8-K
PennyMac Financial Services, Inc. (PFSI)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of theSecurities Exchange Act of 1934
Date of Report (Date of earliest eventreported): November 4, 2021
PennyMac Financial Services, Inc.
(formerly known as New PennyMac FinancialServices, Inc.)
(Exact name of registrant as specified in its charter)
| Delaware | 001-38727 | 83-1098934 |
|---|---|---|
| (State or other jurisdiction<br><br>of incorporation) | (Commission<br><br>File Number) | (IRS Employer<br><br>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<br>communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
|---|---|
| ¨ | Soliciting<br>material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| --- | --- |
| ¨ | Pre-commencement<br>communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| --- | --- |
| ¨ | Pre-commencement<br>communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
| --- | --- |
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 |
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. ¨
Item2.02****Results of Operations and Financial Condition.
On November 4, 2021, PennyMac Financial Services, Inc. (the “Company”) issued a press release announcing its financial results for the fiscal quarter ended September 30, 2021. 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 November 4, 2021 and are furnished as Exhibits 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 November 4, 2021, issued by PennyMac Financial Services, Inc. pertaining to its financial results for the fiscal quarter ended September 30, 2021. |
| 99.2 | Slide Presentation for use beginning on November 4, 2021 in connection with a recorded presentation of financial results for the fiscal quarter ended September 30, 2021. |
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) |
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. | |
|---|---|
| Date: November 4, 2021 | /s/ Daniel S. Perotti |
| Daniel S. Perotti | |
| Senior Managing Director and Chief Financial Officer |
Exhibit 99.1
| Media | Investors |
|---|---|
| Kristyn Clark | Kevin Chamberlain |
| (805) 395-9943 | Isaac Garden |
| (818) 224-7028 |
PennyMac Financial Services, Inc. ReportsThird Quarter 2021 Results
Westlake Village, CA, November 4^th^, 2021 – PennyMac Financial Services, Inc. (NYSE: PFSI) today reported net income of $249.3 million for the third quarter of 2021, or $3.80 per share on a diluted basis, on revenue of $786.6 million. Book value per share increased to $58.00 from $54.49 at June 30, 2021.
PFSI’s Board of Directors declared a third quarter cash dividend of $0.20 per share, payable on November 24, 2021, to common stockholders of record as of November 15, 2021.
Third Quarter****2021 Highlights
| · | Pretax income was $339.5 million, up 21 percent from the prior quarter and down 53 percent from the third quarter of 2020 |
|---|---|
| o | Repurchased 4.2 million shares of PFSI’s common stock at a cost of $257.3 million; also repurchased an additional 1.4 million<br>shares in October at a cost of $89.7 million |
| --- | --- |
| o | Issued $500 million of 10-year unsecured senior notes |
| --- | --- |
| · | Production segment pretax income of $330.6 million, up 35 percent from the prior quarter primarily driven by record volumes and higher<br>margins in the consumer direct lending channel, and down 46 percent from the third quarter of 2020 primarily as a result of a less favorable<br>market |
| --- | --- |
| o | Consumer direct interest rate lock commitments (IRLCs) were a record $16.3 billion in unpaid principal balance (UPB), up 16 percent<br>from the prior quarter and up 50 percent from the third quarter of 2020 |
| --- | --- |
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| o | Broker direct IRLCs were $4.9 billion in UPB, up 8 percent from the prior quarter and down 11 percent from the third quarter of 2020 |
|---|---|
| o | Government correspondent IRLCs totaled $16.2 billion in UPB, up 4 percent from the prior quarter and down 20 percent from<br>the third quarter of 2020 |
| --- | --- |
| o | Total loan acquisitions and originations were $59.1 billion in UPB, down 4 percent from the prior quarter and up 9 percent<br>from the third quarter of 2020 |
| --- | --- |
| o | Correspondent acquisitions of conventional loans fulfilled for PennyMac Mortgage Investment Trust (NYSE: PMT) were $28.6 billion in<br>UPB, down 6 percent from the prior quarter and up 5 percent from the third quarter of 2020 |
| --- | --- |
| · | Servicing segment pretax income was $8.0 million, down from $30.9 million in the prior quarter and down from $111.7 million in<br>the third quarter of 2020 |
| --- | --- |
| o | Pretax income excluding valuation-related items was $148.4 million, down 15 percent from the prior quarter driven by decreased<br>income from loss mitigation activity |
| --- | --- |
| o | Valuation items included: |
| --- | --- |
| – | $65.5 million in MSR fair value declines and $86.5 million in hedging losses |
| --- | --- |
| o | Net impact on pretax income related to these items was $(151.9) million, or $(1.70) in earnings per share |
| --- | --- |
| – | $11.5 million of reversals related to provisions for losses on active loans |
| --- | --- |
| o | Servicing portfolio grew to $495.4 billion in UPB, up 5 percent from June 30, 2021 and 23 percent from September 30, 2020,<br>driven by strong production volumes which more than offset elevated prepayment activity |
| --- | --- |
| · | Investment Management segment pretax income was $1.0 million, down from $4.1 million in the prior quarter as incentive fees were not<br>earned in the third quarter of 2021 and down from $3.3 million in the third quarter of 2020 |
| --- | --- |
| o | Net assets under management (AUM) were $2.5 billion, up 6 percent from June 30, 2021, and up 9 percent from September 30,<br>2020 |
| --- | --- |
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“PennyMac Financial delivered exceptional financial performance in the third quarter with a 29 percent annualized return on equity,” said Chairman and CEO David Spector. “Our success reflects the strength of our balanced business model. The increase in earnings from last quarter was driven by strong execution in our consumer direct lending channel in particular, which locked and funded record volumes. With more than 2 million customers in our growing servicing portfolio and plans for increased technology and brand marketing investments, we remain excited for the future of our direct lending businesses. PennyMac Financial also issued $500 million of 10-year unsecured senior notes in the third quarter, solidifying its position as an industry leader and joining a small handful of non-bank mortgage companies able to raise long-term unsecured debt. As we move forward, I am confident in the ability of our balanced business model to continue delivering attractive returns on equity, which we expect to trend towards our pre-COVID average over time.”
The following table presents the contributions of PennyMac Financial’s segments to pretax income:
| Quarter ended September 30, 2021 | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Mortgage Banking | ||||||||||||||
| Production | Servicing | Total | Investment<br> Management | Total | ||||||||||
| (in thousands) | ||||||||||||||
| Revenue | ||||||||||||||
| Net gains on loans held for sale at fair value | $ | 496,568 | $ | 130,186 | $ | 626,754 | $ | - | $ | 626,754 | ||||
| Loan origination fees | 94,581 | - | 94,581 | - | 94,581 | |||||||||
| Fulfillment fees from PMT | 43,922 | - | 43,922 | - | 43,922 | |||||||||
| Net loan servicing fees | - | 33,630 | 33,630 | - | 33,630 | |||||||||
| Management fees | - | - | - | 8,520 | 8,520 | |||||||||
| Net interest income (expense): | ||||||||||||||
| Interest income | 33,307 | 35,005 | 68,312 | - | 68,312 | |||||||||
| Interest expense | 28,570 | 62,139 | 90,709 | 2 | 90,711 | |||||||||
| 4,737 | (27,134 | ) | (22,397 | ) | (2 | ) | (22,399 | ) | ||||||
| Other | 218 | 148 | 366 | 1,238 | 1,604 | |||||||||
| Total net revenue | 640,026 | 136,830 | 776,856 | 9,756 | 786,612 | |||||||||
| Expenses | 309,460 | 128,876 | 438,336 | 8,727 | 447,063 | |||||||||
| Pretax income | $ | 330,566 | $ | 7,954 | $ | 338,520 | $ | 1,029 | $ | 339,549 |
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Production Segment
The Production segment includes the correspondent acquisition of newly originated government-insured mortgage loans for PennyMac Financial’s own account, fulfillment services on behalf of PMT and direct lending through the consumer direct and broker direct channels, including the underwriting and acquisition of loans from correspondent sellers on a non-delegated basis.
PennyMac Financial’s loan production activity for the quarter totaled $59.1 billion in UPB, $30.5 billion of which was for its own account, and $28.6 billion of which was fee-based fulfillment activity for PMT. Correspondent government and direct lending IRLCs totaled $37.4 billion in UPB, up 9 percent from the prior quarter and up 2 percent from the third quarter of 2020.
Production segment pretax income was $330.6 million, up 35 percent from the prior quarter primarily driven by record volumes and higher margins in the consumer direct lending channel, and down 46 percent from the third quarter of 2020 primarily as a result of the smaller origination market and lower industry margins. Production segment revenue totaled $640.0 million, up 13 percent from the prior quarter and down 24 percent from the third quarter of 2020. The quarter-over-quarter increase was driven by a $77.3 million increase in net gains on loans held for sale primarily as a result of higher margins and lock volumes in the consumer direct lending channel.
The components of net gains on loans held for sale are detailed in the following table:
| Quarter ended | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| September<br> 30, <br> 2021 | June 30, <br> 2021 | September 30, <br> 2020 | |||||||
| (in thousands) | |||||||||
| Receipt of MSRs and recognition of MSLs in loan sale transactions | $ | 398,665 | $ | 425,941 | $ | 245,946 | |||
| Mortgage servicing rights recapture payable to PennyMac Mortgage Investment Trust | (12,976 | ) | (11,548 | ) | (9,776 | ) | |||
| Provision of liability for representations and warranties, net | (2,206 | ) | (6,664 | ) | (2,746 | ) | |||
| Cash gain ^(1)^ | 126,053 | 61,654 | 533,292 | ||||||
| Fair value changes of pipeline,<br> inventory and hedges | 117,218 | 113,265 | 88,553 | ||||||
| Net gains on mortgage loans held for sale | $ | 626,754 | $ | 582,648 | $ | 855,269 | |||
| Net gains on mortgage loans held for sale by segment: | |||||||||
| Production | $ | 496,568 | $ | 419,293 | $ | 700,830 | |||
| Servicing | $ | 130,186 | $ | 163,355 | $ | 154,439 | |||
| ^(1)^ Net of cash hedging results | |||||||||
| --- |
Loan origination fees for the quarter totaled $94.6 million, down 3 percent from the prior quarter and up 25 percent from the third quarter of 2020. The decrease from the prior quarter was driven by shifts in product and channel mix while the increase from the third quarter of 2020 was driven by higher volumes in the direct lending channels.
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, correspondent seller approval and monitoring, loan file review, underwriting, 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 $43.9 million in the third quarter, down 19 percent from the prior quarter and down 20 percent from the third quarter of 2020. The quarter-over-quarter decrease in fulfillment fee revenue was driven by lower conventional acquisition volumes and a decrease in the weighted average fulfillment fee. The weighted average fulfillment fee rate reflects discretionary reductions to facilitate successful loan acquisitions by PMT.
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Net interest income totaled $4.7 million, an improvement from net interest expense of $5.1 million in the prior quarter and down from net interest income of $7.7 million in the third quarter of 2020. Interest income in the third quarter totaled $33.3 million, up from $31.8 million in the prior quarter. Interest expense totaled $28.6 million, down from $36.9 million in the prior quarter driven by lower production and a shift in the mix of funding sources.
Production segment expenses were $309.5 million, down 4 percent from the prior quarter as a result of decreased compensation expense. Production segment expenses were up 37 percent from the third quarter of 2020 as a result of higher volumes in the direct lending channels.
Servicing Segment
The Servicing segment includes income from owned MSRs, subservicing and special servicing activities. Servicing segment pretax income was $8.0 million, down from $30.9 million in the prior quarter and down from $111.7 million in the third quarter of 2020. Servicing segment net revenues totaled $136.8 million, down 16 percent from the prior quarter and down 50 percent from the third quarter of 2020. The quarter-over-quarter decrease was primarily driven by a $33.2 million decrease in net gains on loans held for sale.
Revenue from net loan servicing fees totaled $33.6 million, up from $14.9 million in the prior quarter primarily driven by increased loan servicing fees due to a larger servicing portfolio and lower net valuation related declines. Revenue from net loan servicing fees included $267.8 million in servicing fees, reduced by $82.2 million from the realization of MSR cash flows. Net valuation-related losses totaled $151.9 million, and included MSR fair value declines of $65.5 million, and declines in hedging results of $86.5 million.
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The following table presents a breakdown of net loan servicing fees:
| Quarter ended | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| September 30, <br> 2021 | June 30, <br> 2021 | September 30, <br> 2020 | |||||||
| (in thousands) | |||||||||
| Loan servicing fees ^(1)^ | $ | 267,758 | $ | 260,021 | $ | 250,368 | |||
| Changes in fair value of MSRs and MSLs resulting from: | |||||||||
| Realization of cash flows | (82,217 | ) | (85,671 | ) | (90,187 | ) | |||
| Change in fair value inputs | (65,452 | ) | (250,597 | ) | (37,030 | ) | |||
| Change in fair value of excess servicing spread financing | - | - | 3,135 | ||||||
| Hedging (losses) gains | (86,459 | ) | 91,118 | 6,521 | |||||
| Net change in fair value of MSRs and MSLs | (234,128 | ) | (245,150 | ) | (117,561 | ) | |||
| Net loan servicing fees | $ | 33,630 | $ | 14,871 | $ | 132,807 | |||
| ^(1)^ Includes contractually-specified servicing fees | |||||||||
| --- |
Servicing segment revenue included $130.2 million in net gains on loans held for sale related to reperforming government-insured and guaranteed loans purchased out of Ginnie Mae securitizations, or early buy out loans (EBOs). These gains were down from $163.4 million in the prior quarter and $154.4 million in the third quarter of 2020 as a result of lower EBO-related activities. These EBOs are previously delinquent loans that were brought back to performing status through PennyMac Financial’s successful servicing efforts, primarily through loan modifications or FHA Partial Claims. With respect to the FHA Partial Claims, the reperforming loans must remain current for a minimum of six months to be eligible for resecuritization. Net interest expense totaled $27.1 million, versus net interest expense of $16.5 million in the prior quarter and $17.9 million in the third quarter of 2020. Interest income was $35.0 million, down from $49.0 million in the prior quarter driven by a decrease in average EBO balances held for sale. Interest expense was $62.1 million, down from $65.5 million in the prior quarter driven by a decrease in balances of financing for EBO loans.
Servicing segment expenses totaled $128.9 million, down 2 percent from the prior quarter primarily driven by lower EBO activity.
The total servicing portfolio grew to $495.4 billion in UPB at September 30, 2021, an increase of 5 percent from June 30, 2021 and 23 percent from September 30, 2020. PennyMac Financial subservices and conducts special servicing for $218.0 billion in UPB, an increase of 7 percent from June 30, 2021 and 39 percent from September 30, 2020. PennyMac Financial’s owned MSR portfolio grew to $277.4 billion in UPB, an increase of 3 percent from June 30, 2021 and 13 percent from September 30, 2020.
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The table below details PennyMac Financial’s servicing portfolio UPB:
| September 30, <br> 2021 | June 30, <br> 2021 | September 30, <br> 2020 | ||||
|---|---|---|---|---|---|---|
| (in thousands) | ||||||
| Prime servicing: | ||||||
| Owned | ||||||
| Mortgage servicing rights | ||||||
| Originated | $ | 232,373,814 | $ | 221,492,618 | $ | 187,134,080 |
| Acquisitions | 26,847,134 | 30,982,782 | 47,716,917 | |||
| 259,220,948 | 252,475,400 | 234,850,997 | ||||
| Mortgage servicing liabilities | 8,885,785 | 6,135,249 | 1,799,562 | |||
| Loans held for sale | 9,295,126 | 10,438,935 | 8,749,673 | |||
| 277,401,859 | 269,049,584 | 245,400,232 | ||||
| Subserviced for PMT | 217,984,987 | 204,132,766 | 156,425,439 | |||
| Total prime servicing | 495,386,846 | 473,182,350 | 401,825,671 | |||
| Special servicing - subserviced for PMT | 28,801 | 41,696 | 71,129 | |||
| Total loans serviced | $ | 495,415,647 | $ | 473,224,046 | $ | 401,896,800 |
| Loans serviced: | ||||||
| Owned | ||||||
| Mortgage servicing rights | $ | 259,220,948 | $ | 252,475,400 | $ | 234,850,997 |
| Mortgage servicing liabilities | 8,885,785 | 6,135,249 | 1,799,562 | |||
| Loans held for sale | 9,295,126 | 10,438,935 | 8,749,673 | |||
| 277,401,859 | 269,049,584 | 245,400,232 | ||||
| Subserviced | 218,013,788 | 204,174,462 | 156,496,568 | |||
| Total loans serviced | $ | 495,415,647 | $ | 473,224,046 | $ | 401,896,800 |
Investment Management Segment
PennyMac Financial manages PMT for which it earns base management fees and may earn incentive compensation. Net AUM were $2.5 billion as of September 30, 2021, up 6 percent from June 30, 2021 and 9 percent from September 30, 2020.
Pretax income for the Investment Management segment was $1.0 million, down from $4.1 million in the prior quarter and down from $3.3 million in the third quarter of 2020. Management fees, which include base management and performance incentive fees from PMT were $8.5 million, down from $11.9 million in the prior quarter and essentially unchanged from $8.5 million in the third quarter of 2020. Base management fees were $8.8 million, up from $8.6 million in the prior quarter and $8.5 million in the third quarter of 2020. Performance-based incentive fees were not earned in the third quarter compared to $3.3 million of such fees in the prior quarter.
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The following table presents a breakdown of management fees:
| Quarter ended | |||||||
|---|---|---|---|---|---|---|---|
| September 30, <br> 2021 | June 30, <br> 2021 | September 30, <br> 2020 | |||||
| (in thousands) | |||||||
| Management fees: | |||||||
| PennyMac Mortgage Investment Trust | |||||||
| Base | $ | 8,778 | $ | 8,648 | $ | 8,508 | |
| Performance incentive (adjustment) | (258 | ) | 3,265 | - | |||
| Total management fees | $ | 8,520 | $ | 11,913 | $ | 8,508 | |
| Net assets of PennyMac Mortgage Investment Trust | $ | 2,479,327 | $ | 2,343,390 | $ | 2,281,266 |
Investment Management segment expenses totaled $8.7 million, down 7 percent from the prior quarter and up 35 percent from the third quarter of 2020.
Consolidated Expenses
Total expenses were $447.1 million, down 3 percent from the prior quarter and up 14 percent from the third quarter of 2020. The quarter-over-quarter decrease was driven by decreased compensation expenses and lower EBO activity.
***
Management’s slide presentation will be available in the Investor Relations section of the Company’s website at ir.pennymacfinancial.com after the market closes on Thursday, November 4, 2021.
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About PennyMac Financial Services, Inc.
PennyMac Financial Services, Inc. is a specialty financial services firm focused on the production and servicing of U.S. mortgage loans and the management of investments related to the U.S. mortgage market.
Founded in 2008, the company is recognized as a leader in the U.S. residential mortgage industry and employs approximately 7,300 people across the country. For the twelve months ended September 30, 2021, PennyMac Financial’s production of newly originated loans totaled $257 billion in unpaid principal balance, making it the second largest mortgage lender in the nation. As of September 30, 2021, PennyMac Financial serviced loans totaling $495 billion in unpaid principal balance, making it a top ten mortgage servicer in the nation.
Additional information about PennyMac Financial Services, Inc. is available at ir.pennymacfinancial.com.
Forward-Looking Statements
This press release contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, regarding management’s beliefs, estimates, projections, and assumptions with respect to, among other things, the Company’s financial results, future operations, business plans and investment strategies, as well as industry and market conditions, all of which are subject to change. Words like “believe,” “expect,” “anticipate,” “promise,” “project,” “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: our exposure to risks of loss and disruptions in operations resulting from adverse weather conditions, man-made or natural disasters, climate change and pandemics such as COVID-19; failure to modify, resell or refinance early buyout loans; changes in prevailing interest rates; 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; 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; our substantial amount of indebtedness; expected discontinuation of LIBOR; 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; maintaining sufficient capital and liquidity to support business growth including compliance with financial covenants; 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 or expansion of new business activities or strategies; our ability to detect misconduct and fraud; our ability to mitigate cybersecurity risks and cyber incidents; our ability to pay dividends to our stockholders; 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.
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The Company’s earnings materials contain financial information calculated other than in accordance with U.S. generally accepted accounting principles (“GAAP”), such as pretax income excluding valuation-related items that provide a meaningful perspective on the Company’s business results since the Company utilizes this information to evaluate and manage the business. Non-GAAP disclosure has limitations as an analytical tool and should not be viewed as a substitute for financial information determined in accordance with GAAP.
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PENNYMAC FINANCIAL SERVICES,INC.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
| June 30, <br> 2021 | September 30, <br> 2020 | ||||
|---|---|---|---|---|---|
| ASSETS | |||||
| Cash | 476,497 | $ | 324,158 | $ | 529,166 |
| Short-term investments at fair value | 5,046 | 3,720 | 102,136 | ||
| Loans held for sale at fair value | 9,659,695 | 10,884,506 | 9,126,172 | ||
| Assets purchased from PennyMac Mortgage Investment Trust under agreements to resell pledged to creditors | - | - | 86,958 | ||
| Derivative assets | 429,984 | 371,269 | 578,254 | ||
| Servicing advances, net | 522,906 | 519,028 | 393,654 | ||
| Mortgage servicing rights at fair value | 3,611,120 | 3,412,648 | 2,333,821 | ||
| Operating lease right-of-use assets | 85,266 | 75,829 | 72,133 | ||
| Investment in PennyMac Mortgage Investment Trust at fair value | 1,477 | 1,580 | 991 | ||
| Receivable from PennyMac Mortgage Investment Trust | 49,993 | 61,883 | 122,478 | ||
| Loans eligible for repurchase | 4,335,378 | 7,613,244 | 17,183,873 | ||
| Other | 567,776 | 612,273 | 651,229 | ||
| Total assets | 19,745,138 | $ | 23,880,138 | $ | 31,180,865 |
| LIABILITIES | |||||
| Assets sold under agreements to repurchase | 6,897,157 | $ | 8,254,543 | $ | 7,259,188 |
| Mortgage loan participation and sale agreements | 519,784 | 512,253 | 535,063 | ||
| Obligations under capital lease | 5,583 | 7,677 | 13,957 | ||
| Notes payable secured by mortgage servicing assets | 1,297,176 | 1,296,731 | 1,295,143 | ||
| Unsecured senior notes | 1,783,230 | 1,288,769 | 492,358 | ||
| Excess servicing spread financing payable to PennyMac Mortgage Investment Trust at fair value | - | - | 142,990 | ||
| Derivative liabilities | 14,204 | 43,910 | 24,537 | ||
| Mortgage servicing liabilities at fair value | 47,567 | 100,091 | 31,698 | ||
| Operating lease liabilities | 105,452 | 96,463 | 92,005 | ||
| Accounts payable and accrued expenses | 358,944 | 369,766 | 278,403 | ||
| Payable to PennyMac Mortgage Investment Trust | 138,972 | 136,660 | 77,136 | ||
| Payable to exchanged Private National Mortgage Acceptance Company, LLC unitholders under tax receivable agreement | 31,815 | 31,815 | 35,784 | ||
| Income taxes payable | 659,768 | 570,052 | 673,149 | ||
| Liability for loans eligible for repurchase | 4,335,378 | 7,613,244 | 17,183,873 | ||
| Liability for losses under representations and warranties | 45,806 | 44,335 | 28,504 | ||
| Total liabilities | 16,240,836 | 20,366,309 | 28,163,788 | ||
| STOCKHOLDERS' EQUITY | |||||
| Common stock¾authorized 200,000,000 shares of 0.0001 par value; issued and outstanding 60,419,578, 64,483,965, and 72,400,490 shares, respectively | 6 | 6 | 7 | ||
| Additional paid-in capital | 372,198 | 618,337 | 1,116,428 | ||
| Retained earnings | 3,132,098 | 2,895,486 | 1,900,642 | ||
| Total stockholders' equity | 3,504,302 | 3,513,829 | 3,017,077 | ||
| Total liabilities and stockholders’ equity | 19,745,138 | $ | 23,880,138 | $ | 31,180,865 |
All values are in US Dollars.
11
PENNYMAC FINANCIAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
| Quarter ended | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| September 30, <br> 2021 | June 30, <br> 2021 | September 30, <br> 2020 | |||||||
| (in thousands, except earnings per share) | |||||||||
| Revenue | |||||||||
| Net gains on loans held for sale at fair value | $ | 626,754 | $ | 582,648 | $ | 855,269 | |||
| Loan origination fees | 94,581 | 97,291 | 75,572 | ||||||
| Fulfillment fees from PennyMac Mortgage Investment Trust | 43,922 | 54,020 | 54,839 | ||||||
| Net loan servicing fees: | |||||||||
| Loan servicing fees | 267,758 | 260,021 | 250,368 | ||||||
| Change in fair value of mortgage servicing rights, mortgage servicing liabilities and excess servicing spread financing | (147,669 | ) | (336,268 | ) | (124,082 | ) | |||
| Hedging results | (86,459 | ) | 91,118 | 6,521 | |||||
| Net loan servicing fees | 33,630 | 14,871 | 132,807 | ||||||
| Net interest expense: | |||||||||
| Interest income | 68,312 | 80,797 | 52,952 | ||||||
| Interest expense | 90,711 | 102,431 | 63,179 | ||||||
| (22,399 | ) | (21,634 | ) | (10,227 | ) | ||||
| Management fees from PennyMac Mortgage Investment Trust | 8,520 | 11,913 | 8,508 | ||||||
| Change in fair value of investment in and dividends received from PennyMac Mortgage Investment Trust | (67 | ) | 144 | (288 | ) | ||||
| Other | 1,671 | 2,999 | 3,512 | ||||||
| Total net revenue | 786,612 | 742,252 | 1,119,992 | ||||||
| Expenses | |||||||||
| Compensation | 249,183 | 265,067 | 202,440 | ||||||
| Loan origination | 80,932 | 75,675 | 53,752 | ||||||
| Technology | 32,406 | 34,236 | 28,964 | ||||||
| Servicing | 27,892 | 31,290 | 71,110 | ||||||
| Professional services | 24,429 | 24,834 | 18,307 | ||||||
| Occupancy and equipment | 9,389 | 9,029 | 8,491 | ||||||
| Other | 22,832 | 22,606 | 8,637 | ||||||
| Total expenses | 447,063 | 462,737 | 391,701 | ||||||
| Income before provision for income taxes | 339,549 | 279,515 | 728,291 | ||||||
| Provision for income taxes | 90,239 | 75,286 | 193,131 | ||||||
| Net income | $ | 249,310 | $ | 204,229 | $ | 535,160 | |||
| Earnings per share | |||||||||
| Basic | $ | 4.02 | $ | 3.10 | $ | 7.39 | |||
| Diluted | $ | 3.80 | $ | 2.94 | $ | 7.03 | |||
| Weighted-average common shares outstanding | |||||||||
| Basic | 62,085 | 65,890 | 72,439 | ||||||
| Diluted | 65,653 | 69,399 | 76,138 | ||||||
| Dividend declared per share | $ | 0.20 | $ | 0.20 | $ | 0.15 |
12
Exhibit 99.2
PENNYMAC FINANCIAL SERVICES, INC. 3 Q21 EARNINGS REPORT November 2021
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 inves tme nt strategies, as well as industry and market conditions, all of which are subject to change. Words like “believe,” “expect,” “anticipate,” “promise,” “project,” “plan,” and other expressions or words of simi lar 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 pe riod may vary materially from those projected herein and from past results discussed herein. These forward - looking statements include, but are not limited to, statements regarding the future impact of th e COVID - 19 pandemic on our business; future loan origination, servicing and production; future loan delinquencies, forbearances and servicing advances; future early buyout activity; future changes in a sse t values and other business and financial expectations. Factors which could cause actual results to differ materially from historical results or those anticipated include, but are not limited to: our exposur e t o risks of loss and disruptions in operations resulting from adverse weather conditions, man - made or natural disasters, climate change and pandemics such as COVID - 19; failure to modify, resell or refinance early buyou t loans; changes in prevailing interest rates; the continually changing federal, state and local laws and regulations applicable to the highly regulated industry in which we operate; lawsuits or governmenta l a ctions 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 Prote ction 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 m ortgage 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; foreclo sur e delays and changes in foreclosure practices; changes in macroeconomic and U.S. real estate market conditions; difficulties inherent in growing loan production volume; difficulties inherent in adjusti ng the size of our operations to reflect changes in business levels; purchase opportunities for mortgage servicing rights and our success in winning bids; our substantial amount of indebtedness; expected discontinuati on of LIBOR; 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 bus iness; maintaining sufficient capital and liquidity to support business growth including compliance with financial covenants; our obligation to indemnify third - party purchasers or repurchase loans if loans t hat 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 certai n c riteria 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 o f r egulation 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 opin ion on our reputation; our recent growth; our ability to effectively identify, manage, monitor and mitigate financial risks; our initiation or expansion of new business activities or strategies; our ability to de tec t misconduct and fraud; our ability to mitigate cybersecurity risks and cyber incidents; our ability to pay dividends to our stockholders; and our organizational structure and certain requirements in our charter do cum ents. 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 othe r d ocuments 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 info rmation contained herein, and the statements made in this presentation are current as of the date of this presentation only. The Company’s earnings materials contains financial information calculated other than in accordance with U.S. generally accep ted accounting principles (“GAAP”), such as pretax income excluding valuation - related items that provide a meaningful perspective on the Company’s business results since the Company utilizes this informa tio n to evaluate and manage the business. Non - GAAP disclosure has limitations as an analytical tool and should not be viewed as a substitute for financial information determined in accordance with GAAP. FORWARD - LOOKING STATEMENTS
3 THIRD QUARTER HIGHLIGHTS • Net income was $ 249.3 million, or diluted earnings per share (EPS) of $ 3.80; annualized return on average common stockholders’ equity (ROE) of 29% – Earnings reflect higher income from production against a normalizing origination market and strong core servicing results, partially offset by fair value declines on mortgage servicing rights (MSRs) and hedges – Book value per share increased 6 % to $ 58.00 from $54.49 at June 30, 2021 – Repurchased 4.2 million shares of PFSI’s common stock at a cost of $257.3 million; also repurchased an additional 1.4 million shares in October at a cost of $89.7 million – PFSI’s Board of Directors declared a third quarter cash dividend of $0.20 per share, payable on November 24, 2021, to common stockholders of record as of November 15, 2021 – Issued $500 million of 10 - year senior unsecured notes • Production segment pretax income was $ 330.6 million, up 35% from 2Q21 primarily driven by record volumes and higher margins in the consumer direct lending channel, and down 46 % from 3Q20 primarily as a result of a less favorable market – Consumer direct lock volume was a record $16.3 billion in unpaid principal balance (UPB), up 16 % from 2Q21 and up 50% from 3Q20 – Broker direct lock volume was $4.9 billion in UPB, up 8 % from 2Q21 and down 11 % from 3Q20 – Government correspondent lock volume was $16.2 billion in UPB, up 4% from 2Q21 and down 20 % from 3Q20 – Total loan acquisitions and originations were $ 59.1 billion in UPB, down 4 % from 2Q21 and up 9 % from 3Q20 – Correspondent acquisitions of conventional loans fulfilled for PennyMac Mortgage Investment Trust (NYSE: PMT) were $ 28.6 billion in UPB, down 6 % from 2Q21 and up 5 % from 3Q20
4 THIRD QUARTER HIGHLIGHTS (CONTINUED) • Servicing segment pretax income was $8.0 million, down from $30.9 million in 2 Q21 and from $111.7 million in 3 Q20 – Pretax income excluding valuation - related items was $148.4 million (1) , down 15% from 2 Q21 driven by decreased income from loss mitigation activity – MSR fair value changes and hedging results impacted pretax income by $(151.9) million, or $(1.70) in earnings per share – Servicing portfolio grew to $ 495.4 billion in UPB, up 5 % from June 30, 2021 and 23% from September 30, 2020, driven by strong production volumes which more than offset elevated prepayment activity • Investment Management segment pretax income was $1.0 million, down from $4.1 million in 2 Q21 as incentive fees were not earned in 3Q21, and down from $3.3 million in 3 Q20 – Net assets under management (AUM) were $ 2.5 billion , up 6% from June 30, 2021, and up 9 % from September 30, 2020 (1) Excludes $65.5 million in MSR fair value declines, $86.5 million in hedging losses and a $11.5 million reversal related to provisions for losses on active loans. See slide 12 for additional details.
5 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% Average 30-year fixed rate mortgage Primary/secondary spread • Despite the increase in recent weeks, i nterest rates continue to be historically low and remain consistent with the projections of leading economists • Economic forecasts for 2022 total originations average $ 3.0 trillion, a large market by historical standards, supported by a purchase origination market expected to total a record $ 2.0 trillion ‒ PennyMac has historically over - indexed the purchase money market and is well - positioned as the largest producer of purchase - money loans in the U.S. (4) ($ in trillions) (2) (3) U.S. Mortgage Origination Market (1) Mortgage Rates Remain Historically Low ORIGINATION MARKET REMAINS HISTORICALLY LARGE (1) Actual originations: Inside Mortgage Finance. Forecasted originations: Average of Mortgage Bankers Association (10/17/21), Fannie Mae (10/11/21), and Freddie Mac (10/15/21) forecasts. (2) Freddie Mac Primary Mortgage Market Survey. 3.14 % as of 10/28/21 . (3) Bloomberg: Difference between Freddie Mac Primary Mortgage Market Survey and the 30 - Year Fannie Mae or Freddie Mac Par Coupon ( MTGEFNCL) Index. (4) Inside Mortgage Finance $1.3 $1.5 $1.8 $2.0 $1.1 $2.6 $2.4 $1.1 $2.3 $4.1 $4.2 $3.0 2019 2020 2021E 2022E Purchase Refinance
6 ($18) $112 $31 $8 $25 $180 $174 $148 3Q19 3Q20 2Q21 3Q21 Pretax income Pretax income excluding valuation-related changes DIRECT LENDING AND SERVICING ARE DRIVING PFSI’S PROFITABILITY ($ in millions) ($ in millions) (1) Valuation - related changes include MSR fair value changes before recognition of realization of cash flows, related hedging and ot her gains (losses), and provision for losses on active loans considered in the assessment of MSR fair value changes – see slide 12. (2) See slide 19 (1) • Our consumer direct lending channel remains a significant contributor to PFSI’s sustained profitability • Servicing income reflects growing portfolio, economies of scale and loss mitigation activities Production Pretax Income Servicing Pretax Income PFSI’s return on equity is expected to remain attractive and trend towards our pre - COVID average over time (2) $179 $613 $244 $331 3Q19 3Q20 2Q21 3Q21 Estimated contribution from direct lending (Consumer and Broker)
7 0.5% 0.5% 0.7% 0.9% 1.4% 2017 2018 2019 2020 9M21 10.5% 11.8% 14.9% 17.7% 17.7% 2017 2018 2019 2020 9M21 2.3% 2.8% 3.4% 3.7% 4.1% 12/31/17 12/31/18 12/31/19 12/31/20 9/30/21 0.3% 1.1% 2.2% 2.4% 2017 2018 2019 2020 9M21 N/A PENNYMAC CONTINUES TO GROW MARKET SHARE ACROSS ITS BUSINESSES Note: All figures are for PFSI and include volume fulfilled or subserviced for PMT (1) Historical market share estimates based on Inside Mortgage Finance. Inside Mortgage Finance estimates $3.7 trillion in total ori gination volume for 9M21. For 9M21, we estimate the correspondent channel represented 21% of the overall origination market, retail represented 64% and broker represented 15%. Loan servicing market share is based on PFSI’s servicing portfolio UPB of $ 495.4 billion divided by an estimated $ 12.0 trillion in mortgage debt outstanding as of June 30, 2021. Correspondent Market Share (1) Loan Servicing Market Share (1) Consumer Direct Market Share (1) Broker Direct Market Share (1)
8 $17.0 $16.2 $15.4 $27.4 $30.5 $28.6 $44.3 $46.7 $44.0 $54.5 $46.0 $45.6 3Q20 2Q21 3Q21 Government loans Conventional loans for PMT Total locks PRODUCTION SEGMENT HIGHLIGHTS – VOLUME BY CHANNEL (2) (1) (3) Note: Figures may not sum due to rounding ( 1 ) For government - insured loans, PFSI earns income from holding and selling or securitizing the loans (2) For conventional and jumbo loans, PFSI earns a fulfillment fee from PMT rather than income from holding and selling or securi tiz ing the loans ( 3) Includes locks related to PMT loan acquisitions, including conventional loans for which PFSI earns a fulfillment fee (4) Commitments to originate mortgage loans at specified terms at period end Correspondent Consumer Direct Broker Direct (UPB in billions) (UPB in billions) (UPB in billions) October 2021 October 2021 October 2021 $3.2 $5.7 $4.9 $3.1 $5.0 $6.2 $6.3 $10.7 $11.1 $10.9 $14.1 $16.3 3Q20 2Q21 3Q21 Government loans Conventional loans Total locks $0.8 $0.7 $0.9 $2.7 $3.2 $3.1 $3.5 $4.0 $4.0 $5.5 $4.5 $4.9 3Q20 2Q21 3Q21 Government loans Conventional loans Locks: (UPB in billions) $11.5 Locks: (UPB in billions) $4.9 Locks: (UPB in billions) $1.5 Acquisitions: (UPB in billions) $12.9 Originations: (UPB in billions) $3.6 Originations: (UPB in billions) $1.3 Committed pipeline (4) : (UPB in billions) $6.3 Committed pipeline (4) : (UPB in billions) $1.6
9 DRIVERS OF PRODUCTION SEGMENT PROFITABILITY (1) Expected revenue net of direct origination costs at time of lock (2) Reflects hedging, pricing and execution changes, timing of revenue recognition, and other items (3) Costs are fully allocated Production expenses net of Loan origination expense • Direct lending channels (consumer and broker direct) have outsized impact on Production earnings – represented 26% of fallout ad justed lock volume in 3Q21, but approximately 84% of segment pretax income • Production revenue margins were higher in both direct lending channels – revenue per fallout adjusted lock for PFSI’s own accoun t was 165 basis points in 3Q21, up from 154 basis points in 2Q21 • Costs (3 ) vary by channel – range from approximately 10 basis points in correspondent to 140 basis points in consumer direct; as the mix shift towards direct lending continues, production expenses as a percentage of fallout adjusted locks are expected to trend higher 3 Q20 2 Q21 3 Q21 Fallout Adjusted Locks Margin / Fulfillment Fee (bps) (1) Revenue Contribution (net of Loan origination expense) % of Production Revenue Fallout Adjusted Locks Margin / Fulfillment Fee (bps) (1) Revenue Contribution (net of Loan origination expense) % of Production Revenue Fallout Adjusted Locks Margin / Fulfillment Fee (bps) (1) Revenue Contribution (net of Loan origination expense) % of Production Revenue Government Correspondent 18,315$ 64 117.3$ 15% 15,022$ 30 45.1$ 9% 15,661$ 27 42.9$ 8% Consumer Direct 8,208 543 445.7 57% 9,713 343 333.1 68% 11,678 382 446.7 80% Broker Direct 4,368 268 117.1 15% 3,560 71 25.4 5% 3,963 77 30.6 5% Other (2) n/a n/a 50.4 6% n/a n/a 32.8 7% n/a n/a (5.0) -1% Total PFSI account revenues (net of Loan origination expense) 30,891$ 236 730.5$ 93% 28,296$ 154 436.5$ 89% 31,303$ 165 515.2$ 92% PMT Conventional Correspondent 30,036 18 54.8 7% 29,279 18 54.0 11% 28,301 16 43.9 8% Total Production revenues (net of Loan origination expense) 129 785.3$ 100% 85 490.5$ 100% 94 559.1$ 100% Production expenses (less Loan origination expense) 28 172.1$ 22% 43 246.0$ 50% 38 228.5$ 41% Production segment pretax income 101 613.3$ 78% 42 244.4$ 50% 55 330.6$ 59% 59,604$ 60,927$ 57,575$
10 PRODUCTION SEGMENT HIGHLIGHTS – BUSINESS TRENDS BY CHANNEL Multi - channel approach provides flexibility and has proven to be a competitive advantage, supporting profitability and pricing discipline while driving growth of the servicing portfolio • PennyMac remains the largest correspondent aggregator in the U.S. • Purchase volume in 3Q21 was a record $28.9 billion, up from $27.4 billion in 2Q21 and $21.5 billion in 3Q20 • Drives servicing portfolio growth while generating additional leads for consumer direct • Profitability driven by low cost structure and operational excellence • Continue to originate and lock record volumes of loans ‒ Expanding opportunity to serve customers in our large and growing servicing portfolio ‒ Purchase lock volume in 3Q21 was a record $788 million, up from $740 million in 2Q21 and $474 million in 3Q20 ‒ New Customer Acquisition interest rate lock commitments in 3 Q21 totaled $2.0 billion, up from $1.5 billion in 2Q21 and $920 million in 3Q20 • Third quarter margins were higher than in 2Q21 and remain attractive • Future growth expected to be driven by the changing demands of our servicing portfolio customers as we leverage investments in technology and marketing • F unding volumes were essentially unchanged from 2Q21 • Approved brokers totaled 2,132 at September 30, 2021, or approximately 14% of the total population of brokers ‒ Approximately 15,000 brokers and non - delegated sellers active in the market • The channel remains competitive despite modest improvement in margins from 2Q21 levels • Optimistic for continued growth in the channel supported by significant investments in technology CORRESPONDENT CONSUMER DIRECT BROKER DIRECT
11 $473.2 $495.4 ($36.9) $59.1 At 6/30/21 Runoff Additions from loan production At 9/30/21 (1) CPR = Conditional Prepayment Rate. Owned portfolio is predominantly government - insured and guaranteed loans under the FHA (41%), VA (35%), and USDA ( 8 %) programs. Delinquency data based on loan count (i.e., not UPB). (2) Represents PMT’s MSRs. Excludes distressed loan investments (3) UPB of completed modifications includes loss mitigation efforts associated with partial claims programs (4) Early buyouts of delinquent loans from Ginnie Mae pools during the period (5) Also includes loans sold with servicing released in connection with any asset sales by PMT (6) Includes consumer and broker direct production, government correspondent acquisitions, and conventional conforming and jumbo lo an acquisitions subserviced for PMT SERVICING SEGMENT HIGHLIGHTS • Servicing portfolio totaled $495.4 billion in UPB at September 30, 2021, up 5 % Q/Q and 23% Y/Y • Strong production volumes led to continued portfolio growth despite elevated prepayment activity • Decrease in delinquency rates as borrowers continue to emerge from forbearance plans with the successful implementation of loss mitigation activities • Decrease in EBO loan volume as a result of a declining population of loans eligible to be bought out (5) (6) Loan Servicing Portfolio Composition Net Portfolio Growth (UPB in billions) (UPB in billions) $401.9 $473.2 $495.4 9/30/20 6/30/21 9/30/21 Prime owned Prime subserviced and other 2Q21 3Q21 Loans serviced (in thousands) 2,058 2,111 60+ day delinquency rate - owned portfolio (1) 6.7% 6.1% 60+ day delinquency rate - sub-serviced portfolio (2) 1.6% 1.2% Actual CPR - owned portfolio (1) 28.3% 27.2% Actual CPR - sub-serviced (2) 24.7% 23.6% UPB of completed modifications ($ in millions) (3) $5,487 $4,700 EBO loan volume ($ in millions) (4) $6,776 $5,514 Selected Operational Metrics
12 $ in millions basis points (1) $ in millions basis points (1) $ in millions basis points (1) Operating revenue 261.4$ 26.4 264.7$ 22.9 272.1$ 22.5 Realization of MSR cash flows (90.2) (9.1) (85.7) (7.4) (82.2) (6.8) EBO loan-related revenue (2) 170.2 17.2 208.0 18.0 160.6 13.3 Servicing expenses: Operating expenses (94.4) (9.5) (107.9) (9.3) (109.6) (9.1) Payoff-related expense (3) (31.2) (3.1) (42.9) (3.7) (36.4) (3.0) Losses and provisions for defaulted loans (13.0) (1.3) (16.5) (1.4) (15.7) (1.3) EBO loan transaction-related expense (1.2) (0.1) (10.3) (0.9) (4.8) (0.4) Financing expenses: Interest on ESS (2.1) (0.2) - 0.0 - - Interest to third parties (20.1) (2.0) (35.1) (3.0) (35.6) (2.9) Pretax income excluding valuation-related changes 179.5$ 18.1 174.4$ 15.1 148.4$ 12.3 Valuation-related changes MSR fair value (4) (37.0) (250.6) (65.5) ESS liability fair value 3.1 - - Hedging derivatives gains (losses) 6.5 91.1 (86.5) Provision for losses on active loans (5) (40.5) 16.0 11.5 Servicing segment pretax income 111.7$ 30.9$ 8.0$ Average servicing portfolio UPB 396,422$ 461,499$ 484,107$ 3Q213Q20 2Q21 (1) Of average portfolio UPB, annualized (2 ) Comprised of net gains on mortgage loans held for sale at fair value and interest income related to EBO loans (3) Consists of interest shortfall and recording and release fees (4) Changes in fair value do not include realization of MSR cash flows (5) Considered in the assessment of MSR fair value changes SERVICING PROFITABILITY EXCLUDING VALUATION - RELATED CHANGES • Operating revenue increased $7.4 million driven by an increase in servicing fees from a larger servicing portfolio; operating expenses as a percentage of average servicing portfolio UPB decreased • EBO loan related revenue decreased $47.4 million driven by lower EBO - related activities • Payoff - related expense from prepayments remains elevated but decreased $6.5 million • Valuation - related changes include $11.5 million in reversals of provisions for losses on active loans
13 ($559) ($1,110) $56 ($65) $405 $943 ($352) ($86) $528 $1,964 $607 $331 2019 2020 1H21 3Q21 MSR fair value change before recognition of realization of cash flows Hedging and other gains (losses) Production pretax income HEDGING APPROACH MODERATES THE VOLATILITY OF PFSI’S RESULTS OVER TIME • PFSI seeks to moderate the impact of interest rate changes on the fair value of its MSR asset through a comprehensive hedge strategy that also considers production - related income • In 3Q21 , MSR fair value decreased $65 million (1) , comprised of: – $56 million in fair value gains due to increases in interest rates – $121 million in other valuation declines, primarily due to elevated levels of prepayment activity and increases to short - term prepayment projections • $86 million from decreases in hedging results, comprised of: – $69 million in fair value declines primarily driven by increases in interest rates during the quarter – $17 million in declines due to hedge costs • Strong production income driven by the continued growth of the consumer direct lending channel MSR Valuation Changes and Offsets ($ in millions) (1) Before recognition of realization of cash flows
14 Beginning period forbearance TRENDS IN DELINQUENCIES, FORBEARANCE AND LOSS MITIGATION • In PFSI’s predominately government MSR portfolio, approximately 257,000 borrowers have been enrolled in a forbearance plan related to COVID - 19 since the enactment of the CARES Act – Through September 30, approximately 216,000 borrowers have exited or are in the process of exiting their forbearance plan including those borrowers that have paid - in - full • Servicing advances outstanding increased to approximately $430 million at September 30, 2021 from $424 million at June 30, 2021 – Advances are expected to increase as many property tax payments become due toward the end of the calendar year – No P&I advances are outstanding, as prepayment activity continues to sufficiently cover remittance obligations • Of the 0.6% reduction in forbearance related to re - performance – 0.2% were forbearances that remained current or went delinquent and subsequently became current – 0.4% were FHA Partial Claims or completed modifications Note: Figures may not sum due to rounding (1) Owned MSR portfolio. Delinquency and forbearance data based on loan count (i.e. not UPB). As of 9/30/21, 30+ day delinquency uni ts amounted to 108,280, forbearance units amounted to 41,423, total portfolio units were 1,307,230, and portfolio UPB was $277 billion. (2) Forbearance outcomes based on loan count as a percentage of beginning period loans in forbearance. 30+ Day Delinquency Rate and Forbearance Trend (1) Forbearance Outcomes (2) Ending period forbearance 3.2% 4.9% 0.6% 1.7% 0.2% 0.1% 2.4% 0.8% 6/30/21 Re- performing Active Loss Mitigation Paid- in-full 30+ DQ not in forbearance Extended New forbearances 9/30/21 6.4% 12.4% 10.1% 7.8% 6.3% 4.9% 3.2% 7.2% 15.1% 14.1% 12.6% 10.2% 9.0% 8.3% 3/31/20 6/30/20 9/30/20 12/31/20 3/31/21 6/30/21 9/30/21 Forbearance Rate 30+ Day Delinquency Rate
15 INVESTMENT MANAGEMENT SEGMENT HIGHLIGHTS • Net AUM as of September 30, 2021 were $2.5 billion, up 6 % from June 30, 2021, and up 9 % from September 30, 2020 ‒ Increase in AUM due to PMT’s sale of $250 million in preferred shares • Investment M anagement segment revenues were $9.8 million, down 28% from 2Q21 and unchanged from 3 Q20 ‒ No incentive fee was earned for PMT’s performance this quarter $9.9 Investment Management Revenues ($ in millions) Investment Management AUM ($ in b illions) $2.3 $2.3 $2.5 9/30/20 6/30/21 9/30/21 $10.2 $10.1 $3.3 ($0.3) $9.8 $13.5 $9.8 3Q20 2Q21 3Q21 Base management fees & other revenue Performance incentive
APPENDIX
17 $197 billion in 2020 $ 495 billion outstanding IN SER VIC ING (1) YEARS FOR PFSI AS A PUBLIC COMPANY 8 13 YEARS OF OPERATIONS PMT # 2 • CORRESPONDENT PRODUCTION • CONSUMER DIRECT • BROKER DIRECT IN PRODUCTION (1) IS A LEADING RESIDENTIAL MORTGAGE REIT PENNYMAC IS AN ESTABLISHED LEADER IN THE U.S. MORTGAGE MARKET WITH SUBSTANTIAL GROWTH POTENTIAL # 6 Note: All figures are for PFSI and include volume fulfilled or subserviced for PMT. All figures are as of 9/30/21. (1) Inside Mortgage Finance for the year ended or as of 9/30/21 $ 2.5 billion in assets under management 12 - year track record 2+ million customers $ 187 billion in 9M21
18 OVERVIEW OF PENNYMAC FINANCIAL’S BUSINESSES LOAN PRODUCTION 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 LOAN SERVICING Servicing for owned MSRs and subservicing for MSRs owned by 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 INVESTMENT MANAGEMENT External manager of PMT, which invests in mortgage - related assets: - GSE credit risk transfer investments - MSR investments - Investments in prime non - agency MBS and asset - backed securities Synergistic partnership with PMT 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
19 48% 75% 64% 61% 73% 80% 63% 40% 44% 40% 58% 53% 49% 63% 71% 54% 36% 39% 2013 2014 2015 2016 2017 2018 2019 2020 9M21 PFSI Purchase Mix Industry Purchase Mix $1.8 $1.3 $1.7 $2.1 $1.8 $1.6 $2.3 $4.1 $4.2 2013 2014 2015 2016 2017 2018 2019 2020 2021E U.S. Origination Market (in trillions) 0.0% 1.0% 2.0% 3.0% 4.0% 10-Year Treasury Yield 11% 19% 20% 22% 26% 13% 22% 61% 32% 2013 2014 2015 2016 2017 2018 2019 2020 9M21 PFSI's Annualized Return on Average Common Stockholders' Equity (ROE) Average: 25% PFSI’S TRACK RECORD ACROSS VARIOUS MARKET ENVIRONMENTS IS UNIQUE AMONG INDEPENDENT MORTGAGE BANKS (1) (4) Proven ability to generate attractive ROEs… …across different market environments… …with a strong orientation towards purchase money mortgages. (2) (3) 9M2 1 (1) Represents partial year. Initial Public Offering was May 8, 2013. (2) Bloomberg (3) Inside Mortgage Finance. Full year 2021 estimate is an average of Mortgage Bankers Association (10/17/21 ), Fannie Mae (10/11/21 ), and Freddie Mac (10/15/21 ) forecasts. (4) Inside Mortgage Finance for historical data. Industry purchase mix for 3Q 21 represents the average of Mortgage Bankers Association (10/17/21 ), Fannie Mae (10/11/21 ), and Freddie Mac (10/15/21 ) estimates.
20 0.0% 1.0% 2.0% 3.0% 4.0% 2.0% 2.5% 3.0% 3.5% 4.0% 4.5% 5.0% CURRENT MARKET ENVIRONMENT AND MACROECONOMIC TRENDS (1) Freddie Mac Primary Mortgage Market Survey. 3.14% as of 10/28/21 (2) U.S. Department of the Treasury. 1.58% as of 10/8/21 (3) 10 - year Treasury bond yield and 2/10 year Treasury yield spread: Bloomberg. Average 30 - year fixed rate mortgage: Freddie Mac Primary Mortgage Market Survey. Average secondary mortgage rate: 30 - Year FNCL Par Coupon Index (MTGEFNCL), Bloomberg. U.S. home price appreciation: S&P CoreLogic Case - Schiller U.S. National Home Price NSA Index (SPCSUSA). Data is as of 8 /31/21. Residential mortgage originations are for the quarterly period ended. Source: Inside Mortgage Finance. Average 30 - year fixed rate mortgage (1) 10 - year Treasury Bond Yield (2) Macroeconomic Metrics (3) 3.01% 3.02% 1.49% 1.47% Footnotes 9/30/2012/31/203/31/216/30/219/30/21 10-year Treasury bond yield 0.68% 0.91% 1.74% 1.47% 1.49% 2/10 year Treasury yield spread 0.56% 0.79% 1.58% 1.22% 1.21% 30-year fixed rate mortgage 2.90% 2.67% 3.17% 3.02% 3.01% Secondary mortgage rate 1.42% 1.34% 1.97% 1.87% 1.97% U.S. home price appreciation (Y/Y % change) 7.0% 10.4% 13.3% 18.7% 18.5% Residential mortgage originations (in billions) $1,155 $1,265 $1,305 $1,230 $1,195
21 PFSI’s BALANCED BUSINESS MODEL IS A FLYWHEEL • Diversified business through correspondent, consumer direct and broker direct channels • Correspondent and broker direct channels in particular allow PFSI to access purchase - money volume • Lacks the fixed overhead of the traditional, retail origination model • Recurring fee income business captured over the life of the loan • In the event of higher interest rates, expected life of the loan increases resulting in a more valuable MSR asset • Creates a natural hedge to production income Customer base of over 2 million drives leads for consumer direct Large volumes of production grow servicing portfolio Loan Production 2 nd largest in the U.S. (1) Loan Servicing 6 th largest in the U.S. (1) (1) Inside Mortgage Finance for the year ended or as of September 30, 2021. Includes volume fulfilled or subserviced for PMT. In both businesses, scale and efficiency are critical for success
22 PENNYMAC HAS DEVELOPED IN A SUSTAINABLE MANNER FOR LONG - TERM GROWTH 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Operations launched; de novo build of legacy - free mortgage servicer Raised $500 million of capital in private opportunity funds PMT formed in an initial public offering raising $320 million Correspondent group established with a focus on operations development and process design Added servicing leadership for prime portfolio and to drive scalable growth Correspondent system launches Expanded infrastructure with flagship operations facility in Moorpark, CA Correspondent leadership team expands Expanded infrastructure in Tampa, FL Became largest non - bank correspondent aggregator PFSI completed initial public offering Expanded infrastructure in Fort Worth, TX Continued organic growth and servicing portfolio UPB reaches $100 billion (1) PFSI stockholders’ equity surpasses $1 billion Substantial growth in PFSI’s consumer direct capacity PFSI issued MSR - backed term notes PFSI launched broker - direct lending channel PFSI completes corporate reorganization Achieved position as the largest correspondent aggregator in the U.S. PFSI launched proprietary, cloud - based Servicing Systems Environment (SSE) Record production volumes across all channels; nearly $200 billion in UPB (1) PFSI issued inaugural unsecured Senior Notes of $650 million PFSI issued an additional $1.15 b illion of unsecured Senior Notes Servicing portfolio surpasses 2 million customers (1) • Disciplined growth to address the demands of the GSEs, Agencies, regulators and our financing partners ‒ Since inception, PennyMac has focused on building and testing processes and systems before adding significant transaction vol ume s • Highly experienced management team has created a robust corporate governance system centered on compliance, risk management a nd quality control (1) All figures are for PFSI and include volume fulfilled or subserviced for PMT.
23 MSR ASSET VALUATION Mortgage Servicing Rights (1) Weighted average Pool UPB $259,221 Coupon (1) 3.2% Servicing fee/spread (1) 0.34% Prepayment speed assumption (CPR) (1) 10.3% Fair value $3,611.1 As a multiple of servicing fee 4.12 September 30, 2021 Unaudited ($ in millions)
24 ACQUISITIONS AND ORIGINATIONS BY PRODUCT First Lien Acquisitions/Originations Note: Figures may not sum exactly due to rounding Unaudited ($ in millions) 3Q20 4Q20 1Q21 2Q21 3Q21 Correspondent Acquisitions Conventional Conforming 27,351$ 37,986$ 33,762$ 30,479$ 28,605$ Government 16,977 18,923 17,440 16,175 15,375 Total 44,328$ 56,908$ 51,202$ 46,654$ 43,980$ Consumer Direct Originations Conventional Conforming 3,091$ 3,659$ 4,634$ 5,012$ 6,200$ Government 3,240 4,356 6,023 5,661 4,932 Total 6,331$ 8,015$ 10,657$ 10,672$ 11,131$ Broker Direct Originations Conventional Conforming 2,657$ 3,527$ 3,959$ 3,246$ 3,086$ Government 845 956 1,158 728 902 Total 3,502$ 4,484$ 5,117$ 3,974$ 3,988$ Total acquisitions/originations 54,161$ 69,407$ 66,976$ 61,300$ 59,099$ UPB of loans fulfilled for PMT (included in correspondent acquisitions) 27,351$ 37,986$ 33,762$ 30,479$ 28,605$
25 INTEREST RATE LOCKS BY PRODUCT First Lien Locks Note: Figures may not sum exactly due to rounding Unaudited ($ in millions) 3Q20 4Q20 1Q21 2Q21 3Q21 Correspondent Locks Conventional Conforming 34,363$ 39,451$ 33,998$ 30,332$ 29,411$ Government 20,167 19,728 17,064 15,657 16,230 Total 54,531$ 59,179$ 51,062$ 45,990$ 45,641$ Consumer Direct Locks Conventional Conforming 5,699$ 5,711$ 6,337$ 7,486$ 9,625$ Government 5,207 7,126 7,047 6,621 6,701 Total 10,906$ 12,837$ 13,384$ 14,108$ 16,326$ Broker Direct Locks Conventional Conforming 4,236$ 4,375$ 4,634$ 3,387$ 3,745$ Government 1,256 1,341 1,036 1,119 1,131 Total 5,492$ 5,716$ 5,671$ 4,506$ 4,876$ Total locks 70,928$ 77,731$ 70,117$ 64,604$ 66,843$
26 CREDIT CHARACTERISTICS BY ACQUISITION/ORIGINATION PERIOD Correspondent Consumer Direct Broker Direct 3Q20 4Q20 1Q21 2Q21 3Q21 3Q20 4Q20 1Q21 2Q21 3Q21 Government-insured 715 714 707 702 700 Government-insured 37 36 37 42 42 Conventional 772 768 761 757 755 Conventional 32 33 34 34 35 Weighted Average FICO Weighted Average DTI 3Q20 4Q20 1Q21 2Q21 3Q21 3Q20 4Q20 1Q21 2Q21 3Q21 Government-insured 719 720 719 708 706 Government-insured 40 39 39 39 40 Conventional 756 759 757 748 744 Conventional 32 32 32 33 33 Weighted Average FICO Weighted Average DTI 3Q20 4Q20 1Q21 2Q21 3Q21 3Q20 4Q20 1Q21 2Q21 3Q21 Government-insured 756 753 743 726 731 Government-insured 45 43 43 43 42 Conventional 770 768 767 760 760 Conventional 32 32 33 34 34 Weighted Average FICO Weighted Average DTI