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Section 1: 8-K (8-K)

PFSI Form 8-K (1Q19 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): May 2, 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. ☐

 

Securities registered pursuant to Section 12(b) of the Act:

 

 

 

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $0.0001 par value

PFSI

New York Stock Exchange

 

 

 


 

Item 2.02    Results of Operations and Financial Condition.

On May 2, 2019,  PennyMac Financial Services, Inc. (the “Company”) issued a press release announcing its financial results for the fiscal quarter ended March 31, 2019.  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 May 2, 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 May 2, 2019, issued by PennyMac Financial Services, Inc. pertaining to its financial results for the fiscal quarter ended March 31, 2019.

99.2

 

Slide Presentation for use beginning on May 2, 2019 in connection with a recorded presentation of financial results for the fiscal quarter ended March 31, 2019.

 


 

EXHIBIT INDEX

Exhibit No.

    

Description

 

 

 

99.1

 

Press Release, dated May 2, 2019, issued by PennyMac Financial Services, Inc. pertaining to its financial results for the fiscal quarter ended March 31, 2019.

99.2

 

Slide Presentation for use beginning on May 2, 2019 in connection with a recorded presentation of financial results for the fiscal quarter ended March 31, 2019.

 

 

 

 


 

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:  May  3,  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)

pfsi_Ex99_1

 

Exhibit 99.1

Picture 1

 

 

 

 

 

 

Media

Investors

 

 

Janis Allen

Christopher Oltmann

 

 

(805) 330‑4899

(818) 264‑4907

 

PennyMac Financial Services, Inc. Reports
First Quarter 2019  Results

Westlake Village, CA,  May 2,  2019 – PennyMac Financial Services, Inc. (NYSE: PFSI) today reported net income of $46.1 million for the first quarter of 2019,  or $0.58  per share on a diluted basis, on revenue of $247.7 million.  Book value per share increased to $21.72 from $21.34 at December 31, 2018.

First Quarter 2019 Highlights

Pretax income was $60.3 million, up 3 percent from the prior quarter and down 17 percent from the first quarter of 2018

o     Significant interest rate volatility highlighted the importance of our hedging approach and is also driving improving production trends

Production segment pretax income was $47.0 million, up 85 percent from the prior quarter and 174 percent from the first quarter of 2018

o     Total loan acquisitions and originations were $16.6 billion in unpaid principal balance (UPB), down 15 percent from the prior quarter and up 16 percent from the first quarter of 2018

o     Correspondent government and non-delegated interest rate lock commitments (IRLCs) totaled $7.7 billion in UPB, down 16 percent from the prior quarter and the first quarter of 2018

o     Direct lending IRLCs were $2.7 billion in UPB, up 36 percent from the prior quarter and 57 percent from the first quarter of 2018

o     Correspondent conventional and jumbo acquisition volume fulfilled for PennyMac Mortgage Investment Trust (NYSE: PMT) totaled $8.1 billion in UPB, down 10 percent from the prior quarter and up 92 percent from the first quarter of 2018

 


 

 

·

Servicing segment pretax income was $11.2 million, down 62 percent from the prior quarter and 80 percent from the first quarter of 2018

o     Servicing segment pretax income excluding valuation-related losses was $35.3 million, down 21 percent from the prior quarter and 3 percent from the first quarter of 20181

o     Valuation-related items included a $164.9 million decrease in mortgage servicing rights (MSR) fair value, partially offset by $134.6 million in hedging gains and $4.1 million due to the change in fair value of the excess servicing spread (ESS) liability; net impact on pretax income was $(26.3) million and on EPS was $(0.24)

o     Completed two bulk acquisitions of Ginnie Mae MSR portfolios totaling $16.3 billion in UPB

o     The servicing portfolio grew to $324.7 billion in UPB, up 8 percent from December 31, 2018, and 27 percent from March 31, 2018

·

Investment Management segment pretax income was  $2.1 million,  down from $2.5 million in the prior quarter and up from $1.0 million in the first quarter of 2018

o     Revenue of $8.8 million, up 12 percent from the prior quarter and 28 percent from the first quarter of 2018

o     PMT raised approximately $147 million in net proceeds from the issuance of common shares during the quarter

o     Net assets under management (AUM) were $1.7 billion, up 10 percent from December 31, 2018, and 12 percent from March 31, 2018

“PFSI’s strong first quarter financial results demonstrate the earnings power of PennyMac Financial’s balanced business model in a declining mortgage rate environment,” said President and CEO David Spector. “Our servicing portfolio grew to $325 billion at the end of the quarter, driven by our industry-leading production activities and $16 billion of bulk acquisitions.  In our Production segment, the investments we have made in our consumer direct lending channel generated strong results as we helped a number of our 1.6 million servicing customers take advantage of lower rates and refinance their homes.  We remain confident that our comprehensive operating platform and sophisticated interest rate risk management capabilities position PennyMac Financial to execute across different market environments and maintain our leadership position in the mortgage industry.”


1

Excludes changes in the fair value of MSRs and the ESS liability, and (losses) gains on hedging which were $(164.9) million, $4.1 million, and $134.6 million, respectively, and a $2.2 million reversal of provision for credit losses on active loans in the first quarter of 2019.

2


 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Quarter ended March 31, 2019

 

 

 

Mortgage Banking

 

 

 

 

 

 

 

 

    

Production

    

Servicing

    

Total

    

Investment
Management

    

Total

 

 

 

(in thousands)

 

Revenue

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net gains on mortgage loans held for sale at fair value

 

$

66,721 

 

$

18,055 

 

$

84,776 

 

$

— 

 

$

84,776 

 

Loan origination fees

 

 

23,930 

 

 

— 

 

 

23,930 

 

 

— 

 

 

23,930 

 

Fulfillment fees from PMT

 

 

27,574 

 

 

— 

 

 

27,574 

 

 

— 

 

 

27,574 

 

Net servicing fees

 

 

— 

 

 

80,571 

 

 

80,571 

 

 

— 

 

 

80,571 

 

Management fees

 

 

— 

 

 

— 

 

 

— 

 

 

7,248 

 

 

7,248 

 

Net interest income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

14,369 

 

 

43,964 

 

 

58,333 

 

 

— 

 

 

58,333 

 

Interest expense

 

 

3,915 

 

 

33,621 

 

 

37,536 

 

 

 

 

37,543 

 

 

 

 

10,454 

 

 

10,343 

 

 

20,797 

 

 

(7)

 

 

20,790 

 

Other

 

 

488 

 

 

765 

 

 

1,253 

 

 

1,563 

 

 

2,816 

 

Total net revenue

 

 

129,167 

 

 

109,734 

 

 

238,901 

 

 

8,804 

 

 

247,705 

 

Expenses

 

 

82,161 

 

 

98,571 

 

 

180,732 

 

 

6,682 

 

 

187,414 

 

Pretax income

 

$

47,006 

 

$

11,163 

 

$

58,169 

 

$

2,122 

 

$

60,291 

 

 

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 $16.6 billion in UPB, $8.5 billion of which was for its own account, and $8.1 billion was fee-based fulfillment activity for PMT.  Correspondent government, non-delegated and direct lending IRLCs totaled $10.4 billion in UPB.

Production segment pretax income was $47.0 million, an increase of 85 percent from the prior quarter and 174 percent from the first quarter of 2018.  Production revenue totaled $129.2 million, an increase of 20 percent from the prior quarter and 52 percent from the first quarter of 2018.  The quarter-over-quarter increase resulted from a $29.9 million increase in net gains on mortgage loans held for sale, driven by higher production volumes and margins in our consumer direct production channel.  Net gains on mortgage loans held for sale also includes a $4.2 million benefit from a reduction in the liability for losses under representations and warranties due to a change in estimate.

3


 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

Quarter ended

 

 

    

March 31, 
2019

    

December 31, 
2018

    

March 31,
2018

 

 

 

(in thousands)

 

Receipt of MSRs in loan sale transactions

 

$

114,957 

 

$

141,100 

 

$

141,873 

 

Mortgage servicing rights recapture payable to PennyMac Mortgage Investment Trust

 

 

(1,123)

 

 

(1,259)

 

 

(1,425)

 

Reversal of liability (provision) for representations and warranties, net

 

 

3,143 

 

 

(229)

 

 

(379)

 

Cash investment (1)

 

 

(23,023)

 

 

(46,260)

 

 

(63,594)

 

Fair value changes of pipeline, inventory and hedges

 

 

(9,178)

 

 

(33,604)

 

 

(5,061)

 

Net gains on mortgage loans held for sale

 

$

84,776 

 

$

59,748 

 

$

71,414 

 

Net gains on mortgage loans held for sale by segment:

 

 

 

 

 

 

 

 

 

 

Production

 

$

66,721 

 

$

36,848 

 

$

36,198 

 

Servicing

 

$

18,055 

 

$

22,900 

 

$

35,216 

 


(1)

Net of 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 $27.6 million in the first quarter, down 4 percent  from the prior quarter and up 131 percent from the first quarter of 2018.  The quarter-over-quarter decrease in  fulfillment fee revenue was driven by lower acquisition volumes by PMT,  partially offset by an  increase in the weighted average fulfillment fee rate to 34  basis points from 32 basis points in the prior quarter.

Net interest income totaled $10.5  million,  a decrease from $15.3 million in the prior quarter and $12.1 million in the first quarter of 2018.  Net interest income included $9.3  million in incentives which the Company is currently entitled to receive under one of its master repurchase agreements to finance mortgage loans that satisfied certain consumer relief characteristics, down from $12.6  million in the prior quarter and $10.2  million in the first quarter of 2018.  The Company expects that it will cease to accrue incentives under the repurchase agreement 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 $82.2 million, essentially unchanged from the prior quarter and up 21 percent from the first quarter of 2018.

Servicing Segment

Servicing includes income from owned MSRs,  subservicing and special servicing activities.  Servicing segment pretax income was $11.2 million, down from $29.3 million in the prior quarter and $54.9 million in the first quarter of 2018.  Servicing segment revenues totaled $109.7 million, down 19 percent from the prior quarter and 25 percent from the first quarter of 2018.  The quarter-over-quarter decrease primarily reflects net valuation-related losses driven by the decline in mortgage rates during the quarter, partially offset by increased servicing fees from a larger portfolio.

Net loan servicing fees totaled $80.6 million and included $199.4 million in servicing fees reduced by $92.5 million from the realization of MSR cash flows.  Net valuation-related losses totaled $26.3 million, which included  MSR fair value losses of $164.9 million,  associated hedging gains of $134.6 million and a $4.1 million gain resulting from

4


 

 

changes in fair value of the ESS liability.  The MSR fair value losses primarily resulted from expectations for increased prepayment activity driven by the decrease in mortgage rates in the quarter.

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

 

 

 

 

 

 

 

 

 

 

 

 

 

Quarter ended

 

 

    

March 31, 
2019

    

December 31, 
2018

    

March 31,
2018

 

 

 

(in thousands)

 

Servicing fees (1)

 

$

199,377 

 

$

194,405 

 

$

160,673 

 

Effect of MSRs:

 

 

 

 

 

 

 

 

 

 

Realization of cash flows

 

 

(92,475)

 

 

(82,250)

 

 

(61,176)

 

Change in fair value of MSRs

 

 

(164,939)

 

 

(67,277)

 

 

127,806 

 

Change in fair value of excess servicing spread financing

 

 

4,051 

 

 

526 

 

 

(6,921)

 

Hedging gains (losses)

 

 

134,557 

 

 

59,808 

 

 

(103,593)

 

Total change in fair value of MSRs

 

 

(118,806)

 

 

(89,193)

 

 

(43,884)

 

Net loan servicing fees

 

$

80,571 

 

$

105,212 

 

$

116,789 

 


(1)

Includes contractually-specified servicing fees

Servicing segment revenue also included $18.1 million in net gains on mortgage loans held for sale from the securitization of reperforming government-insured and guaranteed loans, compared to $22.9 million in the prior quarter and $35.2 million in the first quarter of 2018.  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 $10.3 million, up from $6.0  million in the prior quarter and a  net interest expense of $6.3 million in the first quarter of 2018.  Interest income increased by $4.5 million from the prior quarter, primarily driven by higher interest income from an increase in custodial deposit balances and elevated EBO activity, while interest expense was essentially unchanged quarter-over-quarter.

Servicing segment expenses totaled $98.6 million,  down 7 percent from the prior quarter and up 8 percent from the first quarter of 2018.

The total servicing portfolio reached $324.7 billion in UPB at March 31,  2019, an increase of 8 percent from December 31, 2018, and 27 percent from March 31,  2018.  Servicing portfolio growth during the quarter was driven by the Company’s  loan production activities and the completion of $16.3 billion in UPB of bulk MSR acquisitions.  PennyMac Financial subservices and conducts special servicing for $101.3 billion in UPB, an increase of 7 percent from December 31, 2018 and 31 percent from March 31,  2018.  PennyMac Financial’s owned MSR portfolio grew to $219.8 billion in UPB, an increase of 9 percent from the prior quarter end.

5


 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

    

March 31,
2019

    

December 31,
2018

    

March 31,
2018

 

 

 

(in thousands)

 

Loans serviced at period end:

 

 

 

 

 

 

 

 

 

 

Prime servicing:

 

 

 

 

 

 

 

 

 

 

Owned

 

 

 

 

 

 

 

 

 

 

Mortgage servicing rights

 

 

 

 

 

 

 

 

 

 

Originated

 

$

147,987,738 

 

$

144,296,544 

 

$

125,643,312 

 

Acquisitions

 

 

71,846,623 

 

 

56,757,600 

 

 

47,843,853 

 

 

 

 

219,834,361 

 

 

201,054,144 

 

 

173,487,165 

 

Mortgage servicing liabilities

 

 

1,000,403 

 

 

1,160,938 

 

 

1,766,722 

 

Mortgage loans held for sale

 

 

2,573,121 

 

 

2,420,636 

 

 

2,512,546 

 

 

 

 

223,407,885 

 

 

204,635,718 

 

 

177,766,433 

 

Subserviced for Advised Entities

 

 

100,939,297 

 

 

94,276,938 

 

 

76,636,300 

 

Total prime servicing

 

 

324,347,182 

 

 

298,912,656 

 

 

254,402,733 

 

Special servicing:

 

 

 

 

 

 

 

 

 

 

Subserviced for Advised Entities

 

 

348,131 

 

 

381,216 

 

 

903,138 

 

Total special servicing

 

 

348,131 

 

 

381,216 

 

 

903,138 

 

Total loans serviced

 

$

324,695,313 

 

$

299,293,872 

 

$

255,305,871 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage loans serviced:

 

 

 

 

 

 

 

 

 

 

Owned

 

 

 

 

 

 

 

 

 

 

Mortgage servicing rights

 

$

219,834,361 

 

$

201,054,144 

 

$

173,487,165 

 

Mortgage servicing liabilities

 

 

1,000,403 

 

 

1,160,938 

 

 

1,766,722 

 

Mortgage loans held for sale

 

 

2,573,121 

 

 

2,420,636 

 

 

2,512,546 

 

 

 

 

223,407,885 

 

 

204,635,718 

 

 

177,766,433 

 

Subserviced

 

 

101,287,428 

 

 

94,658,154 

 

 

77,539,438 

 

Total mortgage loans serviced

 

$

324,695,313 

 

$

299,293,872 

 

$

255,305,871 

 

 

Investment Management Segment

PennyMac Financial manages PMT for which it earns base management fees and may earn incentive compensation.  Net assets under management were $1.7 billion as of March 31,  2019,  up 10 percent from December 31, 2018, and 12 percent from March 31,  2018.  The quarter-over-quarter change was driven by PMT’s  issuance of approximately $147 million of common shares this quarter.

Pretax income for the Investment Management segment was $2.1  million,  down from $2.5 million in the prior quarter and up from $1.0 million in the first quarter of 2018.  Management fees, which include base management fees from PMT,  increased 11 percent from the prior quarter and 26 percent from the first quarter of 2018 as a result of PMT’s increased assets under management.  Management fees also included incentive fees of $1.1 million, up from $0.7 million in the prior quarter, based on PMT’s  strong financial performance.  No incentive fees were earned in the first quarter of 2018.

6


 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

Quarter ended

 

 

    

March 31,
2019

    

December 31,
2018

    

March 31,
2018

 

 

 

(in thousands)

 

Management fees:

 

 

 

 

 

 

 

 

 

 

PennyMac Mortgage Investment Trust

 

 

 

 

 

 

 

 

 

 

Base

 

$

6,109 

 

$

5,810 

 

$

5,696 

 

Performance incentive

 

 

1,139 

 

 

749 

 

 

— 

 

 

 

 

7,248 

 

 

6,559 

 

 

5,696 

 

Investment Funds

 

 

— 

 

 

— 

 

 

79 

 

Total management fees

 

 

7,248 

 

 

6,559 

 

 

5,775 

 

Carried Interest

 

 

— 

 

 

— 

 

 

(180)

 

Total management fees and Carried Interest

 

$

7,248 

 

$

6,559 

 

$

5,595 

 

 

 

 

 

 

 

 

 

 

 

 

Net assets of Advised Entities:

 

 

 

 

 

 

 

 

 

 

PennyMac Mortgage Investment Trust

 

$

1,727,589 

 

$

1,566,132 

 

$

1,542,258 

 

Investment Funds

 

 

— 

 

 

— 

 

 

2,668 

 

 

 

$

1,727,589 

 

$

1,566,132 

 

$

1,544,926 

 

 

Investment Management segment expenses totaled $6.7 million,  up 25 percent from the prior quarter and 12 percent from the first quarter of 2018.  The quarter-over-quarter increase was driven by increased compensation expenses related to seasonally higher accruals in the beginning of the year.

Consolidated Expenses

Total expenses for the first quarter were $187.4 million, down 3 percent from the prior quarter and up 13 percent from the first quarter of 2018.  The year-over-year change was primarily driven by higher volumes in the Production segment and increased EBO-related activity in the Servicing segment.

***

Executive Chairman Stanford L. Kurland concluded, “This quarter’s results highlight both the ability of our balanced mortgage banking platform to adapt to a changing market environment, and our core culture of continuous improvement.  We are focused on expense management and greater efficiency across the organization, capturing the benefits of scale and utilizing proprietary and third-party technology solutions to realize competitive advantages through lower costs, while maintaining the high quality and effectiveness of our operations.  We believe these initiatives will further differentiate PennyMac Financial from our competition and further solidify our leadership position in the U.S. mortgage market.”

Management’s slide presentation will be available in the Investor Relations section of the Company’s website at ir.pennymacfinancial.com beginning at 1:30 p.m. (Pacific Time) on Thursday,  May 2,  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 ir.pennymacfinancial.com.

This press release contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, regarding management’s beliefs, estimates, projections, the recently completed corporate

7


 

 

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.

8


 

 

PENNYMAC FINANCIAL SERVICES, INC.

CONSOLIDATED BALANCE SHEETS (UNAUDITED)

 

 

 

 

 

 

 

 

 

 

 

 

    

March 31,
2019

    

December 31,
2018

    

March 31,
2018

 

 

 

(in thousands, except share amounts)

 

ASSETS

 

 

 

 

 

 

 

 

 

 

Cash

 

$

144,266 

 

$

155,289 

 

$

137,863 

 

Short-term investments at fair value

 

 

149,372 

 

 

117,824 

 

 

105,890 

 

Mortgage loans held for sale at fair value

 

 

2,668,929 

 

 

2,521,647 

 

 

2,584,236 

 

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

 

 

125,929 

 

 

131,025 

 

 

142,938 

 

Derivative assets

 

 

121,153 

 

 

96,347 

 

 

89,469 

 

Servicing advances, net

 

 

284,230 

 

 

313,197 

 

 

284,145 

 

Investment in PennyMac Mortgage Investment Trust at fair value

 

 

1,553 

 

 

1,397 

 

 

1,352 

 

Mortgage servicing rights

 

 

2,905,090 

 

 

2,820,612 

 

 

2,354,489 

 

Real estate acquired in settlement of loans

 

 

1,690 

 

 

2,250 

 

 

2,338 

 

Operating lease right-of-use assets

 

 

56,239 

 

 

— 

 

 

— 

 

Furniture, fixtures, equipment and building improvements, net

 

 

33,423 

 

 

33,374 

 

 

30,172 

 

Capitalized software, net

 

 

45,416 

 

 

39,748 

 

 

28,919 

 

Receivable from PennyMac Mortgage Investment Trust

 

 

29,951 

 

 

33,464 

 

 

27,356 

 

Loans eligible for repurchase

 

 

1,094,702 

 

 

1,102,840 

 

 

1,018,488 

 

Other

 

 

157,057 

 

 

109,559 

 

 

95,236 

 

Total assets

 

$

7,819,000 

 

$

7,478,573 

 

$

6,902,891 

 

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES

 

 

 

 

 

 

 

 

 

 

Assets sold under agreements to repurchase

 

$

2,151,938 

 

$

1,933,859 

 

$

1,814,282 

 

Mortgage loan participation and sale agreements

 

 

547,879 

 

 

532,251 

 

 

510,443 

 

Notes payable

 

 

1,292,736 

 

 

1,292,291 

 

 

1,140,022 

 

Obligations under capital lease

 

 

5,091 

 

 

6,605 

 

 

16,435 

 

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

 

 

205,081 

 

 

216,110 

 

 

236,002 

 

Derivative liabilities

 

 

17,838 

 

 

3,064 

 

 

4,476 

 

Operating lease liabilities

 

 

76,373 

 

 

— 

 

 

— 

 

Mortgage servicing liabilities at fair value

 

 

7,844 

 

 

8,681 

 

 

12,063 

 

Accounts payable and accrued expenses

 

 

162,677 

 

 

156,212 

 

 

113,072 

 

Payable to PennyMac Mortgage Investment Trust

 

 

76,494 

 

 

104,631 

 

 

117,987 

 

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

 

 

46,537 

 

 

46,537 

 

 

46,037 

 

Income taxes payable

 

 

414,636 

 

 

400,546 

 

 

58,956 

 

Liability for loans eligible for repurchase

 

 

1,094,702 

 

 

1,102,840 

 

 

1,018,488 

 

Liability for losses under representations and warranties

 

 

17,982 

 

 

21,155 

 

 

20,429 

 

Total liabilities

 

 

6,117,808 

 

 

5,824,782 

 

 

5,108,692 

 

 

 

 

 

 

 

 

 

 

 

 

STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

 

 

 

Common stock—authorized 200,000,000 shares of $0.0001 par value; issued and outstanding, 78,317,843, 77,480,172, and 25,195,436 shares, respectively

 

 

 

 

 

 

 

Additional paid-in capital

 

 

1,311,914 

 

 

1,310,648 

 

 

221,495 

 

Retained earnings

 

 

389,270 

 

 

343,135 

 

 

282,114 

 

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

 

 

1,701,192 

 

 

1,653,791 

 

 

503,611 

 

Noncontrolling interests in Private National Mortgage Acceptance Company, LLC

 

 

— 

 

 

— 

 

 

1,290,588 

 

Total stockholders' equity

 

 

1,701,192 

 

 

1,653,791 

 

 

1,794,199 

 

Total liabilities and stockholders’ equity

 

$

7,819,000 

 

$

7,478,573 

 

$

6,902,891 

 

9


 

 

 

PENNYMAC FINANCIAL SERVICES, INC.

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

 

 

Quarter ended

 

 

    

March 31, 
2019

    

December 31, 
2018

    

March 31,
2018

 

 

 

(in thousands, except earnings per share)

 

Revenue

 

 

 

 

 

 

 

 

 

 

Net mortgage loan servicing fees:

 

 

 

 

 

 

 

 

 

 

Mortgage loan servicing fees

 

 

 

 

 

 

 

 

 

 

From non-affiliates

 

$

166,790 

 

$

163,565 

 

$

135,483 

 

From PennyMac Mortgage Investment Trust

 

 

10,570 

 

 

11,524 

 

 

11,019 

 

Ancillary and other fees

 

 

22,017 

 

 

19,316 

 

 

14,171 

 

 

 

 

199,377 

 

 

194,405 

 

 

160,673 

 

Change in estimated fair value of mortgage servicing rights and excess servicing spread financing

 

 

(118,806)

 

 

(89,193)

 

 

(43,884)

 

Net mortgage loan servicing fees

 

 

80,571 

 

 

105,212 

 

 

116,789 

 

Net gains on mortgage loans held for sale at fair value

 

 

84,776 

 

 

59,748 

 

 

71,414 

 

Mortgage loan origination fees

 

 

23,930 

 

 

26,165 

 

 

24,563 

 

Fulfillment fees from PennyMac Mortgage Investment Trust

 

 

27,574 

 

 

28,591 

 

 

11,944 

 

Net interest income:

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

58,333 

 

 

57,733 

 

 

42,615 

 

Interest expense

 

 

37,543 

 

 

36,461 

 

 

36,745 

 

 

 

 

20,790 

 

 

21,272 

 

 

5,870 

 

Management fees, net:

 

 

 

 

 

 

 

 

 

 

From PennyMac Mortgage Investment Trust

 

 

7,248 

 

 

6,559 

 

 

5,696 

 

From Investment Funds

 

 

— 

 

 

— 

 

 

79 

 

 

 

 

7,248 

 

 

6,559 

 

 

5,775 

 

Carried Interest from Investment Funds

 

 

— 

 

 

— 

 

 

(180)

 

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

 

 

192 

 

 

(87)

 

 

182 

 

Results of real estate acquired in settlement of loans

 

 

274 

 

 

410 

 

 

(28)

 

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

 

 

— 

 

 

1,126 

 

 

— 

 

Other

 

 

2,350 

 

 

2,205 

 

 

1,872 

 

Total net revenue

 

 

247,705 

 

 

251,201 

 

 

238,201 

 

Expenses

 

 

 

 

 

 

 

 

 

 

Compensation

 

 

106,600 

 

 

99,353 

 

 

102,013 

 

Servicing

 

 

30,293 

 

 

41,518 

 

 

26,299 

 

Technology

 

 

15,966 

 

 

15,056 

 

 

14,620 

 

Loan origination

 

 

14,497 

 

 

12,936 

 

 

6,377 

 

Professional services

 

 

5,881 

 

 

9,173 

 

 

2,115 

 

Occupancy and equipment

 

 

6,776 

 

 

7,151 

 

 

5,738 

 

Marketing

 

 

1,325 

 

 

1,553 

 

 

2,161 

 

Other

 

 

6,076 

 

 

6,155 

 

 

5,882 

 

Total expenses

 

 

187,414 

 

 

192,895 

 

 

165,205 

 

Income before provision for income taxes

 

 

60,291 

 

 

58,306 

 

 

72,996 

 

Provision for income taxes

 

 

14,156 

 

 

5,346 

 

 

6,070 

 

Net income

 

 

46,135 

 

 

52,960 

 

 

66,926 

 

Less: Net income attributable to noncontrolling interest

 

 

— 

 

 

14,211 

 

 

50,307 

 

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

 

$

46,135 

 

$

38,749 

 

$

16,619 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.59 

 

$

0.65 

 

$

0.70 

 

Diluted

 

$

0.58 

 

$

0.63 

 

$

0.67 

 

Weighted-average common shares outstanding

 

 

 

 

 

 

 

 

 

 

Basic

 

 

77,653 

 

 

59,876 

 

 

23,832 

 

Diluted

 

 

79,286 

 

 

61,468 

 

 

79,461 

 

 

10


(Back To Top)

Section 3: EX-99.2 (EX-99.2)

Exhibit 99.2

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First Quarter 2019 Earnings Report Exhibit 99.2


GRAPHIC

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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First Quarter Highlights 3 ▪ Net income was $46.1 million; diluted earnings per share (EPS) were $0.58 – Significant interest rate volatility highlighted the importance of our hedging approach and is also driving improving production trends – Book value per share increased to $21.72 from $21.34 at December 31, 2018 ▪ Production segment pretax income was $47.0 million, up 85% from 4Q18 and 174% from 1Q18 – Total acquisition and origination volume was $16.6 billion in unpaid principal balance (UPB), down 15% from 4Q18 and up 16% from 1Q18 – Total correspondent government and non-delegated locks were $7.7 billion in UPB, down 16% from 4Q18 and 1Q18 – Direct lending locks were $2.7 billion in UPB, up 36% from 4Q18 and 57% from 1Q18 – Correspondent conventional and jumbo acquisition volume fulfilled for PMT was $8.1 billion in UPB, down 10% from 4Q18 and up 92% from 1Q18; fulfillment fee revenue of $27.6 million more than doubled from 1Q18 ▪ Servicing segment pretax income was $11.2 million, down 62% from 4Q18 and 80% from 1Q18 – Valuation-related items included a $164.9 million loss in the fair value of mortgage servicing rights (MSR), partially offset by $134.6 million in hedging gains and $4.1 million due to the change in fair value of the excess servicing spread (ESS) liability; net impact on pretax income was $(26.3) million and on EPS was $(0.24) – Pretax income excluding valuation-related items was $35.3 million, down 21% from 4Q18 and down 3% from 1Q18 o Continued strong operating profitability; higher EBO-related expenses reflect large EBO volumes which are expected to benefit future period income – Completed two bulk acquisitions of Ginnie Mae MSR portfolios totaling $16.3 billion in UPB – Servicing portfolio grew to $324.7 billion in UPB, up 8% from December 31, 2018 and 27% from March 31, 2018


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4 ▪ Investment Management segment pretax income was $2.1 million, down from $2.5 million in 4Q18 and up from $1.0 million in 1Q18 – Revenue of $8.8 million in 1Q19, an increase of 12% from 4Q18 and 28% from 1Q18 – PMT raised $147 million in new common equity – Net assets under management (AUM) were $1.7 billion, up 10% from December 31, 2018 and 12% from March 31, 2018 First Quarter Highlights (continued)


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5 3.0% 3.5% 4.0% 4.5% 5.0% 5.5% 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 Mar-19 5 Average 30-year fixed rate mortgage(1)▪ The U.S. economy remains on strong footing, despite global growth concerns – Greater clarity from the Federal Reserve on expectations for further rate increases ▪ The average 30-year fixed mortgage rate in the first quarter was 41 basis points lower than 4Q18 – Interest rate decline driving increased refinance activity; Mortgage Bankers Association (MBA) Refinance Application Index at quarter end was 1,786 compared to 730 at December 31, 2018 ▪ Moderating home price appreciation combined with lower rates improves affordability – Purchase originations are expected to grow by mid- single digit percentages over the next two years ▪ Spreads on GSE credit risk transfer (CRT) securities largely retraced the 40 - 80 basis points of the widening experienced in 4Q18 ▪ Total U.S. mortgage delinquency rates remain near their recent all-time lows at 3.65% as of March 31, 2019 – Down from 3.88% at December 31, 2018 and 3.73% at March 31, 2018(3) Current Market Environment 4.55% 4.06% (1) Freddie Mac Primary Mortgage Market Survey. 4.20% as of April 25, 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 House Price Index. Forecasted home price appreciation: Average of Mortgage Bankers Association, Fannie Mae, Freddie Mac. (3) Black Knight, Inc. Includes loans that are 30 days or more past due but not in foreclosure Macroeconomic Forecasts(2) 2016 2017 2018 2019E 2020E 2021E New home sales ('000s) 561 616 620 639 666 696 Existing home sales ('000s) 5,440 5,547 5,339 5,411 5,526 5,802 Total originations ($ in billions) $2,065 $1,810 $1,630 $1,642 $1,663 $1,740 Purchase originations ($ in billions) $1,037 $1,144 $1,141 $1,196 $1,249 $1,308 U.S. Home Price Appreciation (Y/Y % Change) 5.8% 6.9% 6.3% 4.1% 2.8% 1.9% Green: denotes improvement since previous earnings report Red: denotes drop since previous earnings report


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6 Drivers of Earnings Growth for PennyMac Financial Industry consolidation expected to continue Grow market share in all production channels Infrastructure for new products Continued technology development Scale advantage and efficiency ▪ PennyMac Financial is well-positioned to gain share over time as industry participants exit or adjust their strategies in the highly-competitive market environment ▪ Opportunities to acquire bulk MSR portfolios expected to continue ▪ Correspondent – focus on growth of non-delegated; expanding community bank and credit union relationships ▪ Broker Direct Lending – focus on leveraging technology and access to PennyMac platform to drive growth ▪ Consumer Direct Lending – expanded refinance opportunities as a result of lower rates; remain focused on growth of purchase-money and non-portfolio volumes ▪ HELOCs(1) - first non-bank lender to directly offer a HELOC to our servicing portfolio customers ▪ Prime non-QM(2) – already launched in the correspondent channel; launching in direct lending channels later this year ▪ Grow investment management activities with PMT’s ability to securitize and invest in new products ▪ Successfully developing and implementing new technologies throughout the business – loan servicing, production channels, pricing and margin management ▪ Scale allows us to invest while facilitating new business opportunities and furthering our competitive advantages ▪ Expense management initiatives to capture scale efficiencies and increase operating margins, while maintaining capacity to address current refinancing opportunities ▪ Continued focus on automation, workflow optimization and process enhancements throughout the business (e.g., end-to-end process redesign in loan fulfillment) (1) HELOC = Home Equity Line of Credit (2) Non-QM = non-Qualified Mortgage


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Correspondent Production(1) Market Share Market Share Consumer Direct Production(1) Loan Servicing(1) Market Share Broker Direct Production(1) Market Share 7 Trends in PennyMac Financial’s Mortgage Banking Businesses (1) Source: Inside Mortgage Finance and company estimates. Inside Mortgage Finance estimates total 1Q19 origination market of $355 billion. Correspondent production share estimate is based on PFSI and PMT acquisition volume of $16.6 billion divided by $115 billion for the correspondent market (estimated to be 32% of total origination market). Consumer direct production share is based on PFSI originations of $1.4 billion divided by $199 billion for the retail market (estimated to be 56% of total origination market). Broker direct production is based on PFSI originations of $196 million divided by $41 billion for the wholesale market (estimated to be 12% of total origination market). Loan servicing market share is based on PFSI’s servicing UPB of $324.7 billion divided by an estimated $10.9 trillion in mortgage debt outstanding as of March 31, 2019. 0.47% 0.60% 0.58% 0.73% 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18 1Q19E 11.0% 10.4% 14.9% 14.1% 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18 1Q19E 2.0% 2.4% 2.7% 3.0% 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18 1Q19E 0.02% 0.45% 0.48% 1Q18 2Q18 3Q18 4Q18 1Q19E


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$8.8 $8.9 $6.8 $4.2 $9.0 $8.1 $0.1 $0.2 $13.6 $18.8 $16.7 1Q18 4Q18 1Q19 Government loans Conventional loans for PMT Non-delegated loans Total locks 8 (UPB in billions) Correspondent Volume and Mix▪ Correspondent acquisitions by PMT in 1Q19 totaled $15.1 billion in UPB, seasonally down 17% Q/Q and up 15% Y/Y – 45% government loans; 55% conventional loans – 24% Q/Q and 23% Y/Y decrease in government acquisitions – 10% Q/Q decrease in conventional acquisitions; up 96% Y/Y – Non-delegated acquisitions increased 45% Q/Q to $174 million in UPB ▪ Government and non-delegated lock volume totaled $7.7 billion in UPB, down 16% Q/Q and Y/Y – Delegated government locks totaled $7.4 billion in UPB, down 18% Q/Q and 19% Y/Y – Non-delegated locks totaled $360 million in UPB, up 58% Q/Q ▪ While the correspondent market remains highly competitive, pricing margins have stabilized ▪ April correspondent acquisitions totaled $6.5 billion in UPB; locks totaled $7.5 billion in UPB Production Segment Highlights – Correspondent Channel (1) (2) (3) (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 5% in 1Q19 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 4Q18 1Q19 Revenue per fallout-adjusted government lock (bps)(4) 29 29 Weighted average fulfillment fee (bps)(5) 32 34 4Q18 1Q19 Correspondent seller relationships 710 743 Purchase-money loans, as a % of total acquisitions 88% 85% Key Financial Metrics Selected Operational Metrics


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$1.3 $1.2 $1.4 $0.6 $0.6 $1.0 1Q18 4Q18 1Q19 Portfolio-sourced fundings Non-portfolio fundings Committed pipeline ▪ Consumer direct production volume of $1.4 billion in UPB in 1Q19, up 14% Q/Q and 7% Y/Y ▪ Higher volumes and margins driven by increased rate-and-term refinance activity ▪ Enhanced data analysis capabilities and predictive processes drive lead prioritization and conversion rates – Targeted marketing strategies – Resource optimization ▪ Implementation of end-to-end process redesign is driving greater efficiency and improving pull- through rates ▪ Continued focus on purchase-money growth – Ongoing enhancements to portal including a refinement to mortgage insurance offerings ▪ April 2019 consumer direct originations totaled $602 million in UPB; locks totaled $947 million in UPB; committed pipeline of $1.0 billion in UPB at April 30, 2019(1) (UPB in billions) Consumer Direct Production Volume 9 Production Segment Highlights – Consumer Direct Channel (1) 4Q18 1Q19 387 Consumer Direct Margin Revenue per fallout-adjusted consumer direct lock (bps)(2) 356 (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 1Q19 for consumer direct locks


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$3.5 $139.0 $121.3 $3.3 $60.1 $74.6 $6.9 $199.1 $196.0 $29.8 $73.1 $129.5 1Q18 4Q18 1Q19 Conventional loans Government loans Committed pipeline 10 ▪ Broker direct production volume of $196 million in UPB in 1Q19, down slightly from $199 million in 4Q18 – Driven by seasonally lower volumes and intense price competition among channel leaders ▪ Broker direct locks of $321 million in UPB in 1Q19, up 15% from 4Q18 ▪ Increased number of approved brokers to 682 at March 31, 2019 from 589 at December 31, 2018 ▪ Ongoing technology enhancements to our broker- facing portal – Strategic pricing enhancements – Refinements to mortgage insurance offerings ▪ April broker direct originations totaled $108 million in UPB; locks totaled $210 million in UPB – Committed pipeline of $192 million in UPB at April 30, 2019(1) Production Segment Highlights – Broker Direct Channel Broker Direct Production Volume (UPB in millions) (1) (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 27% in 1Q19 for broker direct locks 4Q18 1Q19 Revenue per fallout-adjusted broker direct lock (bps)(2) 75 77 Approved brokers at period end 589 682 Broker Direct Metrics


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$299.3 $324.7 ($7.5) $16.6 $16.3 At 12/31/18 Runoff Additions from loan production MSR acquisitions At 3/31/19 (UPB in billions) ▪ Servicing portfolio totaled $324.7 billion in UPB at March 31, up 8% Q/Q and 27% Y/Y ▪ Completed the acquisition of two bulk MSR portfolios totaling $16.3 billion in UPB ▪ CPRs(1) increased from the prior quarter due to the decline in mortgage rates – Many loans originated in 2018 are eligible for refinance ▪ Lower mortgage rates drove improved EBO economics and increased buyout opportunities Loan Servicing Portfolio Composition Net Portfolio Growth (UPB in billions) (1) 11 Servicing Segment Highlights (5) (6) (1) Conditional Prepayment Rates (2) Owned portfolio in predominantly government-insured and guaranteed loans under the FHA, VA, and USDA programs. (3) Represents PMT’s MSRs. Excludes distressed loan investments (4) Early buyouts of delinquent loans from Ginnie Mae pools during the period (5) Also includes loans servicing released in connection with recent asset sales by PMT (6) Includes consumer direct production, government correspondent acquisitions, and conventional conforming and jumbo loan acquisitions subserviced for PMT $255.3 $299.3 $324.7 3/31/18 12/31/18 3/31/19 Prime owned Prime subserviced and other 4Q18 1Q19 Loans serviced (in thousands) 1,494 1,607 60+ day delinquency rate - owned portfolio(2) 3.3% 3.0% 60+ day delinquency rate - sub-serviced portfolio(3) 0.5% 0.4% Actual CPR - owned portfolio(2) 9.8% 10.1% Actual CPR - sub-serviced(3) 7.5% 7.6% UPB of completed modifications ($ in millions) $519 $483 EBO transactions ($ in millions)(4) $495 $765 Selected Operational Metrics


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▪ Net assets under management as of March 31, 2019 were $1.7 billion, up 10% from December 31, 2018 ▪ In light of PMT’s strong investment outlook and ability to create credit and interest rate sensitive assets: – PMT raised approximately $143 million in net proceeds from an issuance of 7 million of its common shares in an underwritten equity offering – PMT launched a $200 million “At The Market” (ATM) common equity program, issuing 221,000 of its common shares during the quarter for approximately $4.5 million in net proceeds ▪ PMT’s continued strong performance resulted in $1.1 million of performance-based incentive fees ▪ Pioneered a financing structure secured by PMT’s first three settled CRT investments; issued nearly $300 million of three-year term notes improving capital efficiency and investment returns PMT’s Mortgage Assets(1) (1) 12 (1) As of March 31, 2019 Investment Management Segment Highlights Investment Management AUM ($ in billions) $1.54 $1.57 $1.73 3/31/2018 12/31/2018 3/31/2019 33% 18% 28% 3% 18% Agency RMBS MSRs and ESS Credit Risk Transfer (CRT) Distressed whole loans and REO Loan inventory 100% = $7.8 billion


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13 ▪ PFSI seeks to moderate the impact of interest rate changes on the fair value of its MSR asset through a comprehensive hedge strategy ▪ MSR fair value loss in 1Q19, primarily driven by the decrease in interest rates resulting in expectations for higher prepayment activity in the future ▪ Hedging gains and rate-driven fair value decrease of the ESS liability largely offsets MSR fair value losses ▪ Hedge costs comprise a portion of the net $26.3 million fair value loss in 1Q19 MSR Valuation Changes and Offsets ($ in millions) Hedging Approach Continues to Moderate the Volatility of PFSI’s Results Note: Figures may not sum exactly due to rounding $127.8 ($67.3) ($164.9) ($110.5) $60.3 $138.6 $17.2 $25.4 $47.0 1Q18 4Q18 1Q19 MSR fair value change before recognition of realization of cash flows Change in fair value of hedges and ESS liability Production pretax income


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14 (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 ▪ Operating revenues continue to increase driven by portfolio growth, while operating expenses increased only modestly versus a year ago; demonstrates economies of scale in servicing ▪ Lower EBO-related earnings versus 4Q18 and 1Q18 – Elevated EBO revenues in 1Q18 driven by hurricane-related activity – Higher EBO-related expenses in 1Q19 reflect larger EBO volumes; expected to benefit future period income Servicing Profitability Excluding Valuation-Related Changes 4Q18 1Q18 1Q19 $ in millions basis points(1) $ in millions basis points(1) $ in millions basis points(1) Operating revenue 174.5$ 27.9 217.9$ 29.8 225.0$ 29.2 Realization of MSR cash flows (61.2) (9.8) (82.3) (11.2) (92.5) (12.0) EBO-related revenue(2) 48.2 7.7 37.4 5.1 35.1 4.6 Servicing expenses: Operating expenses (76.6) (12.3) (75.8) (10.4) (80.1) (10.4) Credit losses and provisions for defaulted loans (14.3) (2.3) (19.0) (2.6) (15.1) (2.0) EBO transaction-related expense (7.6) (1.2) (8.3) (1.1) (10.7) (1.4) Financing expenses: Interest on ESS (3.9) (0.6) (3.6) (0.5) (3.1) (0.4) Interest to third parties (22.8) (3.6) (21.8) (3.0) (23.3) (3.0) Pretax income excluding valuation-related changes 36.3$ 5.8 44.5$ 6.1 35.3$ 4.6 Valuation-related changes(3) MSR fair value(4) 127.8 (67.3) (164.9) ESS liability fair value (6.9) 0.5 4.1 Hedging derivatives gains (losses) (103.6) 59.8 134.6 Reversal of liability (provision) for credit losses on active loans(5) 1.3 (8.3) 2.2 Servicing segment pretax income 54.9$ 29.3$ 11.2$ Average servicing portfolio UPB 249,833$ 292,721$ 308,212$


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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 16 Overview of PennyMac Financial’s Businesses


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PennyMac Financial Is a Strong Independent Mortgage Company 17 ▪ Comprehensive mortgage platform and balanced model with leading production and servicing businesses ▪ Strong balance sheet with low leverage versus competitors – Debt to equity of 2.5x ▪ 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 2018; all equity ownership converted to a single class of common stock Considerable oversight from State regulators, CFPB, GSEs, ratings agencies and bank counterparties As of March 31, 2019 ($ in millions) Other Assets & Receivables $572 Loans eligible for repurchase $1,095 Servicing Advances $284 Mortgage Servicing Rights $2,905 Cash & Short-term Investments $294 Mortgage Loans Held for Sale $2,669 Stockholders' Equity $1,701 Other Liabilities & Payables $825 Liability for loans eligible for repurchase $1,095 ESS Financing $205 MSR VFN Repo $255 MSR Term Notes 1,293 Warehouse Financing $2,445 $7,819 $7,819 Assets Liabilities & Equity


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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 3,500 employees ▪ Highly experienced management team – 119 senior-most executives have, on average, 24 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 PFSI has distinctive expertise ▪ MSRs sold and operational servicing transferred to PFSI (not subserviced by a third party) ▪ Measurable representation and warranty liability for PFSI PFSI is uniquely positioned to be a successful acquirer of MSRs • Proven track record of complex MSR and distressed loan transfers • Operational platform that addresses the demands of the Agencies, regulators and financing partners • Physical capacity in place to sustain servicing portfolio growth plans • Potential co-investment opportunity for PMT in the ESS Opportunity in MSR Acquisitions


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21 Excess Servicing Spread (e.g., 12.5bp) MSR Asset (e.g., 25bp servicing fee) Acquired by PFSI from Third-Party Seller(1) ▪ PMT has co-invested in Agency MSRs acquired from third-party sellers by PFSI; presently only related to certain Ginnie Mae MSRs ▪ PMT acquires the right to receive the ESS cash flows over the life of the underlying loans ▪ PFSI owns the MSRs and services the loans (1) The contractual servicer and MSR owner is PLS, an indirect controlled subsidiary of PFSI (2) Subject and subordinate to Agency rights (under the related servicer or issuer guide) and, as applicable, to PFSI’s pledge of MSRs under a note payable; does not change the contractual servicing fee paid by the Agency to the servicer Excess Servicing Spread(2) ▪ Interest income from a portion of the contractual servicing fee – Realized yield dependent on prepayment speeds and recapture Base MSR ▪ Income from a portion of the contractual servicing fee ▪ Also entitled to ancillary income ▪ Bears expenses of performing loan servicing activities ▪ Required to advance certain payments largely for delinquent loans Base MSR (e.g., 12.5bp) Acquired by PMT from PFSI(1) Example transaction: actual transaction details may vary materially PFSI’s Mortgage Servicing Rights Investments in Partnership with PMT


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22 MSR Asset Valuation Note: Figures may not sum exactly due to rounding UPB $197,543 $22,292 $219,834 Weighted average coupon 3.95% 4.19% 3.98% Prepayment speed assumption (CPR) 12.0% 10.5% 11.4% Weighted average servicing fee rate 0.33% 0.34% 0.33% Fair value of MSR $2,606.3 $298.8 $2,905.1 As a multiple of servicing fee 4.03 3.93 4.02 Related excess servicing spread liability - $205.1 $205.1 March 31, 2019 Unaudited ($ in millions) Total Subjectto excess servicing spread liability Not subject to excess servicing spread liability


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23 Note: Figures may not sum exactly due to rounding (1) Consists of prime jumbo and non-QM loans Acquisitions and Originations by Product First Lien Acquisitions/Originations Second Lien Originations Consumer Direct Fundings HELOC-$ -$ -$ -$ 1$ Unaudited ($ in millions) Correspondent Acquisitions Delegated Conventional Conforming 4,229$ 5,399$ 7,503$ 9,052$ 8,130$ Delegated Government 8,830 9,546 8,970 8,885 6,752 Delegated Non-Agency(1) - 8 9 5 5 Non-Delegated - - 75 120 174 Total 13,059$ 14,954$ 16,556$ 18,061$ 15,061$ Consumer Direct Originations Conventional 708$ 634$ 832$ 740$ 609$ Government 559 278 459 447 748 Jumbo - - - - - Total 1,267$ 911$ 1,291$ 1,187$ 1,357$ Broker Direct Originations Conventional 4$ 32$ 70$ 139$ 121$ Government 3 30 41 60 75 Jumbo - - - - - Total 7$ 62$ 111$ 199$ 196$ Total acquisitions/originations 14,333$ 15,927$ 17,958$ 19,448$ 16,614$ UPB of loans fulfilled for PMT 4,229$ 5,408$ 7,512$ 9,056$ 8,136$ 1Q18 2Q18 3Q18 4Q18 1Q19


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24 Interest Rate Locks by Product First Lien Locks Second Lien Locks Consumer Direct Locks HELOC-$ -$ -$ -$ 1$ Note: Figures may not sum exactly due to rounding (1) Consists of prime jumbo and non-QM loans Unaudited ($ in millions) Correspondent Locks Delegated Conventional Conforming 4,304$ 5,979$ 8,392$ 9,639$ 8,974$ Delegated Government 9,162 10,082 9,146 8,962 7,385 Delegated Non-Agency(1) 13 50 20 11 13 Non-Delegated 88 121 157 227 360 Total 13,567$ 16,232$ 17,714$ 18,839$ 16,732$ Consumer Direct Locks Conventional 1,080$ 1,018$ 1,106$ 925$ 1,103$ Government 573 625 659 735 1,226 Jumbo 8 29 24 13 11 Total 1,661$ 1,672$ 1,789$ 1,673$ 2,340$ Broker Direct Locks Conventional 15$ 50$ 131$ 195$ 187$ Government 20 51 65 84 133 Jumbo - - - - - Total 35$ 101$ 196$ 279$ 321$ Total locks 15,263$ 18,005$ 19,699$ 20,791$ 19,393$ 1Q18 2Q18 3Q18 4Q18 1Q19


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25 Correspondent Consumer Direct Credit Characteristics by Acquisition / Origination Period 1Q18 2Q18 3Q18 4Q18 1Q19 Government-insured 697 697 699 700 699 Conventional 744 748 748 751 750 Weighted Average FICO 1Q18 2Q18 3Q18 4Q18 1Q19 Government-insured 697 709 700 696 699 Conventional 738 736 731 730 733 Weighted Average FICO


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