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Section 1: 8-K (8-K)

PFSI Form 8-K (4Q18 Earnings)

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 8-K

 

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

Date of Report (Date of earliest event reported): February 7, 2019

 

PennyMac Financial Services, Inc.

(formerly known as New PennyMac Financial Services, Inc.)

 (Exact name of registrant as specified in its charter)

 

 

 

 

Delaware

001-38727

83-1098934

(State or other jurisdiction

(Commission

(IRS Employer

of incorporation)

File Number)

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)

 

Not Applicable

(Former name or former address, if changed since last report)

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

☐  Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

☐  Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

☐  Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

☐  Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

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. ☐

 


 

 

Item 2.02    Results of Operations and Financial Condition.

 

On February 7, 2019, PennyMac Financial Services, Inc. (the “Company”) issued a press release announcing its unaudited financial results for the fiscal quarter and year ended December 31, 2018.  A copy of the press release and the slide presentation used in connection with the Company’s recorded presentation of financial results were made available on February 7, 2019 and are furnished as Exhibit 99.1 and Exhibit 99.2, respectively.

 

The information in Item 2.02 of this report, including the exhibits hereto, shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liabilities of Section 18, nor shall it be deemed incorporated by reference into any disclosure document relating to the Company, except to the extent, if any, expressly set forth by specific reference in such filing.

 

Item 9.01    Financial Statements and Exhibits.

 

(d)  Exhibits.

 

 

 

Exhibit No. 

Description 

 

 

99.1

Press Release, dated February 7, 2019, issued by PennyMac Financial Services, Inc. pertaining to its unaudited financial results for the fiscal quarter and year ended December 31, 2018.

99.2

Slide Presentation for use beginning on February 7, 2019 in connection with a recorded presentation of financial results for the fiscal quarter and year ended December 31, 2018.

 


 

SIGNATURE

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

 

 

 

 

 

PENNYMAC FINANCIAL SERVICES, INC.

 

 

 

 

 

 

Dated:  February 8, 2019

/s/ Andrew S. Chang

 

Andrew S. Chang

Senior Managing Director and Chief Financial Officer

 

 

 


(Back To Top)

Section 2: EX-99.1 (EX-99.1)

Ex 99.1 PFSI 4Q18 Release

Exhibit 99.1

 

C:\Users\jpilkington\Downloads\Pennymac_Roof_FS_RGB.jpg

 

 

 

 

Media

Investors

 

Stephen Hagey

Christopher Oltmann

 

(805) 530-5817

(818) 264-4907

 

PennyMac Financial Services, Inc. Reports 

Fourth Quarter and Full-Year 2018 Results 

Westlake Village, CA, February 7, 2019 –  PennyMac Financial Services, Inc. (NYSE: PFSI) today reported net income of $53.0 million for the fourth quarter of 2018, on revenue of $251.2 million.  Net income attributable to PFSI common stockholders was  $38.7 million, or $0.63 per diluted share.   Book value per share increased to $21.34 from $20.67 on a pro forma basis at September 30, 20181.

Fourth Quarter 2018 Highlights

·

Pretax income was $58.3 million, down 5 percent from the prior quarter and 52 percent from the fourth quarter of 2017;  diluted earnings per share of $0.63 

o

Benefit from the remeasurement of tax-related items contributed $0.11 to diluted earnings per share; tax provision rate reduced to 26.9 percent from 27.4 percent

·

Production segment pretax income was  $25.4 million, down 1 percent from the prior quarter and 54 percent from the fourth quarter of 2017

o

Total loan acquisitions and originations were  $19.4 billion in unpaid principal balance (UPB), up 8 percent from the prior quarter and 14 percent from the fourth quarter of 2017

o

Correspondent government,  non-delegated and direct lending interest rate lock commitments  (IRLCs)  totaled $11.2 billion in UPB,  down 1 percent from the prior quarter and 5 percent from the fourth quarter of 2017

1 $20.67 is the pro forma book value per share at September 30, 2018, adjusted for the impact of PennyMac Financial Services, Inc.’s corporate reorganization completed on November 1, 2018. Reported book value per share at September 30, 2018 was $21.47.

1


 

 

 

o

Correspondent conventional and jumbo acquisition volume fulfilled for PennyMac Mortgage Investment Trust (NYSE: PMT)  of  $9.1 billion in UPB, up 21 percent from the prior quarter and 54 percent from the fourth quarter of 2017

·

Servicing segment pretax income was  $29.3 million,  down 13 percent from the prior quarter and 8 percent from the fourth quarter of 2017

o

Servicing segment pretax income excluding valuation-related changes was $44.5 million, up 49 percent from the prior quarter and 57 percent from the fourth quarter of 20172

o

The servicing portfolio grew to $299.3 billion in UPB, up 5 percent from September 30, 2018

o

Completed $3.6 billion in UPB of previously announced bulk MSR portfolio acquisitions

·

Investment Management segment pretax income was  $2.5 million, essentially unchanged from the prior quarter and up from $1.5 million in the fourth quarter of 2017

o

Net assets under management were $1.6 billion, essentially unchanged from September 30, 2018, and from December 31, 2017

·

As previously announced, the Company completed a corporate reorganization on November 1, 2018, that simplified its corporate structure and converted all equity ownership to a single class of publicly-traded common stock

Notable activity after quarter end

·

Completed the acquisition of additional bulk Ginnie Mae MSR portfolios totaling $798 million in UPB

·

Launched a Home Equity Line of Credit (HELOC) product offering to customers in our servicing portfolio, offering the opportunity to tap into the equity in their homes while keeping their existing first-mortgage interest rates

·

Launched a prime non-qualified mortgage (non-QM) loan product to our correspondent clients

2 Excludes changes in the fair value of MSRs and the ESS liability, (losses) gains on hedging which were $(67.3) million, $0.5 million, and $59.8 million, respectively, and a provision for credit losses on active loans of $(8.3) million in the fourth quarter of 2018.

   2

 


 

 

 

Full-Year 2018 Highlights

·

Pretax income was $267.7 million; down 20 percent from the prior year

o

Diluted earnings per share of $2.59 includes a benefit of $0.20 resulting from the remeasurement of tax-related items 

·

Total net revenue of $984.6 million, up 3 percent from the prior year

·

Loan production totaled $67.6 billion in UPB, a decrease of 1 percent from the prior year

·

Servicing portfolio reached $299.3 billion in UPB, up 22 percent from December 31, 2017    

 “Our fourth quarter and full-year 2018 results demonstrate the strength of the balanced mortgage banking platform we have built to deliver solid performance across a variety of market conditions,” said President and CEO David Spector.  “We grew our servicing portfolio by over 20 percent in 2018 to nearly $300 billion, driven primarily by our own production activities, and continue to capture efficiencies and gain scale as the portfolio grows.  Our effective risk management and disciplined hedging activities also contributed to our solid results.  The unique execution capabilities in our production business helped drive the increases in our production volumes and market share during the quarter.”  

   3

 


 

 

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

 

 

Quarter ended December 31, 2018

 

 

 

Mortgage Banking

 

Investment

 

 

 

 

    

Production

    

Servicing

    

Total

    

Management

    

Total

 

 

 

(in thousands)

 

Revenue

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net gains on mortgage loans held for sale at fair value

 

$

36,848 

 

$

22,900 

 

$

59,748 

 

$

 

$

59,748 

 

Loan origination fees

 

 

26,165 

 

 

 

 

26,165 

 

 

 

 

26,165 

 

Fulfillment fees from PMT 

 

 

28,591 

 

 

 

 

28,591 

 

 

 

 

28,591 

 

Net servicing fees

 

 

 

 

105,212 

 

 

105,212 

 

 

 

 

105,212 

 

Management fees

 

 

 

 

 

 

 

 

6,559 

 

 

6,559 

 

Carried Interest from Investment Funds

 

 

 

 

 

 

 

 

 

 

 

Net interest income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

18,273 

 

 

39,460 

 

 

57,733 

 

 

 

 

57,733 

 

Interest expense

 

 

2,970 

 

 

33,483 

 

 

36,453 

 

 

 

 

36,461 

 

 

 

 

15,303 

 

 

5,977 

 

 

21,280 

 

 

(8)

 

 

21,272 

 

Other

 

 

511 

 

 

722 

 

 

1,233 

 

 

1,295 

 

 

2,528 

 

Total net revenue

 

 

107,418 

 

 

134,811 

 

 

242,229 

 

 

7,846 

 

 

250,075 

 

Expenses

 

 

82,007 

 

 

105,525 

 

 

187,532 

 

 

5,363 

 

 

192,895 

 

Income before provision for income taxes and non-segment activities

 

 

25,411 

 

 

29,286 

 

 

54,697 

 

 

2,483 

 

 

57,180 

 

Non-segment activities(1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,126 

 

Pretax income

 

$

25,411 

 

$

29,286 

 

$

54,697 

 

$

2,483 

 

$

58,306 

 

 

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

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 $19.4 billion in UPB, of which $10.4 billion in UPB  was for its own account, and $9.1 billion in UPB was fee-based fulfillment activity for PMT.  Correspondent government, non-delegated and direct lending IRLCs totaled $11.2 billion in UPB.

Production segment pretax income was $25.4 million, a decrease of 1 percent from the prior quarter and a decrease of 54 percent from the fourth quarter of 2017.   Production revenue totaled 

   4

 


 

 

$107.4 million, an increase of 3 percent from the prior quarter and a decrease of 18 percent from the fourth quarter of 2017. 

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

 

 

Quarter ended

 

 

    

December 31,
2018

    

September 30,
2018

    

December 31,
2017

 

 

 

(in thousands)

 

Receipt of MSRs in loan sale transactions

 

$

141,100 

 

$

147,259 

 

$

143,904 

 

Mortgage servicing rights recapture payable to PennyMac Mortgage Investment Trust

 

 

(1,259)

 

 

(1,157)

 

 

(1,553)

 

Provision for representations and warranties, net

 

 

(229)

 

 

(687)

 

 

(381)

 

Cash investment (1)

 

 

(46,260)

 

 

(90,199)

 

 

(69,001)

 

Fair value changes of pipeline, inventory and hedges

 

 

(33,604)

 

 

1,698 

 

 

25,652 

 

Net gains on mortgage loans held for sale

 

$

59,748 

 

$

56,914 

 

$

98,621 

 

 

 

 

 

 

 

 

 

 

 

 

Net gains on mortgage loans held for sale by segment:

 

 

 

 

 

 

 

 

 

 

Production

 

$

36,848 

 

$

34,947 

 

$

68,716 

 

Servicing

 

$

22,900 

 

$

21,967 

 

$

29,905 

 

 

(1) Includes cash hedge expense

PennyMac Financial performs fulfillment services for conventional conforming and jumbo loans acquired by PMT from non-affiliates 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 $28.6 million in the fourth quarter, up 9 percent  from the prior quarter and 49 percent from the fourth quarter of 2017.  The quarter-over-quarter increase in  fulfillment fee revenue was driven by a  21 percent increase in acquisition volumes by PMT, partially offset by a lower weighted average fulfillment fee rate which was 32 basis points in the fourth quarter, down from 35 basis points in the third quarter.  The weighted average fulfillment fee rate in the fourth quarter reflects discretionary reductions to facilitate successful loan acquisitions by PMT. 

 

 

   5

 


 

 

Net interest income totaled $15.3 million which included $12.6 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 $12.8 million in the third quarter.  The Company expects that it will cease to accrue the incentives under the repurchase agreement beginning in the second quarter of 2019.  While there can be no assurance, the Company expects that the loss of such incentives will be partially offset by an improvement in pricing margins.

Production segment expenses were $82.0 million, a 5 percent increase from the prior quarter and an 8 percent increase from the fourth quarter of 2017.  The quarter-over-quarter increase was primarily driven by production volume growth. 

Servicing Segment

Servicing includes income from owned MSRs, subservicing and special servicing activities.  Servicing segment pretax income was $29.3 million compared with $33.6 million in the prior quarter and $32.0 million in the fourth quarter of 2017.   Servicing segment revenues totaled $134.8 million, down 3 percent from the prior quarter and up 5 percent from the fourth quarter of 2017.  The quarter-over-quarter decrease primarily reflects valuation-related losses, partially offset by increased servicing fees driven by a larger portfolio.

Net loan servicing fees totaled $105.2 million and included $194.4 million in servicing fees reduced by $82.3 million in realization of MSR cash flows.   Valuation-related losses totaled $6.9 million, which included MSR fair value losses of $67.3 million,  associated hedging gains of $59.8 million and changes in fair value of the excess servicing spread (ESS) liability resulting in a $0.5 million gain.  The MSR fair value losses primarily resulted from expectations for a modest increase in prepayment activity driven by the decrease in mortgage rates near quarter end.  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.

   6

 


 

 

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

 

 

Quarter ended

 

 

    

December 31, 
2018

    

September 30, 
2018

    

December 31,
2017

 

 

 

(in thousands)

 

Servicing fees (1)

 

$

194,405 

 

$

174,262 

 

$

162,008 

 

Effect of MSRs:

 

 

 

 

 

 

 

 

 

 

Amortization and realization of cash flows

 

 

(82,250)

 

 

(71,362)

 

 

(66,891)

 

Change in fair value and provision for/reversal of impairment of MSRs carried at lower of amortized cost or fair value

 

 

(67,277)

 

 

60,883 

 

 

28,029 

 

Change in fair value of excess servicing spread financing

 

 

526 

 

 

(1,109)

 

 

4,593 

 

Hedging gains (losses)

 

 

59,808 

 

 

(52,971)

 

 

(20,837)

 

Total amortization, impairment and change in fair value of MSRs

 

 

(89,193)

 

 

(64,559)

 

 

(55,106)

 

Net loan servicing fees

 

$

105,212 

 

$

109,703 

 

$

106,902 

 

 

(1) Includes contractually-specified servicing fees

 

Servicing segment revenue also included $22.9 million in net gains on mortgage loans held for sale from the securitization of reperforming government-insured and guaranteed loans, compared to $22.0 million in the prior quarter and $29.9 million in the fourth 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 $6.0 million, down from $6.4 million in the prior quarter and up from net interest expense of $8.2 million in the fourth quarter of 2017.   Interest income decreased by $4.5 million from the prior quarter, primarily driven by lower interest income from EBO activities as well as a seasonal decrease in income from custodial deposits.    Interest expense decreased by $4.0 million quarter-over-quarter; interest expense was elevated in the third quarter due to an accelerated recognition of issuance costs related to MSR-backed term notes that were refinanced in that period.    

Servicing segment expenses totaled $105.5 million,  essentially unchanged from the prior quarter and up 9 percent from the fourth quarter of 2017.    

The total servicing portfolio reached $299.3 billion in UPB at December 31, 2018, an increase of 5 percent from September 30, 2018, and 22 percent from December 31, 2017.   Servicing portfolio growth during the quarter was driven by the Company’s loan production activities and



   7

 


 

 

the completion of $3.6 billion in UPB of MSR acquisitions.  Of the total servicing portfolio, prime servicing was $298.7 billion in UPB, and special servicing was $0.6 billion in UPB.  PennyMac Financial subservices and conducts special servicing for $94.7 billion in UPB, an increase of 9 percent from September 30,  2018 and 26 percent from December 31, 2017.  PennyMac Financial’s owned MSR portfolio grew to $201.1 billion in UPB, an increase of 4 percent from the prior quarter end.

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

 

 

 

 

 

 

 

 

 

 

 

 

    

 December 31, 
2018 

    

 September 30, 
2018 

    

 December 31,
2017 

 

 

 

(in thousands)

 

Loans serviced at period end:

 

 

 

 

 

 

 

 

 

 

Prime servicing:

 

 

 

 

 

 

 

 

 

 

Owned

 

 

 

 

 

 

 

 

 

 

Mortgage servicing rights

 

 

 

 

 

 

 

 

 

 

Originated

 

$

144,296,544 

 

$

138,311,827 

 

$

119,673,403 

 

Acquisitions

 

 

56,757,600 

 

 

55,347,551 

 

 

46,575,834 

 

 

 

 

201,054,144 

 

 

193,659,378 

 

 

166,249,237 

 

Mortgage servicing liabilities

 

 

1,160,938 

 

 

1,265,461 

 

 

1,620,609 

 

Mortgage loans held for sale

 

 

2,420,636 

 

 

2,352,771 

 

 

2,998,377 

 

 

 

 

204,635,718 

 

 

197,277,610 

 

 

170,868,223 

 

Subserviced for Advised Entities

 

 

94,074,625 

 

 

86,389,458 

 

 

73,651,608 

 

Total prime servicing

 

 

298,710,343 

 

 

283,667,068 

 

 

244,519,831 

 

Special servicing:

 

 

 

 

 

 

 

 

 

 

Subserviced for Advised Entities

 

 

583,529 

 

 

837,003 

 

 

1,328,660 

 

Total special servicing

 

 

583,529 

 

 

837,003 

 

 

1,328,660 

 

Total loans serviced

 

$

299,293,872 

 

$

284,504,071 

 

$

245,848,491 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage loans serviced:

 

 

 

 

 

 

 

 

 

 

Owned

 

 

 

 

 

 

 

 

 

 

Mortgage servicing rights

 

$

201,054,144 

 

$

193,659,378 

 

$

166,249,237 

 

Mortgage servicing liabilities

 

 

1,160,938 

 

 

1,265,461 

 

 

1,620,609 

 

Mortgage loans held for sale

 

 

2,420,636 

 

 

2,352,771 

 

 

2,998,377 

 

 

 

 

204,635,718 

 

 

197,277,610 

 

 

170,868,223 

 

Subserviced

 

 

94,658,154 

 

 

87,226,461 

 

 

74,980,268 

 

Total mortgage loans serviced

 

$

299,293,872 

 

$

284,504,071 

 

$

245,848,491 

 

 

   8

 


 

 

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 December 31,  2018, essentially unchanged from September 30,  2018, and December 31, 2017.

Pretax income for the Investment Management segment was $2.5 million, in line with the prior quarter and up from $1.5 million in the fourth quarter of 2017.  Management fees, which include base management fees from PMT, increased 1 percent from the prior quarter and 10 percent from the fourth 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

 

 

    

December 31,
2018

    

September 30,
2018

    

December 31,
2017

 

 

 

(in thousands)

 

Management fees:

 

 

 

 

 

 

 

 

 

 

PennyMac Mortgage Investment Trust

 

 

 

 

 

 

 

 

 

 

Base

 

$

5,810 

 

$

5,799 

 

$

5,900 

 

Performance incentive

 

 

749 

 

 

683 

 

 

 

 

 

 

6,559 

 

 

6,482 

 

 

5,900 

 

Investment Funds

 

 

 

 

(11)

 

 

88 

 

Total management fees

 

 

6,559 

 

 

6,471 

 

 

5,988 

 

Carried Interest

 

 

 

 

(17)

 

 

 

Total management fees and Carried Interest

 

$

6,559 

 

$

6,454 

 

$

5,993 

 

 

 

 

 

 

 

 

 

 

 

 

Net assets of Advised Entities:

 

 

 

 

 

 

 

 

 

 

PennyMac Mortgage Investment Trust

 

$

1,566,132 

 

$

1,558,563 

 

$

1,544,585 

 

Investment Funds

 

 

 

 

 

 

29,329 

 

 

 

$

1,566,132 

 

$

1,558,563 

 

$

1,573,914 

 

 

Investment Management segment expenses totaled $5.4 million, down 2 percent from the prior quarter and up 21 percent from the fourth 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.  As the result of adopting the new accounting standard for revenue recognition, 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.    

   9

 


 

 

Consolidated Expenses

Total expenses for the fourth quarter were $192.9 million, a 2 percent increase from the prior quarter and a 9 percent increase from the fourth quarter of 2017.  The quarter-over-quarter change was primarily driven by higher expenses in the Production segment due to higher volumes of activity. 

***

Executive Chairman Stanford L. Kurland concluded, “PennyMac Financial is well positioned for growth in 2019 as we continue to pursue opportunities we find attractive.  We are proud of both a firm-wide effort that resulted in the Company becoming the first non-bank lender to directly offer its customers a HELOC product, and the launch of a prime non-QM loan product in our correspondent channel.  We continue to realize operational efficiencies across our enterprise, such as in our Servicing business as our investments in technology and portfolio growth add to greater efficiency and scale driving improved operating profits.  We remain focused on further development of our direct lending channels and building out our product menu to provide mortgage solutions that meet our customers’ evolving financial needs.  Our scale, platform and ability to adapt to a changing market environment are the reasons why we expect to be a beneficiary of market consolidation and to continue delivering strong financial performance in the future.”

Management’s slide presentation will be available in the Investor Relations section of the Company’s website at www.ir.pennymacfinancial.com beginning at 1:30 p.m. (Pacific Standard Time) on Thursday,  February 7,  2019.

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.

   10

 


 

 

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. governmentsponsored 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 thirdparty 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 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.

   11

 


 

 

PENNYMAC FINANCIAL SERVICES, INC.

CONSOLIDATED BALANCE SHEETS (UNAUDITED)

 

 

 

 

 

 

 

 

 

 

 

 

    

December 31,
2018

    

September 30,
2018

    

December 31,
2017

 

 

 

(in thousands, except share amounts)

 

ASSETS

 

 

 

 

 

 

 

 

 

 

Cash

 

$

155,289 

 

$

102,627 

 

$

37,725 

 

Short-term investments at fair value

 

 

117,824 

 

 

145,476 

 

 

170,080 

 

Mortgage loans held for sale at fair value

 

 

2,521,647 

 

 

2,416,955 

 

 

3,099,103 

 

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

 

 

131,025 

 

 

133,128 

 

 

144,128 

 

Derivative assets

 

 

96,347 

 

 

73,618 

 

 

78,179 

 

Servicing advances, net

 

 

313,197 

 

 

259,609 

 

 

318,066 

 

Investment in PennyMac Mortgage Investment Trust at fair value

 

 

1,397 

 

 

1,518 

 

 

1,205 

 

Mortgage servicing rights

 

 

2,820,612 

 

 

2,785,964 

 

 

2,119,588 

 

Real estate acquired in settlement of loans

 

 

2,250 

 

 

2,493 

 

 

2,447 

 

Furniture, fixtures, equipment and building improvements, net

 

 

33,374 

 

 

31,662 

 

 

29,453 

 

Capitalized software, net

 

 

39,748 

 

 

36,484 

 

 

25,729 

 

Receivable from PennyMac Mortgage Investment Trust

 

 

33,464 

 

 

27,467 

 

 

27,119 

 

Loans eligible for repurchase

 

 

1,102,840 

 

 

889,335 

 

 

1,208,195 

 

Other 

 

 

109,559 

 

 

86,194 

 

 

107,076 

 

Total assets

 

$

7,478,573 

 

$

6,992,530 

 

$

7,368,093 

 

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES

 

 

 

 

 

 

 

 

 

 

Assets sold under agreements to repurchase 

 

$

1,933,859 

 

$

1,739,638 

 

$

2,381,538 

 

Mortgage loan participation and sale agreements

 

 

532,251 

 

 

524,667 

 

 

527,395 

 

Notes payable

 

 

1,292,291 

 

 

1,291,847 

 

 

891,505 

 

Obligations under capital lease

 

 

6,605 

 

 

9,630 

 

 

20,971 

 

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

 

 

216,110 

 

 

223,275 

 

 

236,534 

 

Derivative liabilities

 

 

3,064 

 

 

12,693 

 

 

5,796 

 

Mortgage servicing liabilities at fair value

 

 

8,681 

 

 

9,769 

 

 

14,120 

 

Accounts payable and accrued expenses

 

 

156,212 

 

 

140,363 

 

 

109,143 

 

Payable to PennyMac Mortgage Investment Trust 

 

 

104,631 

 

 

91,818 

 

 

136,998 

 

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

 

 

46,537 

 

 

47,605 

 

 

44,011 

 

Income taxes payable

 

 

400,546 

 

 

74,158 

 

 

52,160 

 

Liability for loans eligible for repurchase

 

 

1,102,840 

 

 

889,335 

 

 

1,208,195 

 

Liability for losses under representations and warranties  

 

 

21,155 

 

 

21,022 

 

 

20,053 

 

Total liabilities

 

 

5,824,782 

 

 

5,075,820 

 

 

5,648,419 

 

 

 

 

 

 

 

 

 

 

 

 

STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

 

 

 

Common stockauthorized 200,000,000 shares of $0.0001 par value; issued and outstanding, 77,480,172 , 25,195,436, and 23,529970 shares, respectively

 

 

 

 

 

 

 

Class B common stockauthorized 1,000 shares of $0.0001 par value; issued and outstanding, 0, 45 and 46 shares, respectively

 

 

 

 

 

 

 

Additional paid-in capital

 

 

1,310,648 

 

 

236,457 

 

 

204,103 

 

Retained earnings

 

 

343,135 

 

 

304,386 

 

 

265,306 

 

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

 

 

1,653,791 

 

 

540,846 

 

 

469,411 

 

Noncontrolling interests in Private National Mortgage Acceptance Company, LLC

 

 

 

 

1,375,864 

 

 

1,250,263 

 

Total stockholders' equity

 

 

1,653,791 

 

 

1,916,710 

 

 

1,719,674 

 

Total liabilities and stockholders’ equity

 

$

7,478,573 

 

$

6,992,530 

 

$

7,368,093 

 

   12

 


 

 

PENNYMAC FINANCIAL SERVICES, INC.

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

 

 

Quarter ended

 

 

    

December31,
2018

    

September30,
2018

    

December31,
2017

 

 

 

(in thousands, except earnings per share)

 

Revenue

 

 

 

 

 

 

 

 

 

 

Net mortgage loan servicing fees:

 

 

 

 

 

 

 

 

 

 

Mortgage loan servicing fees

 

 

 

 

 

 

 

 

 

 

From non-affiliates

 

$

163,565 

 

$

147,182 

 

$

130,617 

 

From PennyMac Mortgage Investment Trust

 

 

11,524 

 

 

10,071 

 

 

11,077 

 

From Investment Funds

 

 

-

 

 

-

 

 

 

Ancillary and other fees

 

 

19,316 

 

 

17,009 

 

 

20,308 

 

 

 

 

194,405 

 

 

174,262 

 

 

162,008 

 

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

 

 

(89,193)

 

 

(64,559)

 

 

(55,106)

 

Net mortgage loan servicing fees

 

 

105,212 

 

 

109,703 

 

 

106,902 

 

Net gains on mortgage loans held for sale at fair value

 

 

59,748 

 

 

56,914 

 

 

98,621 

 

Mortgage loan origination fees

 

 

26,165 

 

 

26,485 

 

 

30,267 

 

Fulfillment fees from PennyMac Mortgage Investment Trust

 

 

28,591 

 

 

26,256 

 

 

19,175 

 

Net interest income:

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

57,733 

 

 

60,964 

 

 

39,905 

 

Interest expense

 

 

36,461 

 

 

38,775 

 

 

35,677 

 

 

 

 

21,272 

 

 

22,189 

 

 

4,228 

 

Management fees, net:

 

 

 

 

 

 

 

 

 

 

From PennyMac Mortgage Investment Trust

 

 

6,559 

 

 

6,482 

 

 

5,900 

 

From Investment Funds

 

 

-

 

 

(11)

 

 

88 

 

 

 

 

6,559 

 

 

6,471 

 

 

5,988 

 

Carried Interest from Investment Funds

 

 

-

 

 

(17)

 

 

 

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

 

 

(87)

 

 

129 

 

 

(63)

 

Results of real estate acquired in settlement of loans

 

 

410 

 

 

194 

 

 

(43)

 

Revaluation of payable to exchanged Private National Mortgage Acceptance Company, LLC unitholders under tax receivable agreement 

 

 

1,126 

 

 

-

 

 

32,940 

 

Other

 

 

2,205 

 

 

2,605 

 

 

614 

 

Total net revenue

 

 

251,201 

 

 

250,929 

 

 

298,634 

 

Expenses

 

 

 

 

 

 

 

 

 

 

Compensation

 

 

99,353 

 

 

103,364 

 

 

97,097 

 

Servicing

 

 

41,518 

 

 

40,797 

 

 

41,183 

 

Technology

 

 

15,056 

 

 

15,273 

 

 

13,993 

 

Loan origination

 

 

12,936 

 

 

7,203 

 

 

5,599 

 

Professional services

 

 

9,173 

 

 

7,117 

 

 

4,868 

 

Occupancy and equipment

 

 

7,151 

 

 

7,117 

 

 

5,675 

 

Marketing

 

 

1,553 

 

 

2,275 

 

 

2,524 

 

Other

 

 

6,155 

 

 

6,086 

 

 

5,922 

 

Total expenses

 

 

192,895 

 

 

189,232 

 

 

176,861 

 

Income before provision for (benefit from) income taxes

 

 

58,306 

 

 

61,697 

 

 

121,773 

 

Provision for (benefit from) income taxes

 

 

5,346 

 

 

5,545 

 

 

(2,125)

 

Net income

 

 

52,960 

 

 

56,152 

 

 

123,898 

 

Less: Net income attributable to noncontrolling interest

 

 

14,211 

 

 

41,663 

 

 

61,580 

 

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

 

$

38,749 

 

$

14,489 

 

$

62,318 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.65 

 

$

0.58 

 

$

2.67 

 

Diluted

 

$

0.63 

 

$

0.57 

 

$

2.44 

 

Weighted-average common shares outstanding

 

 

 

 

 

 

 

 

 

 

Basic

 

 

59,876 

 

 

25,125 

 

 

23,354 

 

Diluted

 

 

61,468 

 

 

78,913 

 

 

25,565 

 

   13

 


 

 

PENNYMAC FINANCIAL SERVICES, INC.

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

 

 

 

 

 

 

 

 

 

 

 

 

 

Year ended December 31,

 

 

    

2018

    

2017

    

2016

 

 

 

(in thousands, except earnings per share)

 

Revenues

 

 

 

 

 

 

 

 

 

 

Net mortgage loan servicing fees:

 

 

 

 

 

 

 

 

 

 

Mortgage loan servicing fees:

 

 

 

 

 

 

 

 

 

 

From non-affiliates

 

$

585,101 

 

$

475,848 

 

$

385,633 

 

From PennyMac Mortgage Investment Trust

 

 

42,045 

 

 

43,064 

 

 

50,615 

 

From Investment Funds

 

 

 

 

1,461 

 

 

2,583 

 

Ancillary and other fees

 

 

64,133 

 

 

58,924 

 

 

46,910 

 

 

 

 

691,282 

 

 

579,297 

 

 

485,741 

 

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

 

 

(245,889)

 

 

(273,238)

 

 

(300,275)

 

Net mortgage loan servicing fees

 

 

445,393 

 

 

306,059 

 

 

185,466 

 

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

 

 

249,022 

 

 

391,804 

 

 

531,780 

 

Mortgage loan origination fees:

 

 

101,641 

 

 

119,202 

 

 

125,534 

 

Fulfillment fees from PennyMac Mortgage Investment Trust

 

 

81,350 

 

 

80,359 

 

 

86,465 

 

Net interest income (expense):

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

216,416 

 

 

143,179 

 

 

81,127 

 

Interest expense

 

 

144,597 

 

 

144,520 

 

 

106,206 

 

 

 

 

71,819 

 

 

(1,341)

 

 

(25,079)

 

Management fees, net:

 

 

 

 

 

 

 

 

 

 

From PennyMac Mortgage Investment Trust

 

 

24,465 

 

 

22,584 

 

 

20,657 

 

From Investment Funds

 

 

 

 

1,001 

 

 

2,089 

 

 

 

 

24,469 

 

 

23,585 

 

 

22,746 

 

Carried Interest from Investment Funds

 

 

(365)

 

 

(1,040)

 

 

980 

 

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

 

 

332 

 

 

118 

 

 

224 

 

Results of real estate acquired in settlement of loans

 

 

589 

 

 

94 

 

 

(82)  

 

Revaluation of payable to exchanged Private National Mortgage Acceptance Company, LLC unitholders under tax receivable agreement 

 

 

1,126 

 

 

32,940 

 

 

551 

 

Other

 

 

9,253 

 

 

3,683 

 

 

3,302 

 

Total net revenues

 

 

984,629 

 

 

955,463 

 

 

931,887 

 

Expenses

 

 

 

 

 

 

 

 

 

 

Compensation

 

 

403,270 

 

 

358,721 

 

 

342,153 

 

Servicing

 

 

137,104 

 

 

117,696 

 

 

85,857 

 

Technology

 

 

60,103 

 

 

52,013 

 

 

35,322 

 

Professional services

 

 

27,615 

 

 

17,845 

 

 

18,078 

 

Loan origination

 

 

27,398 

 

 

20,429 

 

 

22,528 

 

Occupancy and equipment

 

 

27,152 

 

 

22,615 

 

 

17,140 

 

Marketing

 

 

8,207 

 

 

9,118 

 

 

5,264 

 

Other

 

 

26,083 

 

 

21,117 

 

 

22,462 

 

Total expenses

 

 

716,932 

 

 

619,554 

 

 

548,804 

 

Income before provision for income taxes

 

 

267,697 

 

 

335,909 

 

 

383,083 

 

Provision for income taxes

 

 

23,254 

 

 

24,387 

 

 

46,103 

 

Net income

 

 

244,443 

 

 

311,522 

 

 

336,980 

 

Less: Net income attributable to noncontrolling interest

 

 

156,749 

 

 

210,765 

 

 

270,901 

 

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

 

$

87,694 

 

$

100,757 

 

$

66,079 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share

 

 

 

 

 

 

 

 

 

 

Basic

 

$

2.62 

 

$

4.34 

 

$

2.98 

 

Diluted

 

$

2.59 

 

$

4.03 

 

$

2.94 

 

Weighted average shares outstanding

 

 

 

 

 

 

 

 

 

 

Basic

 

 

33,524 

 

 

23,199 

 

 

22,161 

 

Diluted

 

 

35,322 

 

 

24,999 

 

 

76,629 

 

 

   14

 


(Back To Top)

Section 3: EX-99.2 (EX-99.2)

Exhibit 99.2

GRAPHIC

Fourth Quarter 2018 Earnings Report Exhibit 99.2


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Forward-Looking Statements 2 This presentation 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. These forward-looking statements include statements regarding the Company’s corporate reorganization, the expected benefits of such reorganization and the related impact on existing stakeholders, estimates regarding future market capitalization and the anticipated financial impact of the corporate reorganization. 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 if our 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. Our exposure to risks of loss resulting from adverse weather conditions and man-made or natural disasters; and or 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 presentation are current as of the date of this presentation only.


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Fourth Quarter Highlights 3 . Pretax income was $58.3 million; diluted earnings per share were $0.63 – Benefit from the remeasurement of tax-related items contributed $0.11 to diluted earnings per share; tax provision rate reduced to 26.9% from 27.4% – Book value per share increased to $21.34, up from $20.67 at September 30(1) – Repurchased approximately 24,000 shares of PFSI’s common stock at a cost of $0.5 million and a weighted average price of $19.75 per share . Production segment pretax income was $25.4 million, down 1% from 3Q18 and 54% from 4Q17 – Total acquisition and origination volume was $19.4 billion in unpaid principal balance (UPB), up 8% from 3Q18 and 14% from 4Q17 – Total correspondent government, non-delegated and direct lending locks were $11.2 billion in UPB, down 1% from 3Q18 and 5% from 4Q17 – Correspondent conventional and jumbo acquisition volume fulfilled for PMT was $9.1 billion in UPB, up 21% from 3Q18; drove an increase in fulfillment fee revenue . Servicing segment pretax income was $29.3 million, down 13% from 3Q18 and 8% from 4Q17 – Continued increase in operating profitability partially offset by valuation-related items resulting from a decrease in mortgage rates during the quarter – Pretax income excluding valuation-related items was $44.5 million, up 49% from 3Q18 and 57% from 4Q17 – Valuation-related items included a $67.2 million decrease in mortgage servicing rights (MSR) fair value, partially offset by a $59.8 million increase from hedging activities and $0.5 million due to the change in fair value of the excess servicing spread (ESS) liability – Servicing portfolio grew to $299.3 billion in UPB, up 5% from September 30, 2018 and 22% from December 31, 2017; completed $3.6 billion in UPB of previously announced bulk MSR portfolio acquisitions (1) $20.67 is the pro forma book value per share at September 30, 2018, adjusted for the impact of PennyMac Financial Services, Inc.’s corporate reorganization completed on November 1, 2018. Reported book value per share at September 30, 2018 was $21.47


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Fourth Quarter Highlights (continued) 4 . Investment Management segment pretax income was $2.5 million, flat to 3Q18 and up from $1.5 million in 4Q17 – Net assets under management (AUM) were $1.6 billion, essentially unchanged from September 30, 2018 and December 31, 2017 . As previously announced, the Company completed a corporate reorganization on November 1, 2018 that simplified its corporate structure and converted all equity ownership to a single class of publicly- traded common stock Notable activity after quarter-end: . Completed the acquisition of an additional bulk Ginnie Mae MSR portfolio totaling $798 million in UPB . New product launches in January – Launched a home equity line of credit (HELOC) product offering to customers in our servicing portfolio, offering the opportunity to tap into the equity in their homes while keeping their existing first-mortgage interest rates –Launched a prime non-qualified mortgage (non-QM) product to our correspondent clients – Opportunity to grow investment management activities through PMT’s ability to securitize and invest in the securitization interests from both products


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5 Current Market Environment 3.0% 3.5% 4.0% 4.5% 5.0% 5.5% Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 Sep-17 Dec-17 Mar-18 Jun-18 Sep-18 Dec-18 Average 30-year fixed rate mortgage(1). Concerns related to the U.S. and global growth prospects in addition to uncertainty regarding the trajectory of the Fed Funds rate drove increased volatility across financial markets in the fourth quarter – The average 30-year fixed mortgage rate in the fourth quarter was 22 basis points higher than the prior quarter but fell in December o The sharp decrease is expected to drive a modest increase in refinancing activity – Spreads on GSE credit risk transfer (CRT) securities widened by approximately 40-80 basis points in the fourth quarter but have substantially recovered after quarter end . Favorable demographic trends and slowing home price appreciation expected to aid home sales increase in 2019 –Moderating home price appreciation improves affordability – Purchase money originations are expected to grow by mid- single digit percentages over the next two years . Mortgage delinquency rates decreased Q/Q and remain near historical lows – The total U.S. loan delinquency rate was 3.88% as of December 31, 2018, down from 3.97% at September 30, 2018 and 4.71% at December 31, 2017(3) 4.72% 4.55% Macroeconomic Forecasts(2) (1) Source: Freddie Mac Primary Mortgage Market Survey; 4.46% as of January 31, 2019 (2) Actual Home Sales: National Association of Realtors (existing) and the Census Bureau (new). Home sales Forecast: Average of Mortgage Bankers Association and Fannie Mae. Actual purchase and total originations: Inside Mortgage Finance. Purchase and total originations forecast: Average of Mortgage Bankers Association, Fannie Mae, Freddie Mac. Actual home price appreciation: FHFA Home Price Index. Forecasted home price appreciation: Average of Mortgage Bankers Association, Fannie Mae, Freddie Mac. (3) Source: Black Knight Financial Services. Includes loans that are 30 days or more past due but not in foreclosure. 2015 2016 2017 2018E 2019E 2020E New home sales ('000s) 503 561 616 613 631 649 Existing home sales ('000s) 5,234 5,440 5,547 5,373 5,462 5,555 Total originations ($ in billions) $1,735 $2,065 $1,810 $1,638 $1,636 $1,675 Purchase originations ($ in billions) $924 $1,037 $1,144 $1,169 $1,218 $1,269 U.S. Home Price Appreciation (Y/Y % Change) 5.3% 5.8% 6.9% 5.5% 4.3% 2.5%


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PennyMac Financial Is a Strong Independent Mortgage Company 6 As of December 31, 2018 ($ in millions) . Comprehensive mortgage platform and balanced model with leading production and servicing businesses . Strong balance sheet with low leverage versus competitors – Debt to equity of 2.4x . Diversified liquidity sources and term debt that finances the largest asset (MSRs) – Unique and cost effective funding structures with strong bank partnerships to support growth . Well-developed and sophisticated risk management structure combines extensive market expertise with technology to identify and monitor risks across the enterprise . Simplified corporate structure in 4Q18, converting all equity ownership into a single class of common stock Considerable oversight from State regulators, CFPB, GSEs, ratings agencies and bank counterparties Other Assets & Receivables $447 Loan eligible for repurchase $1,103 Servicing Advances $313 Mortgage Servicing Rights $2,821 Cash & Short-term Investments $273 Mortgage Loans Held for Sale $2,522 Stockholders' Equity $1,654 Other Liabilities & Payables $747 Liability for loans eligible for repurchase $1,103 ESS Financing $216 MSR VFN Repo $140 GNMA MSR Term Notes1,292 Warehouse Financing $2,326 $7,479 $7,479 Assets Liabilities & Equity


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7 Technology Development and Utilization Differentiates PFSI . Proprietary systems development combined with third-party technology . Innovative and strategic technology utilization driving cost savings and scale efficiencies . Agile development methodology to improve speed and value creation while lowering cost . Development focus on both customer facing interfaces (e.g., portals) and operational “back office” technologies to improve profitability and realize competitive advantages Servicing System Enhancements . Greater pricing granularity and real-time pricing updates . Sophisticated and proprietary loan bidding system .Centralized margin management tools utilizing machine learning Origination and Fulfillment Workflow Pricing and Margin Management Systems Examples of key technologies deployed or in development: . Multi-year project nearing completion – focused on automated workflows with sustainable efficiencies and cost savings . Incremental implementation through phased release of enhancement modules; over 110 modules completed, the majority of which are already in use . Performing data anomaly testing to improve quality and mitigate risk . Expansion of robotic process automation and machine learning applications . Deepening of customer relationship management capabilities Enterprise Risk Management . Proprietary risk intelligence system that enhances risk monitoring activities across the organization – Strengthens our capabilities to identify and mitigate risks as they emerge


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Correspondent Production(1) Market Share Market Share Consumer Direct Production(1) Loan Servicing(1) Market Share Investment Management AUM (billions) 8 Trends in PennyMac Financial’s Businesses (1) Source: Inside Mortgage Finance and company estimates. Inside Mortgage Finance estimates total 4Q18 origination market of $370 billion. Correspondent production share estimate is based on PFSI and PMT acquisition volume of $17.9 billion divided by $119 billion for the correspondent market (estimated to be 32% of total origination market). Consumer direct production share is based on PFSI originations of $1.2 billion divided by $209 billion for the retail market (estimated to be 56% of total origination market). Loan servicing market share is based on PFSI servicing UPB of $299.3 billion divided by an estimated $10.9 trillion in mortgage debt outstanding as of December 31, 2018. 10.76% 10.00% 11.69% 15.10% 0% 4% 8% 12% 16% 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18E 0.60% 0.62% 0.53% 0.57% 0.00% 0.20% 0.40% 0.60% 0.80% 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18E 1.89% 2.32% 2.62% 2.74% 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18E $1.55 $1.57 $1.56 $1.57 $0.0 $0.5 $1.0 $1.5 $2.0 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18


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$9.5 $9.0 $8.9 $5.9 $7.5 $9.0 $0.1 $0.1$15.9 $17.9 $19.1 4Q17 3Q18 4Q18 Government loans Conventional loans for PMT Non-delegated loans Total locks(3) 9 (UPB in billions) (1) For government-insured and guaranteed loans and jumbo loans, PFSI earns income from holding and selling or securitizing the loans (2) For conventional loans, PFSI earns a fulfillment fee from PMT rather than income from holding and selling or securitizing the loans (3) Includes locks related to PMT loan acquisitions, including conventional loans for which PFSI earns a fulfillment fee upon loan funding (4) Includes net gains on mortgage loans held for sale, loan origination fees and net interest income for government-insured correspondent loans; lock volume adjusted for expected fallout, which was 4% in 4Q18 for government-insured correspondent locks (5) Based on funded loans subject to fulfillment fee. The weighted average fulfillment fee rate may reflect discretionary adjustments to facilitate the successful completion of certain loan transactions Correspondent Volume and Mix. Correspondent acquisitions by PMT in 4Q18 totaled $18.1 billion, up 9% Q/Q and 17% Y/Y – 21% increase in conventional conforming acquisitions Q/Q and 54% Y/Y; 1% decrease in government acquisitions Q/Q and 7% Y/Y – Purchase-money loans comprised 88% of total 4Q18 acquisition volume, up from 87% in 3Q18 . Correspondent lock volume of $19.1 billion, up 7% Q/Q and 20% Y/Y; government locks totaled $9.0 billion, down 2% Q/Q and 6% Y/Y; conventional locks totaled $9.8 billion, up 15% Q/Q and 56% Y/Y . Growth in seller relationships driven by addition of non- delegated and community bank clients . January correspondent acquisitions totaled $5.2 billion; locks totaled $5.2 billion . Have benefitted from incentives under a master repurchase agreement which are expected to cease starting in 2Q19; impact unclear but we expect partial offset from improvement in pricing margins . Launched an innovative prime non-QM loan product in January that utilized a technology-based underwriting solution Production Segment Highlights – Correspondent Channel (1) (2) 3Q18 4Q18 Revenue per fallout-adjusted government lock (bps)(4) 35 29 Weighted average fulfillment fee (bps)(5) 35 32 3Q18 4Q18 Correspondent seller relationships 655 710 Purchase-money loans, as a % of total acquisitions 87% 88% Key Financial Metrics Selected Operational Metrics


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$1.6 $1.3 $1.2 $0.8 $0.7 $0.6 4Q17 3Q18 4Q18 Portfolio-sourced fundings Non-portfolio fundings Committed pipeline . Consumer direct production volume of $1.2 billion in 4Q18, down 8% Q/Q and 28% Y/Y . 4Q18 origination volumes reflect seasonal factors and higher mortgage rates through most of the quarter . The decline in mortgage rates in late December is driving increased demand for both rate-and-term and cash-out refinances . January consumer direct originations totaled $357 million; locks totaled $761 million – $790 million committed pipeline at January 31, 2019(1) . Launched our HELOC product in January; designed to support the financing needs of the 1.5 million customers in our servicing portfolio – Currently accepting applications in 5 states – California, Florida, Oregon, Virginia and Washington – Expanding to additional states and non-portfolio customers throughout the year (UPB in billions) Consumer Direct Production Volume (1) Commitments to originate mortgage loans at specified terms at period end (2) Includes net gains on mortgage loans held for sale, loan origination fees and net interest income; lock volume adjusted for expected fallout, which was 35% in 4Q18 for consumer direct locks 10 Production Segment Highlights – Consumer Direct Channel (1) 3Q18 4Q18 356 Consumer Direct Margin Revenue per fallout-adjusted consumer direct lock (bps)(2) 363


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(1) Commitments to originate mortgage loans at specified terms at period end (2) Includes net gains on mortgage loans held for sale, loan origination fees and net interest income; lock volume adjusted for expected fallout, which was 28% in 4Q18 for broker direct locks 11 . Broker direct production volume of $199.1 million in 4Q18, up from $110.8 million in 3Q18 . Number of approved brokers increased 38% Q/Q to 589 at quarter end, up from 428 at September 30 . Continued buildout of our sales force drove continued production volume growth during 4Q18 . Q/Q decline in revenue margins reflect the increasingly competitive broker market . Launched Fannie Mae’s HomeReady® and Enterprise-Paid Mortgage Insurance to support increased volume growth and provide a greater menu of products and features for our broker clients . January broker direct originations totaled $66 million; locks totaled $91 million – $73 million committed pipeline at January 31, 2019(1) . Launched several key enhancements to our broker portal, POWER in 1Q19, including: – Expanded notifications to improve communication with brokers, providing origination status updates from initial disclosure through closing – Enhanced the broker's ability to manage pipeline within web portal or offline via new export feature Production Segment Highlights – Broker Direct Channel Broker Direct Production Volume (UPB in millions) (1) $3.5 $31.9 $69.7 $139.0 $3.3 $29.9 $41.0 $60.1 $29.8 $37.9 $64.4 $73.1 1Q18 2Q18 3Q18 4Q18 Conventional loans Government loans Committed pipeline 3Q18 4Q18 Revenue per fallout-adjusted broker direct lock (bps)(2) 84 75 Approved brokers at period end 428 589 Broker Direct Metrics


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$284.5 $299.3 ($8.3) $19.5 $3.6 At 9/30/18 Runoff Additions from loan production MSR acquisitions At 12/31/18 (UPB in billions) . Servicing portfolio totaled $299.3 billion in UPB at December 31, up 5% Q/Q and 22% Y/Y . Completed $4.4 billion in UPB of previously announced bulk MSR acquisitions in 4Q18 and after quarter end . Prepayment speeds slowed during 4Q18, driven by higher average mortgage rates during the quarter and seasonal factors . Higher mortgage rates drove a significant decline in early buyout (EBO) transaction volume during 4Q18 – The recent decline in mortgage rates near quarter end has improved EBO transaction economics and may result in higher buyout volume Loan Servicing Portfolio Composition Net Portfolio Growth (UPB in billions) (1) 12 (1) Owned portfolio in predominantly government-insured and guaranteed loans under the FHA, VA, and USDA programs. (2) Represents PMT’s MSRs. Excludes distressed loan investments (3) Early buyouts of delinquent loans from Ginnie Mae pools during the period (4) Also includes loans servicing released in connection with recent asset sales by PMT (5) Includes consumer direct production, government correspondent acquisitions, and conventional conforming and jumbo loan acquisitions subserviced for PMT Servicing Segment Highlights (4) (5) 3Q18 4Q18 Loans serviced (in thousands) 1,392 1,490 60+ day delinquency rate - owned portfolio(1) 3.1% 3.3% 60+ day delinquency rate - sub-serviced portfolio(2) 0.5% 0.5% Actual CPR - owned portfolio(1) 12.3% 9.8% Actual CPR - sub-serviced(2) 8.7% 7.5% UPB of completed modifications ($ in millions) $1,190 $519 EBO transactions ($ in millions)(3) $974 $495 Selected Operational Metrics $245.8 $284.5 $299.3 4Q17 3Q18 4Q18 Prime owned Prime subserviced Special


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34% 18% 24% 3% 21% Agency RMBS MSRs and ESS Credit Risk Transfer (CRT) Distressed whole loans and REO Loan inventory 13 ($ in billions) . Net assets under management as of December 31, 2018 were $1.6 billion, essentially unchanged from September 30, 2018 . PMT’s continued strong performance resulted in $0.7 million in performance-based incentive fees . Completed $267 million in UPB of previously-announced distressed loan sales – Distressed loan investments represent only 8% of PMT’s shareholders’ equity; 3% of mortgage assets . Launched HELOC and non-QM loan products in January – Leveraging PMT’s partnership with PennyMac Financial to invest in HELOC and non-QM loan securitization interests Investment Management AUM Investment Management Segment Highlights PMT’s Mortgage Assets(1) 100% = $7.8 billion (1) As of December 31, 2018 $1.54 $1.56 $1.57 $0.03 $1.57 $1.56 $1.57 4Q17 3Q18 4Q18 PMT Investment Funds


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$28.0 $60.9 ($67.3) $163.7 ($16.2) ($54.1) $60.3 ($129.5) $55.3 $25.7 $25.4 $87.3 4Q17 3Q18 4Q18 Full-Year 2018 MSR fair value change before recognition of realization of cash flows Change in fair value of hedges and ESS liability Production pretax income 14 . PFSI seeks to moderate the impact of interest rate changes on the fair value of its MSR asset through a comprehensive hedge strategy . In 4Q18, MSR fair value decreased primarily due to the decrease in interest rates during December – Resulted in expectations for a modest increase in prepayment activity . MSR fair value losses in 4Q18 were largely offset by associated hedging gains and rate-driven fair value decrease of the ESS liability . For the year 2018, PFSI recorded $34.1 million in fair value gains net of the performance of hedges and ESS, reflecting successful hedge results despite significant volatility in interest rates MSR Valuation Changes and Offsets ($ in millions) Hedging Approach Continues to Moderate the Volatility of PFSI’s Results Note: Figures may not sum exactly due to rounding


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$ in millions basis points(1) $ in millions basis points(1) $ in millions basis points(1) Operating revenue 176.1$ 28.9 198.3$ 28.5 217.9$ 29.5 Amortization and realization of MSR cash flows (66.9) (11.0) (71.4) (10.3) (82.3) (11.1) EBO-related revenue(2) 38.6 6.4 40.7 5.9 37.4 5.1 Servicing expenses: Operating expenses (67.7) (11.1) (75.8) (10.9) (75.8) (10.3) Credit losses and provisions for defaulted loans (15.0) (2.5) (18.6) (2.7) (19.0) (2.6) EBO transaction-related expense (13.3) (2.2) (14.0) (2.0) (8.3) (1.1) Financing expenses: Interest on ESS (3.9) (0.6) (3.7) (0.5) (3.6) (0.5) Interest to third parties (19.6) (3.2) (25.6) (3.7) (21.8) (3.0) Pretax income excluding valuation-related changes 28.2$ 4.6 29.9$ 4.3 44.5$ 6.0 Valuation-related changes(3) MSR fair value(4) 28.0 60.9 (67.3) ESS liability fair value 4.6 (1.1) 0.5 Hedging derivatives losses (20.8) (53.0) 59.8 Provision for credit losses on active loans(5) (8.0)$ (3.1) (8.3) Servicing segment pretax income (loss) 32.0$ 33.6$ 29.3$ 15 (1) Of average portfolio UPB, annualized (2) Comprised of net gains on mortgage loans held for sale at fair value and net interest income related to EBO loans (3) Changes in fair value do not include realization of MSR cash flows, which are included in amortization and realization of MSR cash flows above (4) Includes fair value changes and provision for impairment (5) Considered in the assessment of MSR fair value changes 4Q17 3Q18 4Q18 . Continued increase in operating profits driven by portfolio growth resulting from large loan production volumes along with bulk MSR acquisitions, resulting in increased operating revenue – Operating expenses flat on a dollar basis and decreased significantly in basis points – Credit losses and the provision for defaulted loans in line with prior period levels . Higher interest rates for most of 4Q18 drove a decrease in EBO-related revenues and expenses Servicing Profitability Excluding Valuation-Related Changes


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Appendix


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• Complex and highly regulated mortgage industry requires effective governance, compliance and operating systems • Operating platform has been developed organically and is highly scalable • Commitment to strong corporate governance, compliance and risk management since inception • PFSI is well positioned for continued growth in this market and regulatory environment Loan Production Loan Servicing Investment Management • Servicing for owned MSRs and subservicing for PMT • Major loan servicer for Fannie Mae, Freddie Mac and Ginnie Mae • Industry-leading capabilities in special servicing • Organic growth results from loan production, supplemented by MSR acquisitions and PMT investment activity • External manager of PennyMac Mortgage Investment Trust (NYSE: PMT), which is focused on investing in mortgage-related assets: – GSE credit risk transfers – MSRs and ESS – Investments in prime non-Agency MBS and ABS – HELOC and prime non-QM securitization interests – Distressed whole loans • Synergistic partnership with PMT • Correspondent aggregation of newly originated loans from third-party sellers – PFSI earns gains on delegated government-insured and non- delegated loans – Fulfillment fees for PMT’s delegated conventional loans • Consumer direct origination of conventional and government- insured loans • Broker direct origination launched in 2018 17 Overview of PennyMac Financial’s Businesses


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PLS launches Broker Direct channel PennyMac Financial completes corporate reorganization simplifying corporate structure PennyMac Financial’s 11 Years of Continuous Growth and Development 18 2008 2009 2010 2012 2013 2016 2017 2018 PennyMac Loan Services, LLC (PLS) founded in 2008 with 72 employees August 9, 2009: PennyMac Mortgage Investment Trust IPOs on the NYSE (PMT) PLS launches correspondent group PLS reaches 1,000 employees May 14, 2013: PennyMac Financial Services, Inc. IPOs on the NYSE (PFSI) PMT becomes the 2nd largest correspondent aggregator overall(1) PLS reaches 1 million customers and 3,100 employees in January PLS becomes the 8th largest mortgage servicer with a portfolio over $229 billion in UPB (1) Leading nonbank residential mortgage specialist with capital, expertise, operational capabilities and breadth of management (1) Source: Inside Mortgage Finance


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19 Industry-leading platform built organically – not through acquisitions . Disciplined, sustainable growth for more than 11 years . Focused on building and testing processes and systems before large transaction volumes Distinctive expertise and full range of capabilities across mortgage banking and investment management  Loan production, e.g., loan fulfillment systems and operations, correspondent counterparty review and management  Credit, e.g., loan program development, underwriting and quality control  Capital markets, e.g., pooling and securitization, hedging/interest rate risk management  Servicing, e.g., customer service, default management, investor accounting  Corporate functions, e.g., enterprise risk management, internal audit, treasury, finance and accounting, legal, IT infrastructure and development . Over 3,000 employees . Highly experienced management team – 120 senior-most executives have, on average, 25 years of relevant industry experience Strong governance and compliance culture . Led by distinguished board which includes eight independent Directors . Robust management governance structure with 9 committees that oversee key risks and controls . External oversight by regulators, business partners and other third parties Desired structure in place to compete effectively as a non-bank . Synergistic partnership with PMT, a leading residential mortgage REIT and long-term investment vehicle . Provides access to efficient capital and reduces balance sheet constraints on growth PennyMac Financial is in a Unique Position Among Mortgage Specialists


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20 Why Are MSR Sales Occurring? How Do MSRs Come to Market? . Large servicers may sell MSRs due to operational pressures, higher regulatory capital requirements for banks (treatment under Basel III) and a re-focus on core customers/businesses . Independent mortgage banks sell MSRs from time to time due to a need for capital . Intermittent large bulk portfolio sales ($10+ billion in UPB) Require considerable coordination with selling institutions and Agencies . Mini-bulk sales (typically $500 million to $5 billion in UPB) . Flow/co-issue MSR transactions (monthly commitments, typically $20-$100 million in UPB) Alternative delivery method typically from larger independent originators Which MSR Transactions Are Attractive? . GSE and Ginnie Mae servicing in which P