pfsi_Ex99

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


	Quarter ended June 30, 2016
	Mortgage Banking						Investment
	Production		Servicing		Total		Management		Total
	(in thousands)
Revenue
Net gains on mortgage loans held for sale at fair value	$	115,894	$	14,309	$	130,203	$	-	$	130,203
Loan origination fees		28,907		-		28,907		-		28,907
Fulfillment fees from PMT		19,111		-		19,111		-		19,111
Net 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 before provision for income taxes	$	104,505	$	(20,969)	$	83,536	$	722	$	84,258

Production Segment

Production includes the correspondent acquisition of newly originated mortgage loans for PennyMac Financial’s own account, fulfillment services on behalf of PMT, and consumer direct lending.

PennyMac Financial’s loan production activity totaled $16.1 billion in UPB, of which $10.9 billion in UPB was for its own account, and $5.2 billion was fee-based fulfillment activity for PMT. Interest rate lock commitments (IRLCs) on correspondent government-insured and consumer direct loans totaled $12.9 billion in UPB.

Production segment pretax income was $104.5 million, an increase of 53 percent from the first quarter. Production revenue totaled $169.5 million, an increase of 44 percent from the first quarter, primarily resulting from a 48 percent quarter-over-quarter increase in net gains on mortgage loans held for sale, driven by strong margins and significant increases in production and lock volumes in both the correspondent and consumer direct channels. PennyMac Financial’s increases in production and lock volumes reflect a larger mortgage origination market, driven by lower mortgage rates during the quarter; market share gains in the correspondent channel, and increased loan fulfillment capacity in both our consumer direct and correspondent channels.

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

	Quarter ended
	June 30,		March 31,		June 30,
	2016		2016		2015
	(in thousands)
MSR value	$	132,472	$	95,373	$	119,848
Mortgage servicing rights recapture payable to PennyMac Mortgage Investment Trust		(1,915)		(1,951)		(1,456)
Provision for representations and warranties		(2,286)		(2,082)		(1,748)
Cash investment (1)		(56,763)		(51,140)		(20,949)
Fair value changes of pipeline, inventory and hedges		58,695		51,324		(11,740)
Net gains on mortgage loans held for sale	$	130,203	$	91,524	$	83,955

Net gains on mortgage loans held for sale by segment:
Production	$	115,894	$	78,214	$	86,377
Servicing	$	14,309	$	13,310	$	(2,422)

(1) Net of cash hedge expense

PennyMac Financial performs fulfillment services for conventional conforming and jumbo 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; review of loan data, documentation and appraisals to assess loan quality and risk; pricing; hedging and activities related to the subsequent sale and securitization of loans in the secondary mortgage markets for PMT. Fees earned from fulfillment of correspondent loans on behalf of PMT totaled $19.1 million in the second quarter, up 48 percent from $12.9 million in the first quarter. Fulfillment fee revenue was driven by a 59 percent quarter-over-quarter increase in conventional conforming loan acquisitions, partially offset by a decrease in the average fulfillment fee rate to 37 basis points from 40 basis points in the first quarter. The weighted average fulfillment fee rate reflects contractual discretionary reductions to facilitate the successful completion of certain loan transactions by PMT.

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

	Quarter ended
	June 30,		March 31,		June 30,
	2016		2016		2015
	(in thousands)
Servicing fees (1)	$	120,738	$	114,933	$	91,006
Effect of MSRs:
Amortization and realization of cash flows		(54,126)		(49,696)		(31,385)
Change in fair value and (provision for) reversal of impairment of MSRs carried at lower of amortized cost or fair value		(122,433)		(125,887)		44,378
Change in fair value of excess servicing spread financing		17,428		19,449		(7,133)
Hedging gains (losses)		64,948		58,720		(28,317)
Total amortization, impairment and change in fair value of MSRs		(94,183)		(97,414)		(22,457)
Net loan servicing fees	$	26,555	$	17,519	$	68,549

(1) Includes contractually-specified servicing fees

Servicing segment revenue also included $14.3 million in net gains on mortgage loans held for sale at fair value in the second quarter resulting from the securitization of reperforming government-insured loans, versus $13.3 million in the first quarter. These loans were previously purchased out of Ginnie Mae securitizations and brought back to performing status through PennyMac Financial’s successful servicing efforts, primarily with the use of loan modifications.

Servicing segment expenses totaled $53.1 million, a 10 percent decrease from the first quarter, primarily due to a reduction in the provision for credit losses resulting from improved loss mitigation outcomes on certain defaulted government-insured loans.

The total servicing portfolio reached $171.7 billion in UPB at June 30, 2016, an increase of 4 percent from the prior quarter end. Of the total servicing portfolio, prime servicing was $168.7 billion in UPB and special servicing was $3.1 billion in UPB. PennyMac Financial subservices and conducts special servicing for $52.0 billion in UPB, an increase of 5 percent from March 31, 2016, primarily due to new correspondent acquisitions by PMT. PennyMac Financial’s MSR portfolio grew to $117.0 billion in UPB, an increase of 4 percent over the prior quarter, primarily resulting from the acquisition of government-insured loans in correspondent production and from consumer direct lending activities.

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


	June 30,		March 31,		June 30,
	2016		2016		2015
	(in thousands)
Loans serviced at period end:
Prime servicing:
Owned
Mortgage servicing rights
Originated	$	71,436,178	$	64,485,308	$	44,794,166
Acquisitions		45,600,625		48,351,570		45,887,246
		117,036,803		112,836,878		90,681,412
Mortgage servicing liabilities		751,193		926,756		816,424
Mortgage loans held for sale		1,971,903		1,561,006		1,526,779
		119,759,899		115,324,640		93,024,615
Subserviced for Advised Entities		48,894,531		45,940,082		39,011,761
Total prime servicing		168,654,430		161,264,722		132,036,376
Special servicing:
Subserviced for Advised Entities		3,064,105		3,641,873		4,133,946
Total special servicing		3,064,105		3,641,873		4,133,946
Total loans serviced	$	171,718,535	$	164,906,595	$	136,170,322

Mortgage loans serviced:
Owned
Mortgage servicing rights	$	117,036,803	$	112,836,878	$	90,681,412
Mortgage servicing liabilities		751,193		926,756		816,424
Mortgage loans held for sale		1,971,903		1,561,006		1,526,779
		119,759,899		115,324,640		93,024,615
Subserviced		51,958,636		49,581,955		43,145,707
Total mortgage loans serviced	$	171,718,535	$	164,906,595	$	136,170,322

Investment Management Segment

PennyMac Financial manages PMT and two the private Investment Funds, for which it earns base management fees and may earn incentive compensation. Net assets under management were approximately $1.6 billion as of June 30, 2016, down 4 percent from March 31, 2016, primarily due to PMT’s share repurchase program and the return of capital to investors in the private Investment Funds.

Pretax income for the Investment Management segment was $722 thousand, a decrease of 37 percent from the first quarter. Management fees, which include base management fees from PMT and the private Investment Funds, as well as any earned incentive fees from PMT, decreased 3 percent from the prior quarter primarily due to the reduction in net assets under management. Carried interest from the private investment funds decreased to $244 thousand, compared to $593 thousand in the prior quarter, resulting from reduced performance of the private Investment Funds.

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


	Quarter ended
	June 30,		March 31,		June 30,
	2016		2016		2015
	(in thousands)
Management fees:
PennyMac Mortgage Investment Trust
Base	$	5,199	$	5,352	$	5,709
Performance incentive		-		-		70
		5,199		5,352		5,779
Investment Funds		531		560		1,184
Total management fees		5,730		5,912		6,963
Carried Interest		244		593		182
Total management fees and Carried Interest	$	5,974	$	6,505	$	7,145

Net assets of Advised Entities:
PennyMac Mortgage Investment Trust	$	1,360,826	$	1,414,503	$	1,525,297
Investment Funds		201,490		207,706		316,383
	$	1,562,316	$	1,622,209	$	1,841,680

Investment Management segment expenses totaled $5.5 million, a 4 percent increase from the first quarter.

Consolidated Expenses

Total expenses for the second quarter were $123.5 million, a 9 percent increase from the first quarter. The increase in total expenses was largely due to an increase in compensation expenses driven by higher incentive compensation, partially offset by a decrease in servicing expenses due to a reduction in the provision for credit losses.

Mr. Kurland concluded, “PennyMac Financial’s leadership in the mortgage markets and our outstanding financial performance reflect the strong organization and unique platform we have built. For example, in the second quarter, PennyMac Financial became the country’s largest issuer of Ginnie Mae securities. With banks and other lenders de-emphasizing this segment, we have stepped in to support government insured and guaranteed loans which represent a large and important component of the mortgage market. As a leading mortgage company, we have in place the operational systems and financial capacity to support continued growth of our business. We believe that our platform, focus on risk management, and governance culture are critical elements that will help ensure the long-term success of PennyMac Financial.”

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 Wednesday, August 3, 2016.

About PennyMac Financial Services, Inc.

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

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

PENNYMAC FINANCIAL SERVICES, INC.

CONSOLIDATED BALANCE SHEETS (UNAUDITED)


	June 30,		March 31,		June 30,
	2016		2016		2015
	(in thousands, except share amounts)
ASSETS
Cash	$	143,715	$	116,560	$	74,728
Short-term investments at fair value		41,063		28,264		23,577
Mortgage loans held for sale at fair value		2,097,138		1,653,963		1,594,262
Derivative assets		124,542		90,054		43,568
Servicing advances, net		296,581		284,140		244,806
Carried Interest due from Investment Funds		70,763		70,519		68,713
Investment in PennyMac Mortgage Investment Trust at fair value		1,217		1,023		1,307
Mortgage servicing rights		1,290,928		1,337,082		1,135,510
Real estate acquired in settlement of loans		1,394		2,320		-
Furniture, fixtures, equipment and building improvements, net		27,851		23,855		11,773
Note receivable from PennyMac Mortgage Investment Trust secured		150,000		150,000		52,526
Receivable from Investment Funds		1,288		1,119		2,148
Receivable from PennyMac Mortgage Investment Trust		22,054		17,647		16,245
Capitalized software, net		6,209		4,323		1,250
Deferred tax asset		4,878		14,637		34,165
Loans eligible for repurchase		286,048		139,009		77,529
Other		50,651		46,748		48,498
Total assets	$	4,616,320	$	3,981,263	$	3,430,605

LIABILITIES
Assets sold under agreements to repurchase	$	1,591,798	$	1,658,578	$	1,263,248
Mortgage loan participation and sale agreements		737,176		246,636		195,959
Notes payable		114,235		127,693		246,456
Obligations under capital lease		22,886		12,070		-
Excess servicing spread financing at fair value payable to PennyMac Mortgage Investment Trust		294,551		321,976		359,102
Derivative liabilities		3,734		9,915		13,584
Mortgage servicing liabilities at fair value		4,681		6,747		11,791
Accounts payable and accrued expenses		102,310		87,005		84,357
Payable to Investment Funds		28,209		28,843		31,255
Payable to PennyMac Mortgage Investment Trust		160,712		153,094		139,699
Payable to exchanged Private National Mortgage Acceptance Company, LLC unitholders under tax receivable agreement		74,850		74,275		71,895
Liability for loans eligible for repurchase		286,048		139,009		77,529
Liability for losses under representations and warranties		24,277		22,209		16,257
Total liabilities		3,445,467		2,888,050		2,511,132

STOCKHOLDERS' EQUITY
Class A common stockauthorized 200,000,000 shares of $0.0001 par value; issued and outstanding, 22,189,337, 22,047,491 and 21,790,666 shares, respectively		2		2		2
Class B common stockauthorized 1,000 shares of $0.0001 par value; issued and outstanding, 49, 50 and 52 shares, respectively		-		-		-
Additional paid-in capital		176,742		174,005		167,536
Retained earnings		118,120		103,645		73,019
Total stockholders' equity attributable to PennyMac Financial Services, Inc. common stockholders		294,864		277,652		240,557
Noncontrolling interests in Private National Mortgage Acceptance Company, LLC		875,989		815,561		678,916
Total stockholders' equity		1,170,853		1,093,213		919,473
Total liabilities and stockholders’ equity	$	4,616,320	$	3,981,263	$	3,430,605

PENNYMAC FINANCIAL SERVICES, INC.

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)


	Quarter ended
	June 30,		March 31,		June 30,
	2016		2016		2015
	(in thousands, except earnings per share)
Revenue
Net gains on mortgage loans held for sale at fair value	$	130,203	$	91,524	$	83,955
Mortgage loan origination fees		28,907		22,434		24,421
Fulfillment fees from PennyMac Mortgage Investment Trust		19,111		12,935		15,333
Net mortgage loan servicing fees:
Loan servicing fees
From non-affiliates		92,770		91,327		66,867
From PennyMac Mortgage Investment Trust		16,427		11,453		12,136
From Investment Funds		723		701		153
Ancillary and other fees		10,818		11,452		11,850
		120,738		114,933		91,006
Amortization, impairment and change in estimated fair value of mortgage servicing rights		(94,183)		(97,414)		(22,457)
Net mortgage loan servicing fees		26,555		17,519		68,549
Management fees:
From PennyMac Mortgage Investment Trust		5,199		5,352		5,779
From Investment Funds		531		560		1,184
		5,730		5,912		6,963
Carried Interest from Investment Funds		244		593		182
Net interest expense:
Interest income		20,554		13,529		13,184
Interest expense		25,466		20,987		16,349
		(4,912)		(7,458)		(3,165)
Change in fair value of investment in and dividends received from PennyMac Mortgage Investment Trust		229		(86)		(244)
Results of real estate acquired in settlement of loans		393		(435)		-
Other		1,346		463		357
Total net revenue		207,806		143,401		196,351
Expenses
Compensation		83,147		68,298		70,422
Servicing		13,430		20,887		28,603
Technology		7,733		6,847		6,490
Professional services		4,559		3,733		4,074
Loan origination		4,910		4,186		4,148
Other		9,769		9,311		7,815
Total expenses		123,548		113,262		121,552
Income before provision for income taxes		84,258		30,139		74,799
Provision for income taxes		9,963		3,596		8,619
Net income		74,295		26,543		66,180
Less: Net income attributable to noncontrolling interest		59,820		21,368		53,431
Net income attributable to PennyMac Financial Services, Inc. common stockholders	$	14,475	$	5,175	$	12,749

Earnings per share
Basic	$	0.66	$	0.24	$	0.59
Diluted	$	0.65	$	0.23	$	0.59
Weighted-average common shares outstanding
Basic		22,078		22,006		21,700
Diluted		76,280		76,194		76,105

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