

Change in fair value:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

 

$

26,722

 

$

13,361

 

$

6,680

 

$

(6,680)

 

$

(13,361)

 

$

(26,722)

 

 

$

39,858

 

$

19,929

 

$

9,964

 

$

(9,965)

 

$

(19,930)

 

$

(39,858)

 

%

 

 

3.5

%  

 

1.8

%  

 

0.9

%  

 

(0.9)

%  

 

(1.8)

%  

 

(3.5)

%

 

 

3.1

%  

 

1.6

%  

 

0.8

%  

 

(0.8)

%  

 

(1.6)

%  

 

(3.1)

%

 

The following tables summarize the estimated change in fair value of MSRs accounted for using the fair value method as of June 30, 2016,2017, 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%

 

    

-20%

    

-10%

    

-5%

    

+5%

    

+10%

    

+20%

 

 

(dollar amounts in thousands)

 

 

(dollar amounts in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair value

 

$

563,250

 

$

544,128

 

$

535,058

 

$

517,822

 

$

509,629

 

$

494,026

 

 

$

733,094

 

$

704,682

 

$

691,305

 

$

666,060

 

$

654,138

 

$

631,576

 

Change in fair value:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

 

$

36,956

 

$

17,834

 

$

8,764

 

$

(8,472)

 

$

(16,665)

 

$

(32,268)

 

 

$

54,654

 

$

26,242

 

$

12,865

 

$

(12,381)

 

$

(24,302)

 

$

(46,865)

 

%

 

 

7.0

%  

 

3.4

%  

 

1.7

%  

 

(1.6)

%  

 

(3.2)

%  

 

(6.1)

%

 

 

8.1

%  

 

3.9

%  

 

1.9

%  

 

(1.8)

%  

 

(3.6)

%  

 

(6.9)

%

 

79


 

Table of Contents

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

$

579,638

 

$

551,785

 

$

538,762

 

$

514,348

 

$

502,893

 

$

481,348

 

 

$

728,344

 

$

702,487

 

$

690,250

 

$

667,037

 

$

656,019

 

$

635,066

 

Change in fair value:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

 

$

53,344

 

$

25,491

 

$

12,468

 

$

(11,946)

 

$

(23,401)

 

$

(44,946)

 

 

$

49,903

 

$

24,047

 

$

11,809

 

$

(11,403)

 

$

(22,421)

 

$

(43,374)

 

%

 

 

10.1

%  

 

4.8

%  

 

2.4

%  

 

(2.3)

%  

 

(4.5)

%  

 

(8.5)

%

 

 

7.4

%  

 

3.5

%  

 

1.7

%  

 

(1.7)

%  

 

(3.3)

%  

 

(6.4)

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

$

551,864

 

$

539,079

 

$

532,687

 

$

519,901

 

$

513,509

 

$

500,724

 

 

$

705,020

 

$

691,730

 

$

685,085

 

$

671,795

 

$

665,150

 

$

651,860

 

Change in fair value:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

 

$

25,570

 

$

12,875

 

$

6,393

 

$

(6,393)

 

$

(12,785)

 

$

(25,570)

 

 

$

26,580

 

$

13,290

 

$

6,645

 

$

(6,645)

 

$

(13,290)

 

$

(26,580)

 

%

 

 

4.9

%  

 

2.4

%  

 

1.2

%  

 

(1.2)

%  

 

(2.4)

%  

 

(4.9)

%

 

 

3.9

%  

 

2.0

%  

 

1.0

%  

 

(1.0)

%  

 

(2.0)

%  

 

(3.9)

%

 

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 June 30, 2016,2017, given several shifts in pricing spreads and prepayment speed (decrease in the liabilities’ values increases net income):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pricing spread shift in %

    

-20%

    

-10%

    

-5%

    

+5%

    

+10%

    

+20%

 

 

 

(dollar amounts in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair value

 

$

271,706

 

$

266,661

 

$

264,207

 

$

259,427

 

$

257,100

 

$

252,567

 

Change in fair value:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

 

$

9,910

 

$

4,866

 

$

2,411

 

$

(2,369)

 

$

(4,696)

 

$

(9,229)

 

%

 

 

3.8

%  

 

1.9

%  

 

0.9

%  

 

(0.9)

%  

 

(1.8)

%  

 

(3.5)

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pricing spread shift in %

    

-20%

    

-10%

    

-5%

    

+5%

    

+10%

    

+20%

 

Prepayment speed shift in %

    

-20%

    

-10%

    

-5%

    

+5%

    

+10%

    

+20%

    

 

(dollar amounts in thousands)

 

 

(dollar amounts in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair value

 

$

309,154

 

$

301,676

 

$

298,071

 

$

291,114

 

$

287,757

 

$

281,272

 

 

$

288,188

 

$

274,418

 

$

267,972

 

$

255,873

 

$

250,190

 

$

239,488

 

Change in fair value:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

 

$

14,602

 

$

7,125

 

$

3,520

 

$

(3,437)

 

$

(6,794)

 

$

(13,280)

 

 

$

26,392

 

$

12,622

 

$

6,176

 

$

(5,922)

 

$

(11,606)

 

$

(22,308)

 

%

 

 

5.0

%  

 

2.4

%  

 

1.2

%  

 

(1.2)

%  

 

(2.3)

%  

 

(4.5)

%

 

 

10.1

%  

 

4.8

%  

 

2.4

%  

 

(2.3)

%  

 

(4.4)

%  

 

(8.5)

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Prepayment speed shift in %

    

-20%

    

-10%

    

-5%

    

+5%

    

+10%

    

+20%

    

 

 

(dollar amounts in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair value

 

$

328,642

 

$

310,782

 

$

302,476

 

$

286,983

 

$

279,751

 

$

266,211

 

Change in fair value:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

 

$

34,091

 

$

16,231

 

$

7,925

 

$

(7,568)

 

$

(14,800)

 

$

(28,340)

 

%

 

 

11.6

%  

 

5.5

%  

 

2.7

%  

 

(2.6)

%  

 

(5.0)

%  

 

(9.6)

%

 

 

Item 3. Quantitative and Qualitative Disclosures About Market RisRiskk

 

In response to this Item 3, the information set forth on pages 79 toand 80 of this Report is incorporated herein by reference.

 

Item 4. Controls and ProcedureProceduress

 

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

80


 

Table of Contents

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 six months ended June 30, 20162017 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

81


 

Table of Contents

PART II. OTHER INFORMATIOINFORMATIONN

 

Item 1. Legal ProceedingProceedingss

 

From time to time, we may be involved in various legal proceedings,actions, claims and actionsproceedings arising in the ordinary course of business. As of June 30, 2016,2017, 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.

 

Item 1A. Risk FactorFactorss

 

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, 2015,2016, filed with the SEC on March 10, 20169, 2017 and our Quarterly Reports on Form 10-Q filed thereafter.

 

Item 2. Unregistered Sales of Equity Securities and Use of ProceedProceedss

 

None.Repurchases of our Common Stock

The following table summarizes the stock repurchase activity for the three months ended June, 2017 and the approximate dollar value of shares that may yet be purchased pursuant to our stock repurchase program.

In June 2017, the our Board of Directors authorized a stock repurchase program under which we may repurchase up to $50 million of our outstanding Class A common stock.  We did not repurchase any of our Class A common stock during the three months ended June 30, 2017.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Total Number
of Shares
Purchased

    

Average Price
Paid per Share

    

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)

April 1, 2017 – April 30, 2017

 

 

 —

 

$

 —

 

 

 —

 

$

50,000,000

May 1, 2017 – May 31, 2017

 

 

 —

 

$

 —

 

 

 —

 

$

50,000,000

June 1, 2017 – June 30, 2017

 

 

 —

 

$

 —

 

 

 —

 

$

50,000,000

Total

 

 

 —

 

$

 —

 

 

 —

 

$

50,000,000


(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 common stock. We have not conducted any repurchases of shares of our common stock under the stock repurchase program. 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 SecuritieSecuritiess

 

None.

 

Item 4. Mine Safety DisclosureDisclosuress

 

Not applicable.

 

Item 5. Other InformatioInformationn

 

None.

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Table of Contents

Item 6.  Exhibits

 

 

 

 

Exhibit
Number

    

Exhibit Description

3.1

 

Amended and Restated Certificate of Incorporation of PennyMac Financial Services, Inc. (incorporated by reference to Exhibit 3.1 of the Registrant’s Current Report on Form 8-K as filed with the SEC on May 14, 2013).

 

 

 

3.2

 

Amended and Restated Bylaws of PennyMac Financial Services, Inc. (incorporated by reference to Exhibit 3.1 of the Registrant’s Current Report on Form 8-K as filed with the SEC on August 19, 2013).

 

 

 

4.1

 

Specimen Class A Common Stock Certificate (incorporated by reference to Exhibit 4.1 of the Registrant’s Amendment No. 4 to Form S-1 Registration Statement as filed with the SEC on April 29, 2013).

 

 

 

10.1

 

Fourth Amended and Restated Limited Liability Company Agreement of Private National Mortgage Acceptance Company, LLC, dated as of May 8, 2013 (incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K as filed with the SEC on May 14, 2013).

 

 

 

10.2

 

Exchange Agreement, dated as of May 8, 2013, between PennyMac Financial Services, Inc. and Private National Mortgage Acceptance Company, LLC and the Company Unitholders (incorporated by reference to Exhibit 10.2 of the Registrant’s Current Report on Form 8-K as filed with the SEC on May 14, 2013).

 

 

 

10.3

 

Tax Receivable Agreement, dated as of May 8, 2013, between PennyMac Financial Services, Inc. Private National Mortgage Acceptance Company, LLC and each of the Members (incorporated by reference to Exhibit 10.3 of the Registrant’s Current Report on Form 8-K as filed with the SEC on May 14, 2013).

 

 

 

10.4

 

Registration Rights Agreement, dated as of May 8, 2013, between PennyMac Financial Services, Inc. and the Holders (incorporated by reference to Exhibit 10.4 of the Registrant’s Current Report on Form 8-K as filed with the SEC on May 14, 2013).

 

 

 

10.5

 

Stockholder Agreement, dated as of May 8, 2013, between PennyMac Financial Services, Inc. and BlackRock Mortgage Ventures, LLC (incorporated by reference to Exhibit 10.5 of the Registrant’s Current Report on Form 8-K as filed with the SEC on May 14, 2013).

 

 

 

10.6

 

Stockholder Agreement, dated as of May 8, 2013, between PennyMac Financial Services, Inc. and HC Partners LLC (incorporated by reference to Exhibit 10.6 of the Registrant’s Current Report on Form 8-K as filed with the SEC on May 14, 2013).

 

 

 

10.7†

 

PennyMac Financial Services, Inc. 2013 Equity Incentive Plan (incorporated by reference to Exhibit 99.1 of the Registrant’s Current Report on Form 8-K as filed with the SEC on May 14, 2013).

 

 

 

10.8†

 

PennyMac Financial Services, Inc. 2013 Equity Incentive Plan Form of Restricted Stock Unit Award Agreement for Non-Employee Directors (incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K as filed with the SEC on May 16, 2013).

 

 

 

10.9†

 

PennyMac Financial Services, Inc. 2013 Equity Incentive Plan Form of Restricted Stock Unit Award Agreement for Executive Officers (incorporated by reference to Exhibit 10.9 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2015).

 

 

 

10.10†

 

PennyMac Financial Services, Inc. 2013 Equity Incentive Plan Form of Restricted Stock Unit Award Agreement for Other Eligible Participants (incorporated by reference to Exhibit 10.10 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2015).

 

 

 

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10.11†

 

PennyMac Financial Services, Inc. 2013 Equity Incentive Plan Form of Stock Option Award Agreement (incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K as filed with the SEC on June 17, 2013).

 

 

 

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Exhibit
Number

Exhibit Description

10.12†

 

Form of PennyMac Financial Services, Inc. Indemnification Agreement (incorporated by reference to Exhibit 10.8 of the Registrant’s Amendment No. 2 to Form S-1 Registration Statement as filed with the SEC on April 5, 2013).

 

 

 

10.13†

 

Employment Agreement, dated December 8, 2015, among Stanford L. Kurland, Private National Mortgage Acceptance Company, LLC and PennyMac Financial Services, Inc. (incorporated by reference to Exhibit 10.5 of the Registrant’s Current Report on Form 8-K as filed with the SEC on December 14, 2015).

 

 

 

10.14†

 

First Amendment to Employment Agreement, dated as of April 5, 2017, by and among Private National Mortgage Acceptance Company, LLC, PennyMac Financial Services, Inc. and Stanford L. Kurland (incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K filed with the SEC on April 7, 2017).

10.15†

Employment Agreement, dated December 8, 2015, among David A. Spector, Private National Mortgage Acceptance Company, LLC and PennyMac Financial Services, Inc. (incorporated by reference to Exhibit 10.6 of the Registrant’s Current Report on Form 8-K as filed with the SEC on December 14, 2015).

 

 

 

10.1510.16†

 

Mortgage Banking and Warehouse Services Agreement, effective as of February 1, 2013, by and between PennyMac Loan Services, LLC and PennyMac Corp. (incorporated by referenceFirst Amendment to Exhibit 10.9 of the Registrant’s Form S-1 Registration Statement as filed with the SEC on February 7, 2013).

10.16

Amendment No. 1 to Mortgage Banking and Warehouse ServicesEmployment Agreement, dated as of March 1, 2013,April 5, 2017, by and betweenamong Private National Mortgage Acceptance Company, LLC, PennyMac LoanFinancial Services, LLCInc. and PennyMac Corp. (incorporated by reference to Exhibit 10.31 of the Registrant’s Amendment No. 1 to Form S-1 Registration Statement as filed with the SEC on March 26, 2013).

10.17

Amendment No. 2 to Mortgage Banking and Warehouse Services Agreement, dated as of August 14, 2013, by and between PennyMac Loan Services, LLC and PennyMac Corp. (incorporated by reference to Exhibit 1.1 of the Registrant’s Current Report on Form 8-K as filed with the SEC on August 19, 2013).

10.18

Amendment No. 3 to Mortgage Banking and Warehouse Services Agreement, dated as of December 15, 2015, by and between PennyMac Loan Services, LLC and PennyMac Corp.David A. Spector (incorporated by reference to Exhibit 10.2 of the Registrant’s Current Report on Form 8-K filed with the SEC on November 16, 2015)April 7, 2017).

 

 

 

10.1910.17

 

Second Amended and Restated Flow Servicing Agreement, dated as of March 1, 2013, by and between PennyMac Operating Partnership, L.P. and PennyMac Loan Services, LLC (incorporated by reference to Exhibit 10.30 of the Registrant’s Amendment No. 1 to Form S-1 Registration Statement as filed with the SEC on March 26, 2013).

10.20

Amendment No. 1 to Second Amended and Restated Flow Servicing Agreement, dated as of November 14, 2013, by and between PennyMac Operating Partnership, L.P. and PennyMac Loan Services, LLC (incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K as filed with the SEC on November 20, 2013).

10.21

Amendment No. 2 to Second Amended and Restated Flow Servicing Agreement, dated as of June 1, 2014, by and between PennyMac Operating Partnership, L.P. and PennyMac Loan Services, LLC (incorporated by reference to Exhibit 10.21 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2014).

10.22

Amendment No. 3 to Second Amended and Restated Flow Servicing Agreement, dated as of December 11, 2014, by and between PennyMac Operating Partnership, L.P. and PennyMac Loan Services, LLC (incorporated by reference to Exhibit 10.22 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2014).

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10.23

Amendment No. 4 to Second Amended and Restated Flow Servicing Agreement, dated as of March 31, 2015, by and between PennyMac Operating Partnership, L.P. and PennyMac Loan Services, LLC (incorporated by reference to Exhibit 10.23 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2015).

10.24

Amendment No. 5 to Second Amended and Restated Flow ServicingManagement Agreement, dated as of September 1, 2015, between PennyMac Operating Partnership, L.P. and PennyMac Loan Services, LLC (incorporated by reference to Exhibit 10.23 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2015).

10.25

Amendment No. 6 to Second Amended and Restated Flow Servicing Agreement, dated as of June 1,12, 2016, between PennyMac Operating Partnership, L.P. and PennyMac Loan Services, LLC.

10.26

MSR Recapture Agreement, effective as of February 1, 2013, by and between PennyMac Loan Services, LLC and PennyMac Corp. (incorporated by reference to Exhibit 10.11 of the Registrant’s Form S-1 Registration Statement as filed with the SEC on February 7, 2013).

10.27

Amendment No. 1 to MSR Recapture Agreement, dated as of August 1, 2013, by and between PennyMac Loan Services, LLC and PennyMac Corp. (incorporated by reference to Exhibit 10.21 of the Registrant’s Form S-1 Registration Statement as filed with the SEC on October 1, 2013).

10.28

Amended and Restated Management Agreement, dated as of February 1, 2013, by and among PennyMac Mortgage Investment Trust, PennyMac Operating Partnership, L.P. and PNMAC Capital Management, LLC (incorporated by reference to Exhibit 10.12 of the Registrant’s Form S-1 Registration Statement as filed with the SEC on February 7, 2013).

10.29

Amendment Number One to Amended and Restated Management Agreement, dated as of December 15, 2015, by and among PennyMac Mortgage Investment Trust, PennyMac Operating Partnership, L.P. and PNMAC Capital Management, LLC (incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K as filed with the SEC on December 18, 2015)September 12, 2016).

 

 

 

10.3010.18

Third Amended and Restated Flow Servicing Agreement, dated as of September 12, 2016, by and between PennyMac Operating Partnership, L.P. and PennyMac Loan Services, LLC (incorporated by reference to Exhibit 10.2 of the Registrant’s Current Report on Form 8-K as filed with the SEC on September 12, 2016).

10.19

Amended and Restated Mortgage Banking Services Agreement, dated as of September 12, 2016, by and between PennyMac Loan Services, LLC and PennyMac Corp. (incorporated by reference to Exhibit 10.3 of the Registrant’s Current Report on Form 8-K as filed with the SEC on September 12, 2016).

10.20

Amendment No. 1 to Amended and Restated Mortgage Banking Services Agreement, dated as of May 25, 2017, by and between PennyMac Loan Services, LLC and PennyMac Corp.

10.21

Amended and Restated MSR Recapture Agreement, dated as of September 12, 2016, by and between PennyMac Loan Services, LLC and PennyMac Corp. (incorporated by reference to Exhibit 10.4 of the Registrant’s Current Report on Form 8-K as filed with the SEC on September 12, 2016).

10.22

 

Amended and Restated Underwriting Fee Reimbursement Agreement, dated as of February 1, 2013, by and among PennyMac Mortgage Investment Trust, PennyMac Operating Partnership, L.P. and PNMAC Capital Management, LLC (incorporated by reference to Exhibit 10.13 of the Registrant’s Form S-1 Registration Statement as filed with the SEC on February 7, 2013).

 

 

 

10.3110.23

 

Amended and Restated Master Spread Acquisition and MSR Servicing Agreement, dated as of April 30, 2015, by and between PennyMac Loan Services, LLC and PennyMac Holdings, LLC (incorporated by reference to Exhibit 10.2 of the Registrant’s Current Report on Form 8-K as filed with the SEC on May 6, 2015).

10.32

Amendment No. 1 to Amended and Restated Master Spread Acquisition and MSR Servicing Agreement, dated as of August 26, 2015, among Credit Suisse First Boston Mortgage Capital LLC, PennyMac Loan Services, LLC and PennyMac Holdings, LLC (incorporated by reference to Exhibit 10.37 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2015).

10.33

Amendment No. 2 to Amended and Restated Master Spread Acquisition and MSR Servicing Agreement, dated as of November 10, 2015, among Credit Suisse First Boston Mortgage Capital LLC, PennyMac Loan Services, LLC and PennyMac Holdings, LLC (incorporated by reference to Exhibit 10.40 of the Registrant’s Annual Report on Form 10-K for the quarter ended December 31, 2015).

10.34

Master Spread Acquisition and MSR Servicing Agreement, dated as of December 19, 2014, among PennyMac Loan Services, LLC, PennyMac Operating Partnership, L.P., and PennyMac Holdings, LLC (incorporated(incorporated by reference to Exhibit 1.01 of the Registrant’s Current Report on Form 8-K as filed with the SEC on December 24, 2014).

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10.35Exhibit
Number

    

Exhibit Description

10.24

Amendment No. 1 to Master Spread Acquisition and MSR Servicing Agreement, dated as of March 3, 2015, among PennyMac Loan Services, LLC, PennyMac Operating Partnership, L.P., and PennyMac Holdings, LLC (incorporated(incorporated by reference to Exhibit 10.38 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2015).

 

 

 

10.3610.25

 

Second Amended and Restated FlowMaster Spread Acquisition and MSR Servicing Agreement, dated as of December 19, 2016, by and between PNMAC Mortgage Co., LLC and PennyMac Loan Services, LLC, dated August 1, 2010and PennyMac Holdings, LLC (incorporated by reference to Exhibit 10.1410.7 of the Registrant’s Amendment No. 1 toCurrent Report on Form S-1 Registration Statement8-K as filed with the SEC on March 26, 2013)December 21, 2016).

 

 

 

10.37

Amendment No. 1 to the Amended and Restated Flow Servicing Agreement, dated as of December 4, 2014, by and among PennyMac Loan Services, LLC and PNMAC Mortgage Co., LLC (incorporated by reference to Exhibit 10.41 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2015).

10.3810.26

 

Second Amended and Restated Flow Servicing Agreement, dated as of August 1, 2008, as amended effective as of January 1, 2012, by and between PNMAC Mortgage Opportunity Fund Investors, LLC and PennyMac Loan Services, LLC (incorporated by reference to Exhibit 10.15 of the Registrant’s Form S-1 Registration Statement as filed with the SEC on February 7, 2013).

 

 

 

10.3910.27

 

Amendment No. 1 to the Second Amended and Restated Flow Servicing Agreement, dated as of December 5, 2014, by and among PennyMac Loan Services, LLC and PNMAC Mortgage Opportunity Fund Investors, LLC (incorporated by reference to Exhibit 10.43 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2015).

 

 

 

10.4010.28

Amended and Restated Flow Servicing Agreement, by and between PNMAC Mortgage Co., LLC and PennyMac Loan Services, LLC, dated August 1, 2010 (incorporated by reference to Exhibit 10.14 of the Registrant’s Amendment No. 1 to Form S-1 Registration Statement as filed with the SEC on March 26, 2013).

10.29

Amendment No. 1 to the Amended and Restated Flow Servicing Agreement, dated as of December 4, 2014, by and among PennyMac Loan Services, LLC and PNMAC Mortgage Co., LLC (incorporated by reference to Exhibit 10.41 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2015).

10.30

 

Amended and Restated Flow Servicing Agreement, dated as of August 1, 2010, by and between PNMAC Mortgage Opportunity Fund, LP and PennyMac Loan Services, LLC (incorporated by reference to Exhibit 10.27 of the Registrant’s Amendment No. 1 to Form S-1 Registration Statement as filed with the SEC on March 26, 2013).

 

 

 

10.4110.31

 

Amendment No. 1 to the Amended and Restated Flow Servicing Agreement, dated as of December 4, 2014, by and among PennyMac Loan Services, LLC and PNMAC Mortgage Opportunity Fund, L.P. (incorporated by reference to Exhibit 10.45 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2015).

 

 

 

10.42

Investment Management Agreement, as amended and restated May 26, 2011, by and between PNMAC Mortgage Opportunity Fund, L.P. and PNMAC Capital Management, LLC (incorporated by reference to Exhibit 10.16 of the Registrant’s Form S-1 Registration Statement as filed with the SEC on February 7, 2013).

10.4310.32

 

Investment Management Agreement, dated as of August 1, 2008, between PNMAC Mortgage Opportunity Fund Investors, LLC and PNMAC Capital Management, LLC (incorporated by reference to Exhibit 10.17 of the Registrant’s Form S-1 Registration Statement as filed with the SEC on February 7, 2013).

 

 

 

10.4410.33

Investment Management Agreement, as amended and restated May 26, 2011, by and between PNMAC Mortgage Opportunity Fund, L.P. and PNMAC Capital Management, LLC (incorporated by reference to Exhibit 10.16 of the Registrant’s Form S-1 Registration Statement as filed with the SEC on February 7, 2013).

10.34

 

Master Repurchase Agreement, dated as of March 17, 2011, by and among Bank of America, N.A., PennyMac Loan Services, LLC and Private National Mortgage Acceptance Company, LLC (incorporated by reference to Exhibit 10.18 of the Registrant’s Form S-1 Registration Statement as filed with the SEC on February 7, 2013).

 

 

 

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10.45

Exhibit
Number

Exhibit Description

10.35

 

Amendment No. 1 to Master Repurchase Agreement, dated as of July 21, 2011, by and among Bank of America, N.A., PennyMac Loan Services, LLC and Private National Mortgage Acceptance Company, LLC (incorporated by reference to Exhibits 10.19 of the Registrant’s Amendment No. 3 to Form S-1 Registration Statement as filed with the SEC on April 22, 2013).

 

 

 

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10.4610.36

 

Amendment No. 2 to Master Repurchase Agreement, dated as of March 23, 2012, by and among Bank of America, N.A., PennyMac Loan Services, LLC and Private National Mortgage Acceptance Company, LLC (incorporated by reference to Exhibits 10.19 of the Registrant’s Amendment No. 3 to Form S-1 Registration Statement as filed with the SEC on April 22, 2013).

 

 

 

10.4710.37

 

Amendment No. 3 to Master Repurchase Agreement, dated as of August 28, 2012, by and among Bank of America, N.A., PennyMac Loan Services, LLC and Private National Mortgage Acceptance Company, LLC (incorporated by reference to Exhibits 10.19 of the Registrant’s Amendment No. 3 to Form S-1 Registration Statement as filed with the SEC on April 22, 2013).

 

 

 

10.4810.38

 

Amendment No. 4 to Master Repurchase Agreement, dated as of January 3, 2013, by and among Bank of America, N.A., PennyMac Loan Services, LLC and Private National Mortgage Acceptance Company, LLC (incorporated by reference to Exhibits 10.19 of the Registrant’s Amendment No. 3 to Form S-1 Registration Statement as filed with the SEC on April 22, 2013).

 

 

 

10.4910.39

 

Amendment No. 5 to Master Repurchase Agreement, dated as of March 28, 2013, by and among Bank of America, N.A., PennyMac Loan Services, LLC and Private National Mortgage Acceptance Company, LLC (incorporated by reference to Exhibits 10.19 of the Registrant’s Amendment No. 3 to Form S-1 Registration Statement as filed with the SEC on April 22, 2013).

 

 

 

10.5010.40

 

Amendment No. 6 to Master Repurchase Agreement, dated as of January 31, 2014, by and among Bank of America, N.A., PennyMac Loan Services, LLC and Private National Mortgage Acceptance Company, LLC (incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K as filed with the SEC on February 6, 2014).

 

 

 

10.5110.41

 

Amendment No. 7 to Master Repurchase Agreement, dated as of March 27, 2014, by and among Bank of America, N.A., PennyMac Loan Services, LLC and Private National Mortgage Acceptance Company, LLC (incorporated by reference to Exhibit 10.44 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2014).

 

 

 

10.5210.42

 

Amendment No. 8 to Master Repurchase Agreement, dated as of August 13, 2014, by and among Bank of America, N.A., PennyMac Loan Services, LLC and Private National Mortgage Acceptance Company, LLC (incorporated by reference to Exhibit 10.48 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2014).

 

 

 

10.5310.43

 

Amendment No. 9 to Master Repurchase Agreement, dated as of January 30, 2015, by and among Bank of America, N.A., PennyMac Loan Services, LLC and Private National Mortgage Acceptance Company, LLC (incorporated by reference to Exhibit 10.49 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2014).

 

 

 

10.5410.44

 

Amendment No. 10 to Master Repurchase Agreement, dated as of March 29, 2016, by and among Bank of America, N.A., PennyMac Loan Services, LLC and Private National Mortgage Acceptance Company, LLC (incorporated by reference to Exhibit 10.62 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2016).

10.45

Amendment No. 11 to Master Repurchase Agreement, dated as of May 23, 2017, by and among Bank of America, N.A., PennyMac Loan Services, LLC and Private National Mortgage Acceptance Company, LLC (incorporated by reference to Exhibit 10.2 of the Registrant’s Current Report on Form 8-K filed with the SEC on May 30, 2017).

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10.55Exhibit
Number

Exhibit Description

10.46

 

Guaranty, dated as of March 17, 2011, by Private National Mortgage Acceptance Company, LLC in favor of Bank of America, N.A (incorporated by reference to Exhibit 10.50 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2014).

 

 

 

10.5610.47

 

Amended and Restated Master Repurchase Agreement, dated as of June 26, 2012, byMarch 3, 2017, among Citibank, N.A. and between PennyMac Loan Services, LLC and Citibank, N.A. (incorporated by reference to Exhibit 10.20 of the Registrant’s Form S-1 Registration Statement as filed with the SEC on February 7, 2013).

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10.57

Amendment Number One to the Master Repurchase Agreement, dated as of December 31, 2012, by and between PennyMac Loan Services, LLC and Citibank, N.A. (incorporated by reference to Exhibit 10.21 of the Registrant’s Form S-1 Registration Statement as filed with the SEC on February 7, 2013).

10.58

Amendment Number Two to the Master Repurchase Agreement, dated April 17, 2013, by and between PennyMac Loan Services, LLC and Citibank, N.A. (incorporated by reference to Exhibit 10.40 of the Registrant’s Form S-1 Registration Statement as filed with the SEC on October 1, 2013).

10.59

Amendment Number Three to the Master Repurchase Agreement, dated June 25, 2013, by and between PennyMac Loan Services, LLC and Citibank, N.A. (incorporated by reference to Exhibit 10.41 of the Registrant’s Form S-1 Registration Statement as filed with the SEC on October 1, 2013).

10.60

Amendment Number Four to the Master Repurchase Agreement, dated July 25, 2013, by and between PennyMac Loan Services, LLC and Citibank, N.A. (incorporated by reference to Exhibit 10.42 of the Registrant’s Form S-1 Registration Statement as filed with the SEC on October 1, 2013).

10.61

Amendment Number Five to the Master Repurchase Agreement, dated February 5, 2014, by and between PennyMac Loan Services, LLC and Citibank, N.A. (incorporated by reference to Exhibit 10.50 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2014).

10.62

Amendment Number Six to the Master Repurchase Agreement, dated February 25, 2014, by and between PennyMac Loan Services, LLC and Citibank, N.A. (incorporated by reference to Exhibit 10.51 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2014).

10.63

Amendment Number Seven to the Master Repurchase Agreement, dated July 24, 2014, by and between PennyMac Loan Services, LLC and Citibank, N.A. (incorporated by reference to Exhibit 10.54 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2014).

10.64

Amendment Number Eight to the Master Repurchase Agreement, dated August 7, 2014, by and between PennyMac Loan Services, LLC and Citibank, N.A. (incorporated by reference to Exhibit 10.55 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2014).

10.65

Amendment Number Nine to the Master Repurchase Agreement, dated September 8, 2014, by and between PennyMac Loan Services, LLC and Citibank, N.A. (incorporated by reference to Exhibit 10.58 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2014).

10.66

Amendment Number Ten to the Master Repurchase Agreement, dated July 6, 2015, by and between PennyMac Loan Services, LLC and Citibank, N.A. (incorporated by reference to Exhibit 10.69 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2015).

10.67

Amendment Number Eleven to the Master Repurchase Agreement, dated August 3, 2015, by and between PennyMac Loan Services, LLC and Citibank, N.A. (incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K as filed with the SEC on August 5, 2015)March 8, 2017).

 

 

 

10.6810.48

 

Amendment Number TwelveOne to theAmended and Restated Master Repurchase Agreement, dated September 7, 2015, byas of June 19, 2017, between Citibank, N.A. and between PennyMac Loan Services, LLC and Citibank, N.A. (incorporated by reference to Exhibit 10.7210.4 of the Registrant’s QuarterlyCurrent Report on Form 10-Q for8-K filed with the quarter ended September 30, 2015)SEC on June 21, 2017).

 

 

 

10.69

Amendment Number Thirteen to the Master Repurchase Agreement, dated October 22, 2015, between PennyMac Loan Services, LLC and Citibank, N.A. (incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K as filed with the SEC on October 28, 2015).

10.70

Amendment Number Fourteen to the Master Repurchase Agreement, dated July 25, 2016, between PennyMac Loan Services, LLC and Citibank, N.A.

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10.7110.49

 

Guaranty Agreement, dated as of June 26, 2012, by Private National Mortgage Acceptance Company, LLC in favor of Citibank, N.A (incorporated by reference to Exhibit 10.61 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2014).

 

 

 

10.7210.50

 

Amended and Restated Master Spread Participation Agreement, dated as of November 10, 2015, by and among PennyMac Loan Services, LLC and PennyMac Loan Services, LLC as the Initial Participant (incorporated(incorporated by reference to Exhibit 10.189 of the Registrant’s Annual Report on Form 10-K for the quarter ended December 31, 2015).

10.73

Loan and Security Agreement, dated as of April 30, 2015, among PennyMac Loan Services, LLC and PennyMac Holdings, LLC (incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K as filed with the SEC on May 6, 2015).

10.74

Amendment No. 1 to Loan and Security Agreement, dated as of October 30, 2015, by and between PennyMac Loan Services, LLC and PennyMac Holdings, LLC (incorporated by reference to Exhibit 10.87 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2015).

10.75

Amendment No. 2 to Loan and Security Agreement, dated as of November 10, 2015, by and among Credit Suisse First Boston Mortgage Capital LLC, PennyMac Loan Services, LLC, and PennyMac Holdings, LLC (incorporated by reference to Exhibit 10.92 of the Registrant’s Annual Report on Form 10-K for the quarter ended December 31, 2015).

 

 

 

10.7610.51

 

Amendment No. 3 to LoanMaster Repurchase Agreement (Participation Certificates and Security Agreement,Servicing), dated as of December 15,November 10, 2015, by and among Credit Suisse First Boston Mortgage Capital LLC, PennyMac Loan Services, LLC and PennyMac Holdings,Private National Mortgage Acceptance Company, LLC (incorporated by reference to Exhibit 10.9310.1 of the Registrant’s AnnualCurrent Report on Form 10-K for8-K filed with the quarter ended December 31,SEC on November 16, 2015).

 

 

 

10.7710.52

 

Amendment No. 41 to Loan and SecurityMaster Repurchase Agreement, dated as of January 28,December 19, 2016, by and among Credit Suisse First Boston Mortgage Capital LLC, Credit Suisse AG, PennyMac Loan Services, LLC and PennyMac Holdings,Private National Mortgage Acceptance Company, LLC (incorporated by reference to Exhibit 10.9410.74 of the Registrant’s Annual Report on Form 10-K forfiled with the quarter ended December 31, 2015)SEC on March 9, 2017).

 

 

 

10.78

Amendment No. 5 to Loan and Security Agreement, dated as of March 31, 2016, by and among Credit Suisse First Boston Mortgage Capital LLC, PennyMac Loan Services, LLC, and PennyMac Holdings, LLC (incorporated by reference to Exhibit 10.96 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2016).

10.79

Second Amended and Restated Guaranty, dated as of March 27, 2015, by Private National Mortgage Acceptance Company, LLC in favor of Credit Suisse First Boston Mortgage Capital LLC (incorporated by reference to Exhibit 10.2 of the Registrant’s Current Report on Form 8-K as filed with the SEC on April 2, 2015).

10.8010.53

 

Third Amended and Restated Guaranty (Participation Certificates and Servicing), dated as of November 10, 2015, by Private National Mortgage Acceptance Company, LLC in favor of Credit Suisse First Boston Mortgage Capital LLC (incorporated by reference to Exhibit 10.2 of the Registrant’s Current Report on Form 8-K as filed with the SEC on November 16, 2015).

 

 

 

10.8110.54

 

Master Repurchase Agreement (Participation Certificates and Servicing), dated as of November 10, 2015, among Credit Suisse First Boston Mortgage Capital LLC, PennyMac Loan Services, LLC and Private National Mortgage Acceptance Company, LLC (incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K filed with the SEC on November 16, 2015).

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10.82

SecondThird Amended and Restated Master Repurchase Agreement, dated as of March 31, 2016,April 28, 2017, by and among Credit Suisse First Boston Mortgage Capital LLC, Credit Suisse AG, Alpine Securitization LTD, PennyMac Loan Services, LLC and Private National Mortgage Acceptance Company, LLC (incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K as filed with the SEC on April 6, 2016)May 3, 2017).

 

 

 

10.8310.55

 

Amendment No. 1 to Third Amended and Restated Master Repurchase Agreement, dated as of June 1, 2017, by and among Credit Suisse First Boston Mortgage Capital LLC, Credit Suisse AG, Alpine Securitization LTD, PennyMac Loan Services, LLC and Private National Mortgage Acceptance Company, LLC.

10.56

Amended and Restated Guaranty, dated as of August 14, 2009,April 28, 2017, by Private National Mortgage Acceptance Company, LLC in favor of Credit Suisse First Boston Mortgage Capital LLC (incorporated by reference to Exhibit 10.7710.2 of the Registrant’s AnnualCurrent Report on Form 10-K for8-K as filed with the year ended December 31, 2014)SEC on May 3, 2017).

 

 

 

10.8410.57

 

Master Repurchase Agreement, dated as of July 2, 2013, by and between PennyMac Loan Services, LLC and Morgan Stanley Bank, N.A. (incorporated by reference to Exhibit 1.1 of the Registrant’s Current Report on Form 8-K as filed with the SEC on July 8, 2013).

 

 

 

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10.85

Exhibit
Number

Exhibit Description

10.58

 

Amendment Number One to the Master Repurchase Agreement, dated as of August 26, 2013, by and between PennyMac Loan Services, LLC and Morgan Stanley Bank, N.A. (incorporated by reference to Exhibit 10.49 of the Registrant’s Form S-1 Registration Statement as filed with the SEC on October 1, 2013).

 

 

 

10.8610.59

 

Amendment Number Two to the Master Repurchase Agreement, dated as of January 28, 2014, by and between PennyMac Loan Services, LLC and Morgan Stanley Bank, N.A. (incorporated by reference to Exhibit 10.63 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2014).

 

 

 

10.8710.60

 

Amendment Number Three to the Master Repurchase Agreement, dated as of June 30, 2014, by and between PennyMac Loan Services, LLC and Morgan Stanley Bank, N.A. (incorporated by reference to Exhibit 10.70 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2014).

 

 

 

10.8810.61

 

Amendment Number Four to the Master Repurchase Agreement, dated as of June 29, 2015, by and between PennyMac Loan Services, LLC and Morgan Stanley Bank, N.A. (incorporated by reference to Exhibit 10.98 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2015).

 

 

 

10.8910.62

 

Amendment Number Five to the Master Repurchase Agreement, dated as of July 27, 2015, by and between PennyMac Loan Services, LLC and Morgan Stanley Bank, N.A. (incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K as filed with the SEC on July 27, 2015).

 

 

 

10.9010.63

 

Amendment Number Six to the Master Repurchase Agreement, dated as of November 9, 2015, by and between PennyMac Loan Services, LLC and Morgan Stanley Bank, N.A. (incorporated by reference to Exhibit 10.118 of the Registrant’s Annual Report on Form 10-K for the quarter ended December 31, 2015).

 

 

 

10.9110.64

 

Amendment Number Seven to the Master Repurchase Agreement, dated July 26, 2015,2016, by and between PennyMac Loan Services, LLC and Morgan Stanley Bank, N.A. (incorporated by reference to Exhibit 10.91 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2016).

 

 

 

10.9210.65

Amendment Number Eight to the Master Repurchase Agreement, dated August 26, 2016, by and between PennyMac Loan Services, LLC,  Morgan Stanley Bank, N.A. and Morgan Stanley Mortgage Capital Holdings LLC (incorporated by reference to Exhibit 10.84 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 31, 2016).

10.66

Amendment Number Nine to the Master Repurchase Agreement, dated June 20, 2017, by and between PennyMac Loan Services, LLC,  Morgan Stanley Bank, N.A. and Morgan Stanley Mortgage Capital Holdings LLC (incorporated by reference to Exhibit 10.5 of the Registrant’s Current Report on Form 8-K as filed with the SEC on June 21, 2017).

10.67

 

Guaranty Agreement, dated as of July 2, 2013, by Private National Mortgage Acceptance Company, LLC in favor of Morgan Stanley Bank, N.A. (incorporated by reference to Exhibit 1.2 of the Registrant’s Current Report on Form 8-K as filed with the SEC on July 8, 2013).

 

 

 

10.9310.68

 

Mortgage Loan Participation Purchase and Sale Agreement, dated as of August 13, 2014, by and among PennyMac Loan Services, LLC, Private National Mortgage Acceptance Company, LLC and Bank of America, N.A. (incorporated by reference to Exhibit 10.72 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2014).

 

 

 

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10.9410.69

 

Amendment No. 1 to Mortgage Loan Participation Purchase and Sale Agreement, dated as of January 30, 2015, by and among Bank of America, N.A., PennyMac Loan Services, LLC and Private National Mortgage Acceptance Company, LLC (incorporated by reference to Exhibit 10.84 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2014).

 

 

 

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10.95

Exhibit
Number

Exhibit Description

10.70

 

Amendment No. 2 to Mortgage Loan Participation Purchase and Sale Agreement, dated as of December 22, 2015, by and among Bank of America, N.A., PennyMac Loan Services, LLC and Private National Mortgage Acceptance Company, LLC (incorporated by reference to Exhibit 10.122 of the Registrant’s Annual Report on Form 10-K for the quarter ended December 31, 2015).

 

 

 

10.9610.71

 

Amendment No. 3 to Mortgage Loan Participation Purchase and Sale Agreement, dated as of March 29, 2016, by and among Bank of America, N.A., PennyMac Loan Services, LLC and Private National Mortgage Acceptance Company, LLC (incorporated by reference to Exhibit 10.96 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2016).

10.72

Amendment No. 4 to Mortgage Loan Participation Purchase and Sale Agreement, dated as of March 28, 2017, by and among Bank of America, N.A., PennyMac Loan Services, LLC and Private National Mortgage Acceptance Company, LLC.

 

 

 

10.73

Amendment No. 5 to Mortgage Loan Participation Purchase and Sale Agreement, dated as of May 23, 2017, by and among Bank of America, N.A., PennyMac Loan Services, LLC and Private National Mortgage Acceptance Company, LLC.

 

 

 

10.9710.74

 

Amended and Restated Guaranty, dated as of August 13, 2014, by Private National Mortgage Acceptance Company, LLC in favor of Bank of America, N.A. (incorporated by reference to Exhibit 10.73 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2014).

 

 

 

10.9810.75

 

Mortgage Loan Purchase Agreement, dated as of September 25, 2012, by and between PennyMac Loan Services, LLC and PennyMac Corp. (incorporated by reference to Exhibit 10.124 of the Registrant’s Annual Report on Form 10-K for the quarter ended December 31, 2015).

 

 

 

10.9910.76

 

Flow Sale Agreement, dated as of June 16, 2015, by and between PennyMac Corp. and PennyMac Loan Services, LLC (incorporated by reference to Exhibit 10.104 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2015).

 

 

 

10.10010.77

 

Amended and Restated Flow Commercial Mortgage Loan Purchase Agreement, dated as of June 1, 2016, by and between PennyMac Loan Services, LLC and PennyMac Corp. (incorporated by reference to Exhibit 10.100 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2016).

 

 

 

10.10110.78

 

Servicing Agreement, dated as of July 13, 2015, between PennyMac Corp., PennyMac Holdings, LLC, any other parties signing this Agreement as owner of Mortgage Loans listed in Schedule I and any New Owners, PennyMac Loan Services, LLC, and Midland Loan Services, a division of PNC Bank, National Association (incorporated by reference to Exhibit 10.127 of the Registrant’s Annual Report on Form 10-K for the quarter ended December 31, 2015).

 

 

 

10.10210.79

 

Amended and Restated Commercial Mortgage ServiceServicing Oversight Agreement, dated as of June 1, 2016, among PennyMac Corp., PennyMac Holdings, LLC, and PennyMac Loan Services, LLC.LLC (incorporated by reference to Exhibit 10.102 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2016).

 

 

 

10.10310.80

 

Master Repurchase Agreement, dated as of December 4, 2015, among Barclays Bank PLC, PennyMac Loan Services, LLC and Private National Mortgage Acceptance Company, LLC (incorporated(incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K as filed with the SEC on December 10, 2015).

 

 

 

10.10410.81

Amendment Number One to Master Repurchase Agreement, dated as of September 29, 2016, among Barclays Bank PLC, PennyMac Loan Services, LLC and Private National Mortgage Acceptance Company, LLC (incorporated by reference to Exhibit 10.97 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 31, 2016).

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Exhibit
Number

Exhibit Description

10.82

Amendment Number Two to Master Repurchase Agreement, dated as of December 2, 2016, among Barclays Bank PLC, PennyMac Loan Services, LLC and Private National Mortgage Acceptance Company, LLC (incorporated by reference to Exhibit 10.101 of the Registrant’s Annual Report on Form 10-K filed with the SEC on March 9, 2017).

10.83

Amendment Number Three to Master Repurchase Agreement, dated as of May 3, 2017, among Barclays Bank PLC, PennyMac Loan Services, LLC and Private National Mortgage Acceptance Company, LLC (incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K filed with the SEC on May 5, 2017).

10.84

Amendment Number Four to Master Repurchase Agreement, dated as of June 16, 2017, among Barclays Bank PLC, PennyMac Loan Services, LLC and Private National Mortgage Acceptance Company, LLC (incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K filed with the SEC on June 21, 2017).

10.85

 

Mortgage Loan Participation Purchase and Sale Agreement, dated as of December 4, 2015, between PennyMac Loan Services, LLC and Barclays Bank PLC (incorporated by reference to Exhibit 10.2 of the Registrant’s Current Report on Form 8-K as filed with the SEC on December 10, 2015).

 

 

 

10.10510.86

 

Amendment Number One to Mortgage Loan Participation Purchase and Sale Agreement, dated as of December 2, 2016, between PennyMac Loan Services, LLC and Barclays Bank PLC (incorporated by reference to Exhibit 10.103 of the Registrant’s Annual Report on Form 10-K filed with the SEC on March 9, 2017).

10.87

Amendment Number Two to Mortgage Loan Participation Purchase and Sale Agreement, dated as of May 3, 2017, between PennyMac Loan Services, LLC and Barclays Bank PLC (incorporated by reference to Exhibit 10.2 of the Registrant’s Current Report on Form 8-K filed with the SEC on May 5, 2017).

10.88

Amendment Number Three to Mortgage Loan Participation Purchase and Sale Agreement, dated as of June 16, 2017, between PennyMac Loan Services, LLC and Barclays Bank PLC (incorporated by reference to Exhibit 10.2 of the Registrant’s Current Report on Form 8-K filed with the SEC on June 21, 2017).

10.89

Loan and Security Agreement, dated as of December 4, 2015, among PennyMac Loan Services, LLC, Private National Mortgage Acceptance Company, LLC and Barclays Bank PLC (incorporated(incorporated by reference to Exhibit 10.3 of the Registrant’s Current Report on Form 8-K as filed with the SEC on December 10, 2015).

 

 

 

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10.10610.90

 

Amendment Number One to the Loan and Security Agreement, dated as of February 26, 2016, among Barclays Bank PLC, PennyMac Loan Services, LLC and Private National Mortgage Acceptance Company, LLC (incorporated(incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K as filed with the SEC on March 3, 2016).

 

 

 

10.10710.91

 

Amendment Number Two to the Loan and Security Agreement, dated as of December 2, 2016, among Barclays Bank PLC, PennyMac Loan Services, LLC and Private National Mortgage Acceptance Company, LLC (incorporated by reference to Exhibit 10.106 of the Registrant’s Annual Report on Form 10-K filed with the SEC on March 9, 2017).

10.92

Amendment Number Three to the Loan and Security Agreement, dated as of January 30, 2017, among Barclays Bank PLC, PennyMac Loan Services, LLC and Private National Mortgage Acceptance Company, LLC (incorporated by reference to Exhibit 10.107 of the Registrant’s Annual Report on Form 10-K filed with the SEC on March 9, 2017).

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Exhibit
Number

Exhibit Description

10.93

Amendment Number Four to the Loan and Security Agreement, dated as of June 16, 2017, among Barclays Bank PLC, PennyMac Loan Services, LLC and Private National Mortgage Acceptance Company, LLC (incorporated by reference to Exhibit 10.3 of the Registrant’s Current Report on Form 8-K filed with the SEC on June 21, 2017).

10.94

Master Lease Agreement No.  30350-90000, dated as of December 9, 2015, among Private National Mortgage Acceptance Company, LLC and Banc of America Leasing & Capital, LLC (incorporated(incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K as filed with the SEC on December 14, 2015).

 

 

 

10.10810.95

 

Addendum to Master Lease Agreement No.  30350-90000, dated as of December 9, 2015, among Private National Mortgage Acceptance Company, LLC and Banc of America Leasing & Capital, LLC (incorporated(incorporated by reference to Exhibit 10.2 of the Registrant’s Current Report on Form 8-K as filed with the SEC on December 14, 2015).

 

 

 

10.10910.96

 

Schedule Number 001 to Master Lease Agreement, dated as of December 9, 2015, among Private National Mortgage Acceptance Company, LLC and Banc of America Leasing & Capital, LLC (incorporated by reference to Exhibit 10.3 of the Registrant’s Current Report on Form 8-K as filed with the SEC on December 14, 2015).

 

 

 

10.11010.97

 

Schedule Number 002 to Master Lease Agreement, dated as of May 4, 2016, among Private National Mortgage Acceptance Company, LLC and Banc of America Leasing & Capital, LLC (incorporated by reference to Exhibit 10.140 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2016).

 

 

 

10.11110.98

 

Schedule Number 003 to Master Lease Agreement, dated as of November 3, 2016, among Private National Mortgage Acceptance Company, LLC and Banc of America Leasing & Capital, LLC (incorporated by reference to Exhibit 10.3 of the Registrant’s Current Report on Form 8-K as filed with the SEC on November 4, 2016).

10.99

Schedule Number 004 to Master Lease Agreement, dated as of March 23, 2017, among Private National Mortgage Acceptance Company, LLC and Banc of America Leasing & Capital, LLC (incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K filed with the SEC on March 27, 2017).

10.100

Guaranty, dated as of December 9, 2015, by PennyMac Loan Services, LLC in favor of Banc of America Leasing & Capital, LLC (incorporated(incorporated by reference to Exhibit 10.4 of the Registrant’s Current Report on Form 8-K as filed with the SEC on December 14, 2015).

 

 

 

10.11210.101

 

Amended and Restated Credit Agreement, dated December 30, 2015,November 18, 2016, by and among Private National Mortgage Acceptance Company, LLC, the lenders that are parties thereto, Credit Suisse AG and Credit Suisse Securities (USA) LLC (incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K as filed with the SEC on December 30, 2015)November 22, 2016).

 

 

 

10.11310.102

 

Amended and Restated Collateral and Guaranty Agreement, dated December 30, 2015,November 18, 2016, by and among Private National Mortgage Acceptance Company, LLC, Credit Suisse AG, Cayman Islands Branch, PennyMac Financial Services, Inc., PNMAC Capital Management, LLC, PennyMac Loan Services, LLC and PNMAC Opportunity Fund Associates, LLC (incorporated(incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K as filed with the SEC on November 22, 2016).

10.103

Master Repurchase Agreement, dated as of August 19, 2016, between PennyMac Loan Services, LLC and JPMorgan Chase Bank, N.A. (incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K as filed with the SEC on August 23, 2016).

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Exhibit
Number

Exhibit Description

10.104

First Amendment to Master Repurchase Agreement, dated as of May 23, 2017, between PennyMac Loan Services, LLC and JPMorgan Chase Bank, N.A. (incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K as filed with the SEC on May 30, 2017).

10.105

Guaranty, dated as of August 19, 2016, by Private National Mortgage Acceptance Company, LLC in favor of JPMorgan Chase Bank. N.A. (incorporated by reference to Exhibit 10.2 of the Registrant’s Current Report on Form 8-K as filed with the SEC on August 23, 2016).

10.106

Master Repurchase Agreement, dated as of September 19, 2016, between Royal Bank of Canada and PennyMac Loan Services, LLC (incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K as filed with the SEC on September 22, 2016).

10.107

Amendment No. 1 to Master Repurchase Agreement, dated as of May 3, 2017, between Royal Bank of Canada and PennyMac Loan Services, LLC.

10.108

Base Indenture, dated as of December 19, 2016, by and among PNMAC GMSR ISSUER TRUST, Citibank, N.A., PennyMac Loan Services, LLC, Credit Suisse First Boston Mortgage Capital LLC, and Pentalpha Surveillance LLC (incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K as filed with the SEC on December 21, 2016).

10.109

Amended and Restated Base Indenture, dated as of February 16, 2017, by and among PNMAC GMSR ISSUER TRUST, Citibank, N.A., PennyMac Loan Services, LLC, Credit Suisse First Boston Mortgage Capital LLC, and Pentalpha Surveillance LLC (incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K as filed with the SEC on February 23, 2017).

10.110

Series 2016-MSRVF1 Indenture Supplement to Indenture, dated as of December 19, 2016, by and among PNMAC GMSR ISSUER TRUST, Citibank, N.A., PennyMac Loan Services, LLC, and Credit Suisse First Boston Mortgage Capital LLC (incorporated by reference to Exhibit 10.2 of the Registrant’s Current Report on Form 8-K as filed with the SEC on December 30, 2015)21, 2016).

10.111

Series 2016-MBSADV1 Indenture Supplement to Indenture, dated as of December 19, 2016, by and among PNMAC GMSR ISSUER TRUST, Citibank, N.A., PennyMac Loan Services, LLC, and Credit Suisse First Boston Mortgage Capital LLC (incorporated by reference to Exhibit 10.122 of the Registrant’s Annual Report on Form 10-K filed with the SEC on March 9, 2017).

10.112

Omnibus Amendment No. 1 to the Series 2016-MSRVF1 Indenture Supplement and Series 2016-MBSADV1 Indenture Supplement, dated as of February 16, 2017, by and among PNMAC GMSR ISSUER TRUST, Citibank, N.A., PennyMac Loan Services, LLC, and Credit Suisse First Boston Mortgage Capital LLC (incorporated by reference to Exhibit 10.3 of the Registrant’s Current Report on Form 8-K as filed with the SEC on February 23, 2017).

10.113

Series 2017-GT1 Indenture Supplement, dated as of February 16, 2017, to Amended and Restated Base Indenture, dated as of February 16, 2017, by and among PNMAC GMSR ISSUER TRUST, Citibank, N.A., PennyMac Loan Services, LLC, Credit Suisse First Boston Mortgage Capital LLC (incorporated by reference to Exhibit 10.2 of the Registrant’s Current Report on Form 8-K as filed with the SEC on February 23, 2017).

10.114

Master Repurchase Agreement, dated as of December 19, 2016, by and among PNMAC GMSR ISSUER TRUST, PennyMac Loan Services, LLC, and Private National Mortgage Acceptance Company, LLC (incorporated by reference to Exhibit 10.3 of the Registrant’s Current Report on Form 8-K as filed with the SEC on December 21, 2016).

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Exhibit
Number

Exhibit Description

10.115

Amendment No. 1 to Master Repurchase Agreement, dated as of February 16, 2017, by and among PNMAC GMSR ISSUER TRUST, PennyMac Loan Services, LLC, and Private National Mortgage Acceptance Company, LLC and consented to by Citibank, N.A., Credit Suisse AG, Cayman Islands Branch, and Credit Suisse First Boston Mortgage Capital LLC (incorporated by reference to Exhibit 10.4 of the Registrant’s Current Report on Form 8-K as filed with the SEC on February 23, 2017).

10.116

Guaranty, dated as of December 19, 2016, made by Private National Mortgage Acceptance Company, LLC, in favor of PNMAC GMSR ISSUER TRUST (incorporated by reference to Exhibit 10.4 of the Registrant’s Current Report on Form 8-K as filed with the SEC on December 21, 2016).

10.117

Amendment No. 1 to Guaranty, dated as of February 16, 2017, by and between PNMAC GMSR ISSUER TRUST and Private National Mortgage Acceptance Company, LLC (incorporated by reference to Exhibit 10.5 of the Registrant’s Current Report on Form 8-K as filed with the SEC on February 23, 2017).

10.118

Master Repurchase Agreement, dated as of December 19, 2016, by and among PennyMac Holdings, LLC, PennyMac Loan Services, LLC, and PennyMac Mortgage Investment Trust,  (incorporated by reference to Exhibit 10.5 of the Registrant’s Current Report on Form 8-K as filed with the SEC on December 21, 2016).

10.119

Guaranty, dated as of December 19, 2016, by PennyMac Mortgage Investment Trust, in favor of PennyMac Loan Services, LLC (incorporated by reference to Exhibit 10.6 of the Registrant’s Current Report on Form 8-K as filed with the SEC on December 21, 2016).

10.120

Subordination, Acknowledgment and Pledge Agreement, dated as of December 19, 2016, between PNMAC GMSR ISSUER TRUST and PennyMac Holdings, LLC (incorporated by reference to Exhibit 10.8 of the Registrant’s Current Report on Form 8-K as filed with the SEC on December 21, 2016).

10.121

Master Repurchase Agreement, dated as of December 19, 2016, by and among, Credit Suisse First Boston Mortgage Capital LLC, Credit Suisse AG, Cayman Islands Branch, and PennyMac Loan Services, LLC (incorporated by reference to Exhibit 10.8 of the Registrant’s Current Report on Form 8-K as filed with the SEC on December 21, 2016).

10.122

Guaranty, dated as of December 19, 2016, by Private National Mortgage Acceptance Company, LLC in favor of Credit Suisse First Boston Mortgage Capital LLC (incorporated by reference to Exhibit 10.9 of the Registrant’s Current Report on Form 8-K as filed with the SEC on December 21, 2016).

10.123

Master Repurchase Agreement, dated as of November 1, 2016, among JPMorgan Chase Bank, National Association, PennyMac Loan Services, LLC, and Private National Mortgage Acceptance Company, LLC (incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K as filed with the SEC on November 4, 2016).

10.124

Guaranty, dated as of November 1, 2016, by Private National Mortgage Acceptance Company, LLC, in favor of JPMorgan Chase Bank, National Association (incorporated by reference to Exhibit 10.2 of the Registrant’s Current Report on Form 8-K as filed with the SEC on November 4, 2016).

 

 

 

31.1

 

Certification of Stanford L. KurlandDavid A. Spector pursuant to Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

 

 

31.2

 

Certification of Anne D. McCallionAndrew S. Chang pursuant to Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

 

 

32.1*

 

Certification of Stanford L. Kurland pursuant to Rule 13a-14(b) and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2*

Certification of Anne D. McCallionDavid A. Spector pursuant to Rule 13a-14(b) and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

 

 

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Exhibit
Number

Exhibit Description

32.2*

Certification of Andrew S. Chang pursuant to Rule 13a-14(b) and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101

 

Interactive data files pursuant to Rule 405 of Regulation S-T: (i) the Consolidated Balance Sheets as of June 30, 20162017 and December 31, 20152016 (ii) the Consolidated Statements of Income for the quarters ended June 30, 20162017 and June 30, 2015,2016, (iii) the Consolidated Statements of Changes in Stockholders’ Equity for the quarters ended June 30, 20162017 and June 31, 2015,30, 2016, (iv) the Consolidated Statements of Cash Flows for the quarters ended June 30, 20162017 and June 30, 20152016 and (v) the Notes to the Consolidated Financial Statements.

*

 

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.

 

 

 

 

Indicates management contract or compensatory plan or arrangement.

 

 

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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: August 9, 20167, 2017

By:

/S/ STANFORD L. KURLANDs/ DAVID A. SPECTOR

 

 

Stanford L. KurlandDavid A. Spector

 

 

Chairman of the Board of DirectorsPresident and Chief Executive Officer

 

 

 

Dated: August 9, 20167, 2017

By:

/S/ ANNE D. McCALLIONs/ ANDREW S. CHANG

 

 

Anne D. McCallionAndrew S. Chang

 

 

Chief Financial Officer

 

9495