Press Release

PennyMac Financial Services, Inc. Reports Third Quarter 2018 Results and Completes Corporate Reorganization

Company Release - 11/1/2018 4:30 PM ET

WESTLAKE VILLAGE, Calif.--(BUSINESS WIRE)-- PennyMac Financial Services, Inc. (NYSE: PFSI) today reported net income of $56.2 million for the third quarter of 2018, on revenue of $250.9 million. Net income attributable to PFSI common stockholders was $14.5 million, or $0.57 per diluted share. Book value per share increased to $21.47 from $21.19 at June 30, 2018. Also today, the Company completed a corporate reorganization that simplified its corporate structure and converted all equity ownership to a single class of publicly-traded common stock. Pro forma, giving effect to the reorganization, book value per share would have been $20.671.

Third Quarter 2018 Highlights

  • Pretax income was $61.7 million, down from $74.7 million in the prior quarter
    • Third quarter results reflect improved Production segment earnings and strong contributions from all three operating segments
  • Production segment pretax income was $25.7 million, up 35 percent from the prior quarter and down 63 percent from the third quarter of 2017
    • Total loan acquisitions and originations were $17.9 billion in unpaid principal balance (UPB), up 12 percent from the prior quarter and down 6 percent from the third quarter of 2017
    • Correspondent government and direct lending interest rate lock commitments (IRLCs) totaled $11.1 billion in UPB, down 6 percent from the prior quarter and 16 percent from the third quarter of 2017
    • Correspondent conventional acquisition volume fulfilled for PennyMac Mortgage Investment Trust (PMT) of $7.5 billion in UPB, up 39 percent from the prior quarter and drove an increase in fulfillment fee revenue
  • Servicing segment pretax income was $33.6 million, down 38 percent from $54.6 million in the prior quarter and up 37 percent from $24.5 million in the third quarter of 2017
    • Servicing segment pretax income excluding valuation-related changes was $29.9 million, down 17 percent from the prior quarter and 19 percent from the third quarter of 20172
    • The servicing portfolio grew to $284.5 billion in UPB, up 8 percent from June 30, 2018 and 19 percent from September 30, 2017
    • Redeemed $500 million of MSR-secured term notes and issued $650 million of 5-year secured term notes; refinancing expected to reduce annual interest expense by $7 million after recognizing $4.6 million of debt redemption costs this quarter
    • Completed $11.6 billion in UPB of the previously announced bulk MSR portfolio acquisitions
  • Investment Management segment pretax income was $2.5 million, up from $1.1 million in the prior quarter and $0.7 million in the third quarter of 2017
    • Net assets under management were $1.6 billion, up 1 percent from June 30, 2018, and down 5 percent from September 30, 2017

Notable activity after quarter end

  • Completed the corporate reorganization with the conversion of all equity ownership into a single class of publicly-traded common stock effective November 1, 2018. The transaction simplifies our corporate structure and financial reporting
  • Completed the acquisition of additional bulk Ginnie Mae MSR portfolios totaling $3.2 billion in UPB. An additional $1.2 billion in UPB of bulk MSR acquisitions are pending settlement3

“Our results this quarter reflect volume growth from last quarter in each of our production channels and continued growth of our servicing portfolio,” said President and CEO David Spector. “Initiatives and investments targeted toward growing our consumer and broker direct channel volumes are showing encouraging results. While the transition to a higher rate environment has resulted in a smaller origination market and intensified competition, PennyMac, with its unique operational capabilities, stands to benefit from market consolidation and the shift to a purchase-money focused market. Finally, we are pleased to have completed our corporate reorganization which we believe offers many benefits including the simplification of our corporate structure, financial reporting, and improved comparability to other publicly traded companies.”

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

Quarter ended September 30, 2018
Mortgage Banking  

Investment

 
Production   Servicing   Total

Management

Total
(in thousands)
Revenue
Net gains on mortgage loans held for sale at fair value $ 34,947 $ 21,967 $ 56,914 $ - $ 56,914
Loan origination fees 26,485 - 26,485 - 26,485
Fulfillment fees from PMT 26,256 - 26,256 - 26,256
Net servicing fees - 109,703 109,703 - 109,703
Management fees - - - 6,471 6,471
Carried Interest from Investment Funds - - - (17 ) (17 )
Net interest income:
Interest income 17,013 43,935 60,948 16 60,964
Interest expense   1,274   37,491   38,765   10     38,775  
15,739 6,444 22,183 6 22,189
Other   645   805   1,450   1,478     2,928  
Total net revenue   104,072   138,919   242,991   7,938     250,929  
Direct expenses 53,859 80,085 133,944 906 134,850
Shared services 14,124 16,466 30,590 3,097 33,687
Corporate overhead 10,422 8,795 19,217 1,478 20,695
Expenses   78,405   105,346   183,751   5,481     189,232  
Pretax income $ 25,667 $ 33,573 $ 59,240 $ 2,457   $ 61,697  
 

Production Segment

Production includes the correspondent acquisition of newly originated government-insured mortgage loans for PennyMac Financial’s own account, the underwriting and acquisition of loans from correspondent sellers on a non-delegated basis, fulfillment services on behalf of PMT and direct lending through the consumer direct and broker direct channels.

PennyMac Financial’s loan production activity for the quarter totaled $17.9 billion in UPB, of which $10.4 billion in UPB was for its own account, and $7.5 billion in UPB was fee-based fulfillment activity for PMT. Correspondent government and direct lending IRLCs totaled $11.1 billion in UPB.

Production segment pretax income was $25.7 million, an increase of 35 percent from the prior quarter and a decrease of 63 percent from the third quarter of 2017. Production revenue totaled $104.1 million, an increase of 16 percent from the prior quarter and a decrease of 27 percent from the third quarter of 2017.

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

  Quarter ended
September 30,

2018

  June 30,

2018

  September 30,

2017

(in thousands)
Receipt of MSRs in loan sale transactions $ 147,259 $ 153,924 $ 154,763
Mortgage servicing rights recapture payable to

PennyMac Mortgage Investment Trust

(1,157 ) (936 ) (1,495 )
(Provision) Reversal of liability for representations

and warranties, net

(687 ) 143 (402 )
Cash investment (1) (90,199 ) (106,946 ) (43,943 )
Fair value changes of pipeline, inventory and

hedges

  1,698     14,761     (787 )
Net gains on mortgage loans held for sale $ 56,914   $ 60,946   $ 108,136  
 
Net gains on mortgage loans held for sale

by segment:

Production $ 34,947   $ 33,966   $ 79,983  
Servicing $ 21,967   $ 26,980   $ 28,153  
 
(1) Net of cash hedge expense
 

PennyMac Financial performs fulfillment services for conventional conforming loans acquired by PMT in its correspondent production business. These services include, but are not limited to: marketing; relationship management; the approval of correspondent sellers and the ongoing monitoring of their performance; reviewing loan data, documentation and appraisals to assess loan quality and risk; pricing; hedging and activities related to the subsequent sale and securitization of loans in the secondary mortgage markets for PMT.

Fees earned from the fulfillment of correspondent loans on behalf of PMT totaled $26.3 million in the third quarter, up 80 percent from the prior quarter and 12 percent from the third quarter of 2017. The quarter-over-quarter increase in fulfillment fee revenue was driven by a 39 percent increase in acquisition volumes by PMT and a higher weighted average fulfillment fee rate, which was 35 basis points in the third quarter, up from 27 basis points in the second quarter, reflecting lower discretionary reductions to facilitate successful loan acquisitions by PMT.

Production segment expenses were $78.4 million, an 11 percent increase from the prior quarter and a 7 percent increase from the third quarter of 2017. The quarter-over-quarter increase was primarily driven by increased production activity. Net interest income this quarter includes $12.8 million in incentives which the Company is currently entitled to receive under one of its master repurchase agreements to finance mortgage loans that satisfy certain consumer relief characteristics, compared with $12.5 million in the second quarter. The master repurchase agreement is subject to a rolling six-month term through August 2019, unless terminated earlier at the option of the lender.

Servicing Segment

Servicing includes income from owned MSRs, subservicing and special servicing activities. Servicing segment pretax income was $33.6 million compared with $54.6 million in the prior quarter and $24.5 million in the third quarter of 2017. Servicing segment revenues totaled $138.9 million, down 6 percent from the prior quarter and up 34 percent from the third quarter of 2017. The quarter-over-quarter decrease primarily reflects a reduction in valuation-related gains and decreased revenue from the reperformance of government-insured guaranteed loans bought out of Ginnie Mae pools.

Net loan servicing fees totaled $109.7 million and included $174.3 million in servicing fees reduced by $71.4 million in realization of MSR cash flows. Valuation-related gains totaled $6.8 million, which includes MSR fair value gains of $60.9 million, associated hedging losses of $53.0 million and changes in fair value of the excess servicing spread (ESS) liability resulting in a $1.1 million loss. The MSR fair value gains primarily resulted from expectations for lower prepayment activity in the future due to higher mortgage rates. Before January 1, 2018, PennyMac Financial carried the majority of its MSRs at the lower of amortized cost or fair value. Beginning January 1, 2018 and prospectively, the Company accounts for all MSRs at fair value.

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

  Quarter ended
September 30,

2018

  June 30,

2018

  September 30,

2017

(in thousands)
Servicing fees (1) $ 174,262 $ 161,942 $ 153,782
Effect of MSRs:
Amortization and realization of cash flows (71,362 ) (65,227 ) (65,751 )
Change in fair value and provision for/reversal of impairment

of MSRs carried at lower of amortized cost or fair value

60,883 42,259 (21,952 )
Change in fair value of excess servicing spread

financing

(1,109 ) (996 ) 4,828
Hedging losses   (52,971 )   (24,289 )   7,174  
Total amortization, impairment and change in fair

value of MSRs

  (64,559 )   (48,253 )   (75,701 )
Net loan servicing fees $ 109,703   $ 113,689   $ 78,081  
 
(1) Includes contractually-specified servicing fees
 

Servicing segment revenue also included $22.0 million in net gains on mortgage loans held for sale from the securitization of reperforming government-insured and guaranteed loans, compared to $27.0 million in the prior quarter and $28.2 million in the third quarter of 2017. These loans were previously purchased out of Ginnie Mae securitizations as early buyout (EBO) loans and brought back to performing status through PennyMac Financial’s successful servicing efforts, primarily with the use of loan modifications. Net interest income totaled $6.4 million, down from $6.7 million in the prior quarter and up from net interest expense of $3.3 million in the third quarter of 2017. Interest income increased by $5.7 million from the prior quarter, primarily driven by increased income from custodial deposits. Interest expense increased by $5.9 million from the second quarter driven by the redemption of the $500 million Series 2017-GT2 term notes, completed upon issuance of the $650 million Series 2018-GT2 term notes in August. The refinancing resulted in the recognition of $4.6 million of debt issuance costs during the third quarter but is expected to reduce annual interest expense by approximately $7 million.

Servicing segment expenses totaled $105.3 million, a 13 percent increase from the prior quarter and a 33 percent increase from the third quarter of 2017, driven by servicing portfolio growth and transfers of recent bulk servicing acquisitions, in addition to EBO-related expenses resulting from a higher volume of buyouts from Ginnie Mae securitizations.

The total servicing portfolio reached $284.5 billion in UPB at September 30, 2018, an increase of 8 percent from the prior quarter end and 19 percent from September 30, 2017. Servicing portfolio growth during the quarter was driven by the Company’s loan production activities and $11.6 billion in UPB of MSR acquisitions. Of the total servicing portfolio, prime servicing was $283.7 billion in UPB and special servicing was $0.8 billion in UPB. PennyMac Financial subservices and conducts special servicing for $87.2 billion in UPB, an increase of 7 percent from June 30, 2018 and 23 percent from September 30, 2017. PennyMac Financial’s owned MSR portfolio grew to $193.7 billion in UPB, an increase of 9 percent from the prior quarter’s end.

The table below details PennyMac Financial’s servicing portfolio UPB:

  September 30,

2018

  June 30,

2018

  September 30,

2017

(in thousands)
Loans serviced at period end:
Prime servicing:
Owned
Mortgage servicing rights
Originated $ 138,311,827 $ 132,307,067 $ 113,590,527
Acquisitions   55,347,551   45,957,173   49,209,050
193,659,378 178,264,240 162,799,577
Mortgage servicing liabilities 1,265,461 1,569,602 1,512,632
Mortgage loans held for sale   2,352,771   2,448,908   2,858,642
197,277,610 182,282,750 167,170,851
Subserviced for Advised Entities   86,389,458   80,359,635   69,498,140
Total prime servicing   283,667,068   262,642,385   236,668,991
Special servicing:
Subserviced for Advised Entities   837,003   854,994   1,703,817
Total special servicing   837,003   854,994   1,703,817
Total loans serviced $ 284,504,071 $ 263,497,379 $ 238,372,808
 
Mortgage loans serviced:
Owned
Mortgage servicing rights $ 193,659,378 $ 178,264,240 $ 162,799,577
Mortgage servicing liabilities 1,265,461 1,569,602 1,512,632
Mortgage loans held for sale   2,352,771   2,448,908   2,858,642
197,277,610 182,282,750 167,170,851
Subserviced   87,226,461   81,214,629   71,201,957
Total mortgage loans serviced $ 284,504,071 $ 263,497,379 $ 238,372,808
 

Investment Management Segment

PennyMac Financial manages PMT for which it earns base management fees and may earn incentive compensation. Net assets under management were $1.6 billion as of September 30, 2018, up 1 percent from June 30, 2018, and down 5 percent from September 30, 2017.

Pretax income for the Investment Management segment was $2.5 million, compared to $1.1 million in the prior quarter and $0.7 million in the third quarter of 2017. Management fees, which include base management fees from PMT, increased 14 percent from the prior quarter and 4 percent from the third quarter of 2017. Management fees also included incentive fees of $0.7 million based on PMT’s performance.

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

  Quarter ended
September 30,

2018

  June 30,

2018

  September 30,

2017

(in thousands)
Management fees:
PennyMac Mortgage Investment Trust
Base $ 5,799 $ 5,728 $ 6,038
Performance incentive   683     -     -  
6,482 5,728 6,038
Investment Funds   (11 )   (64 )   178  
Total management fees   6,471     5,664     6,216  
Carried Interest   (17 )   (168 )   (1,158 )
Total management fees and Carried Interest $ 6,454   $ 5,496   $ 5,058  
 
Net assets of Advised Entities:
PennyMac Mortgage Investment Trust $ 1,558,563 $ 1,545,487 $ 1,610,565
Investment Funds   -     765     29,955  
$ 1,558,563   $ 1,544,926   $ 1,640,520  
 

Investment Management segment expenses totaled $5.5 million, down 5 percent from the prior quarter and up 27 percent from the third quarter of 2017. The increase from the prior year was primarily due to a change in accounting for expenses reimbursed by PMT under the Company’s management agreement with PMT. Beginning January 1, 2018, PennyMac Financial is required to include such expense reimbursements in its net revenue and the expenses reimbursed in its expenses. Previously, PennyMac Financial reduced its expenses by the amount of such reimbursements.

Consolidated Expenses

Total expenses for the third quarter were $189.2 million, a 12 percent increase from the prior quarter and a 21 percent increase from the third quarter of 2017. The quarter-over-quarter change was driven by higher expenses in the Production and Servicing segments due to higher volumes of activity and higher interest expense due to the redemption of term notes in August.

Executive Chairman Stanford L. Kurland concluded, “As the mortgage market continues to adjust to higher rates, PennyMac Financial stands out from the competition by continuing to deliver strong production results and servicing portfolio growth. The earnings contribution from our growth initiatives focused on product and channel development will become increasingly meaningful over time. Underlying our success has been the strength of our management team and the development of new technologies across our business to drive greater operational capacity and efficiency. We expect to see consolidation in the mortgage market, and successful firms will be the ones that have the size, scale and technological capabilities to compete. We continue to make investments in technologies to further solidify our position as a leading, cost-efficient producer of residential mortgages, and are confident that we are well-positioned to benefit from the changes taking place in the mortgage market.”

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

About PennyMac Financial Services, Inc.

PennyMac Financial Services, Inc. is a specialty financial services firm with a comprehensive mortgage platform and integrated business focused on the production and servicing of U.S. mortgage loans and the management of investments related to the U.S. mortgage market. Additional information about PennyMac Financial Services, Inc. is available at www.ir.pennymacfinancial.com.

This press release contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, regarding management’s beliefs, estimates, projections, the recently completed corporate reorganization, the expected benefits and market and financial impact of the reorganization and assumptions with respect to, among other things, the Company’s financial results, future operations, business plans and investment strategies, as well as industry and market conditions, all of which are subject to change. Words like “believe,” “expect,” “anticipate,” “promise,” “plan,” and other expressions or words of similar meanings, as well as future or conditional verbs such as “will,” “would,” “should,” “could,” or “may” are generally intended to identify forward-looking statements. Actual results and operations for any future period may vary materially from those projected herein and from past results discussed herein. Factors which could cause actual results to differ materially from historical results or those anticipated include, but are not limited to: the continually changing federal, state and local laws and regulations applicable to the highly regulated industry in which we operate; lawsuits or governmental actions that may result from any noncompliance with the laws and regulations applicable to our businesses; the mortgage lending and servicing-related regulations promulgated by the Consumer Financial Protection Bureau and its enforcement of these regulations; our dependence on U.S. government-sponsored entities and changes in their current roles or their guarantees or guidelines; changes to government mortgage modification programs; the licensing and operational requirements of states and other jurisdictions applicable to the Company’s businesses, to which our bank competitors are not subject; foreclosure delays and changes in foreclosure practices; certain banking regulations that may limit our business activities; changes in macroeconomic and U.S. real estate market conditions; difficulties inherent in growing loan production volume; difficulties inherent in adjusting the size of our operations to reflect changes in business levels; purchase opportunities for mortgage servicing rights and our success in winning bids; changes in prevailing interest rates; increases in loan delinquencies and defaults; our reliance on PennyMac Mortgage Investment Trust (NYSE: PMT) as a significant source of financing for, and revenue related to, our mortgage banking business; any required additional capital and liquidity to support business growth that may not be available on acceptable terms, if at all; our obligation to indemnify third-party purchasers or repurchase loans if loans that we originate, acquire, service or assist in the fulfillment of, fail to meet certain criteria or characteristics or under other circumstances; our obligation to indemnify PMT and the Investment Funds if its services fail to meet certain criteria or characteristics or under other circumstances; decreases in the returns on the assets that we select and manage for our clients, and our resulting management and incentive fees; the extensive amount of regulation applicable to our investment management segment; conflicts of interest in allocating our services and investment opportunities among us and our advised entities; the effect of public opinion on our reputation; our recent growth; our ability to effectively identify, manage, monitor and mitigate financial risks; our initiation of new business activities or investment strategies or expansion of existing business activities or investment strategies; our ability to detect misconduct and fraud; our ability to mitigate cybersecurity risks and cyber incidents; our exposure to risks of loss with real estate investments resulting from adverse weather conditions and man-made or natural disasters; and our organizational structure and certain requirements in our charter documents. You should not place undue reliance on any forward- looking statement and should consider all of the uncertainties and risks described above, as well as those more fully discussed in reports and other documents filed by the Company with the Securities and Exchange Commission from time to time. The Company undertakes no obligation to publicly update or revise any forward-looking statements or any other information contained herein, and the statements made in this press release are current as of the date of this release only.

1 Please refer to the reconciliation of reported to pro forma book value per share at September 30, 2018 at the end of this press release
2 Excludes changes in the fair value of MSRs and the ESS liability, and gains (losses) on hedging which were $60.9 million, $(1.1) million, and $(53.0) million, respectively, and a provision for credit losses on active loans of $(3.1) million in the third quarter of 2018.
3 These transactions are subject to continuing due diligence and customary closing conditions. There can be no assurance regarding the size of the transactions or that the transactions will be completed at all.

 

PENNYMAC FINANCIAL SERVICES, INC.

CONSOLIDATED BALANCE SHEETS (UNAUDITED)

     
September 30,

2018

June 30,

2018

September 30,

2017

(in thousands, except share amounts)
ASSETS
Cash $ 102,627 $ 189,663 $ 67,708
Short-term investments at fair value 145,476 98,571 136,217
Mortgage loans held for sale at fair value 2,416,955 2,527,231 2,935,593
Assets purchased from PennyMac Mortgage Investment Trust under agreements

to resell pledged to creditors

133,128 138,582 148,072
Derivative assets 73,618 92,471 76,709
Servicing advances, net 259,609 258,900 262,650
Investment in PennyMac Mortgage Investment Trust at fair value 1,518 1,424 1,304
Mortgage servicing rights 2,785,964 2,486,157 2,016,485
Real estate acquired in settlement of loans 2,493 2,300 986
Furniture, fixtures, equipment and building improvements, net 31,662 29,607 30,037
Capitalized software, net 36,484 31,913 21,625
Receivable from PennyMac Mortgage Investment Trust 27,467 19,661 16,008
Loans eligible for repurchase 889,335 879,621 584,394
Other   86,194   85,605   90,581
Total assets $ 6,992,530 $ 6,841,706 $ 6,388,369
 
LIABILITIES
Assets sold under agreements to repurchase $ 1,739,638 $ 1,825,813 $ 2,096,492
Mortgage loan participation and sale agreements 524,667 528,368 531,776
Notes payable 1,291,847 1,140,546 890,884
Obligations under capital lease 9,630 13,032 24,373
Excess servicing spread financing payable to PennyMac Mortgage Investment

Trust at fair value

223,275 229,470 248,763
Derivative liabilities 12,693 4,094 11,474
Mortgage servicing liabilities at fair value 9,769 10,253 16,076
Accounts payable and accrued expenses 140,363 114,409 124,888
Payable to PennyMac Mortgage Investment Trust 91,818 99,309 124,589
Payable to exchanged Private National Mortgage Acceptance Company, LLC

unitholders under tax receivable agreement

47,605 46,903 75,076
Income taxes payable 74,158 67,357 49,620
Liability for loans eligible for repurchase 889,335 879,621 584,394
Liability for losses under representations and warranties   21,022   20,587   19,673
Total liabilities   5,075,820   4,979,762   4,798,078
 
STOCKHOLDERS' EQUITY
Class A common stock---authorized 200,000,000 shares of $0.0001 par value;

issued and outstanding, 25,195,436, 25,008,655 and 23,219,088 shares,

respectively

3 3 2
Class B common stock---authorized 1,000 shares of $0.0001 par value;

issued and outstanding, 45, 45 and 49 shares, respectively

- - -
Additional paid-in capital 236,457 229,941 196,346
Retained earnings   304,386   299,951   202,988
Total stockholders' equity attributable to PennyMac Financial Services, Inc.

common stockholders

  540,846   529,895   399,336
Noncontrolling interests in Private National Mortgage Acceptance

Company, LLC

  1,375,864   1,332,049   1,190,955
Total stockholders' equity   1,916,710   1,861,944   1,590,291
Total liabilities and stockholders’ equity $ 6,992,530 $ 6,841,706 $ 6,388,369
 

PENNYMAC FINANCIAL SERVICES, INC.

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

   
Quarter ended
September 30,

2018

  June 30,

2018

September 30,

2017

(in thousands, except earnings per share)
Revenue
Net mortgage loan servicing fees:
Mortgage loan servicing fees
From non-affiliates $ 147,182 $ 138,871 $ 126,416
From PennyMac Mortgage Investment Trust 10,071 9,431 11,402
From Investment Funds - 3 416
Ancillary and other fees   17,009     13,637     15,548  
174,262 161,942 153,782
Amortization, impairment and change in estimated fair value of mortgage

servicing rights and excess servicing spread

  (64,559 )   (48,253 )   (75,701 )
Net mortgage loan servicing fees   109,703     113,689     78,081  
Net gains on mortgage loans held for sale at fair value 56,914 60,946 108,136
Mortgage loan origination fees 26,485 24,428 33,168
Fulfillment fees from PennyMac Mortgage Investment Trust 26,256 14,559 23,507
Net interest income:
Interest income 60,964 55,104 44,442
Interest expense   38,775     32,616     42,492  
22,189 22,488 1,950
Management fees, net:
From PennyMac Mortgage Investment Trust 6,482 5,728 6,038
From Investment Funds   (11 )   (64 )   178  
  6,471     5,664     6,216  
Carried Interest from Investment Funds (17 ) (168 ) (1,158 )
Change in fair value of investment in and dividends received from PennyMac

Mortgage Investment Trust

129 108 (33 )
Results of real estate acquired in settlement of loans 194 13 281
Other   2,605     2,571     487  
Total net revenue   250,929     244,298     250,635  
Expenses
Compensation 103,364 98,540 93,417
Servicing 40,797 28,490 24,968
Technology 15,273 15,154 13,926
Occupancy and equipment 7,117 6,507 5,933
Professional services 7,117 5,587 4,636
Loan origination 7,203 5,144 5,581
Marketing 2,275 2,218 2,375
Other   6,086     7,960     5,655  
Total expenses   189,232     169,600     156,491  
Income before provision for income taxes 61,697 74,698 94,144
Provision for (benefit from) income taxes   5,545     6,293     11,652  
Net income 56,152 68,405 82,492
Less: Net income attributable to noncontrolling interest   41,663     50,568     65,411  
Net income attributable to PennyMac Financial Services, Inc.

common stockholders

$ 14,489   $ 17,837   $ 17,081  
 
Earnings per share
Basic $ 0.58 $ 0.71 $ 0.73
Diluted $ 0.57 $ 0.70 $ 0.71
Weighted-average common shares outstanding
Basic 25,125 24,959 23,426
Diluted 78,913 78,825 78,416
 

PENNYMAC FINANCIAL SERVICES, INC.

RECONCILIATION OF REPORTED TO PRO FORMA BOOK VALUE PER SHARE

AT SEPTEMBER 30, 2018

     
As presented

Pro forma
adjustments

Pro forma
(in thousands except book value per share)
STOCKHOLDERS' EQUITY
Class A common stock $ 3 $ 5 $ 8
Class B common stock - - -
Additional paid-in-capital(1) 236,457 1,059,238 1,295,695
Retained earnings   304,386   -     304,386
Total stockholders' equity attributable to

PennyMac Financial Services, Inc. common stockholders

540,846 1,059,243 1,600,089
Noncontrolling interest in Private National Mortgage

Acceptance Company, LLC

  1,375,864   (1,375,864 )   -
Total stockholders' equity $ 1,916,710 $ (316,621 ) $ 1,600,089
 
Class A common shares outstanding 25,195 52,222 77,417
Book value per share $ 21.47 ($0.80 ) $ 20.67
 
(1) Adjustments to additional paid-in capital are comprised of the following:
Transfer of non-controlling interest $ 1,375,864
Par value of shares issued pursuant to conversion of PNMAC Class A Units (5 )
Deferred taxes attributable to converted Class A PNMAC units   (316,621 )
$ 1,059,238  
 

PennyMac Financial Services, Inc.
Media
Stephen Hagey
(805) 530-5817
or
Investors
Christopher Oltmann
(818) 264-4907

Source: PennyMac Financial Services, Inc.