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): February 4, 2021
PennyMacFinancial 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 | (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))
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. ¨
Item 2.02 Results of Operations andFinancial Condition.
On February 4, 2021, PennyMac Financial Services, Inc. (the “Company”) issued a press release announcing its financial results for the fiscal quarter and year ended December 31, 2020. A copy of the press release and the slide presentation used in connection with the Company’s recorded presentation of financial results were made available on February 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 8.01 Other Events.
On February 2, 2021, the Company’s Board of Directors approved an increase to the Company’s common stock repurchase authorization from $500 million to $1.0 billion. The stock repurchase authorization does not require the Company to purchase a specific number of shares, and the timing and amount of any shares repurchased are based on market conditions and other factors, including price, regulatory requirements and capital availability. Stock repurchases may be effected through privately negotiated transactions or open market purchases in accordance with applicable rules and regulations. The stock repurchase authorization does not have an expiration date but may be suspended, modified or discontinued at any time without prior notice.
A copy of the press release discussing the stock repurchase authorization is further attached hereto as Exhibit 99.1 and incorporated herein by reference.
Item 9.01 Financial Statements andExhibits.
(d) Exhibits.
| Exhibit No. | Description |
|---|---|
| 99.1 | Press Release, dated February 4, 2021, issued by PennyMac Financial Services, Inc. pertaining to its financial results for the fiscal quarter and year ended December 31, 2020. |
| 99.2 | Slide Presentation for use beginning on February 4, 2021 in connection with a recorded presentation of financial results for the fiscal quarter and year ended December 31, 2020. |
| 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. | |
|---|---|
| Dated: February 4, 2021 | /s/ Daniel S. Perotti |
| Daniel S. Perotti | |
| Senior Managing Director and Chief Financial<br> Officer |
Exhibit99.1
| Media | Investors |
|---|---|
| Janis<br>Allen | Kevin Chamberlain |
| (805)<br>330-4899 | Isaac<br>Garden |
| (818) 224-7028 |
PennyMac Financial Services, Inc.Reports Fourth Quarter and Full-Year2020 Results and Increases Quarterly Dividend
Also Announces $500 Million Increase in Stock RepurchaseProgram
Westlake Village, CA, February 4^th^, 2021 – PennyMac Financial Services, Inc. (NYSE: PFSI) today reported net income of $452.8 million for the fourth quarter of 2020, or $5.97 per share on a diluted basis, on revenue of $1.0 billion. Book value per share increased to $47.80 from $41.67 at September 30, 2020.
PFSI’s Board of Directors declared a fourth quarter cash dividend of $0.20 per share, a 33 percent increase from the prior quarter, payable on February 25, 2021, to common stockholders of record as of February 12, 2021.
PFSI’s Board of Directors also approved an increase to its stock repurchase authorization from $500 million to $1.0 billion of outstanding common stock.
Fourth Quarter 2020 Highlights
| · | Pretax income was $617.2 million, down 15 percent from the prior quarter and up 204 percent from the fourth quarter of 2019 |
|---|---|
| o | Strong earnings driven by core production and servicing results partially offset by fair value losses on mortgage servicing<br>rights (MSRs) and associated hedging and other losses |
| --- | --- |
| o | Repurchased approximately 1.6 million shares of PFSI’s common stock for an approximate cost of $89.3 million |
| --- | --- |
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| · | Production segment pretax income was $572.6 million, down 7 percent from the prior quarter and up 182 percent from the<br>fourth quarter of 2019, driven by strong performance across all channels |
|---|---|
| o | Direct lending interest rate lock commitments (IRLCs) were a record $18.6 billion in unpaid principal balance (UPB), up 13<br>percent from the prior quarter and 158 percent from the fourth quarter of 2019 |
| --- | --- |
| – | $12.8 billion in UPB of IRLCs in the consumer direct channel; $5.7 billion in UPB of IRLCs in the broker direct channel |
| --- | --- |
| o | Government correspondent IRLCs totaled $19.7 billion in UPB, down 2 percent from the prior quarter and up 22 percent<br>from the fourth quarter of 2019 |
| --- | --- |
| o | Total loan acquisitions and originations were a record $69.4 billion in UPB, up 28 percent from the prior quarter<br>and 64 percent from the fourth quarter of 2019 |
| --- | --- |
| o | Correspondent acquisitions of conventional loans fulfilled for PennyMac Mortgage Investment Trust (NYSE: PMT) were $38.0 billion<br>in UPB, up 39 percent from the prior quarter and 85 percent from the fourth quarter of 2019 |
| --- | --- |
| · | Servicing segment pretax income was $42.0 million, down from pretax income of $111.7 million in the prior quarter and<br>up from a pretax loss of $5.1 million in the fourth quarter of 2019 |
| --- | --- |
| o | Pretax income excluding valuation-related items was $234.3 million, up 230 percent from the prior quarter and 499 percent<br>from the fourth quarter of 2019, driven by continued loss mitigation activities related to COVID-19 |
| --- | --- |
| o | Valuation items included: |
| --- | --- |
| – | $44.2 million in MSR fair value losses driven by faster-than-expected prepayment speeds and $102.5 million in hedging and other<br>losses; net impact on pretax income related to these items was $(146.6) million and on earnings per share was $(1.42) |
| --- | --- |
| – | A $45.6 million provision for credit losses on active loans related to COVID-19 |
| --- | --- |
| o | Servicing portfolio grew to $426.8 billion in UPB, up 6 percent from September 30, 2020 and 16 percent from December 31,<br>2019, driven by record production volumes offsetting elevated prepayment activity |
| --- | --- |
| · | Investment Management segment pretax income was $2.6 million, down from $3.3 million in the prior quarter and $5.2 million<br>in the fourth quarter of 2019 |
| --- | --- |
| o | Net assets under management (AUM) were $2.3 billion, up 1 percent from September 30, 2020 |
| --- | --- |
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Notable activity after quarter-end:
| · | Repurchased an additional approximately 1.1 million shares of PFSI’s common stock for an approximate cost of $66 million<br>through February 3, 2021 |
|---|
Full-Year 2020 Highlights
| · | Pretax income of $2.2 billion, up 323 percent from the prior year and the highest level on record for PennyMac Financial |
|---|---|
| o | Diluted earnings per share of $20.92, up from $4.89 in 2019 and also a record |
| --- | --- |
| · | Total net revenue of $3.7 billion, up 151 percent from the prior year |
| --- | --- |
| · | Repurchased approximately 8.9 million shares of PFSI’s common stock, or approximately 11 percent of the total outstanding<br>at the beginning of the year, for an approximate cost of $337 million |
| --- | --- |
| · | Record loan production of $196.6 billion in UPB, an increase of 67 percent from the prior year |
| --- | --- |
| o | $36 billion in UPB of originations in the direct lending channels, up 163 percent from 2019 |
| --- | --- |
| · | Servicing portfolio UPB of $426.8 billion at year end, up 16 percent from December 31, 2019 |
| --- | --- |
“PennyMac Financial delivered another strong quarter,” said President and CEO David Spector, “with book value per share increasing 15% on record production levels. PFSI’s third quarter momentum carried into the fourth quarter with net income near record levels and producing a return on equity of 56% for the quarter. Our direct lending channels showed incredible growth with consumer direct and broker direct originations growing 27% and 29%, respectively. Our modest market share in both of these channels provides ample room for growth and with foundational investments made in technology and back office fulfillment, we are well positioned to scale those businesses. As we grow our origination business we are organically increasing our servicing portfolio, which ended the year at over $426 billion in unpaid principal balance. This portfolio growth contributed to strong servicing income and, when excluding valuation-related items, resulted in record pretax income for the fourth quarter. All of this while helping thousands of borrowers who were affected by COVID-19 exit successfully from their forbearance plans.”
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Mr. Spector continued, “The outstanding fourth quarter was the culmination of a remarkable year for PennyMac Financial. Funding nearly $200 billion in unpaid principal balance and ending the year with a servicing portfolio of nearly 2 million customers, 2020 was certainly a record year for PFSI. We also successfully protected our asset values as our disciplined hedging and risk management strategy largely offset the $1 billion write-down on the fair value of the MSR. Additionally, we granted approximately 291 thousand homeowners forbearance plans in 2020 and have helped, or are in the process of helping, approximately 145 thousand borrowers successfully emerge from their forbearance plans. This was all done while the vast majority of our employees were working from home for most of the year. I am incredibly thankful and proud of the over 6,000 PennyMac employees who managed through the challenges of the pandemic to deliver extraordinary results. We believe we are well positioned to continue our success and expect the Company’s exceptional financial performance to persist through 2021.”
Mr. Spector concluded, “All of us at PennyMac are grateful for the many kind thoughts and tributes we have received since announcing the sad passing of Stan Kurland, our founder and Chairman. While Stan had retired from day-to-day responsibilities at PennyMac, he remained a trusted advisor and dear friend. His leadership helped lay the foundation for PennyMac’s long-term success which included building and developing a deep management team that carries on his legacy.”
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The following table presents the contributions of PennyMac Financial’s segments to pretax income:
| Quarter ended December 31, 2020 | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Mortgage Banking | Investment | ||||||||||||||
| Production | Servicing | Total | Management | Total | |||||||||||
| (in thousands) | |||||||||||||||
| Revenue | |||||||||||||||
| Net gains on loans held for sale at fair value | $ | 659,915 | $ | 199,146 | $ | 859,061 | $ | - | $ | 859,061 | |||||
| Loan origination fees | 93,460 | - | 93,460 | - | 93,460 | ||||||||||
| Fulfillment fees from PMT | 72,606 | - | 72,606 | - | 72,606 | ||||||||||
| Net loan servicing fees | - | 26,496 | 26,496 | - | 26,496 | ||||||||||
| Management fees | - | - | - | 8,687 | 8,687 | ||||||||||
| Net interest expense: | |||||||||||||||
| Interest income | 29,765 | 44,427 | 74,192 | - | 74,192 | ||||||||||
| Interest expense | 31,036 | 62,612 | 93,648 | 5 | 93,653 | ||||||||||
| (1,271 | ) | (18,185 | ) | (19,456 | ) | (5 | ) | (19,461 | ) | ||||||
| Other | 212 | 111 | 323 | 974 | 1,297 | ||||||||||
| Total net revenue | 824,922 | 207,568 | 1,032,490 | 9,656 | 1,042,146 | ||||||||||
| Expenses | 252,276 | 165,547 | 417,823 | 7,097 | 424,920 | ||||||||||
| Pretax income | $ | 572,646 | $ | 42,021 | $ | 614,667 | $ | 2,559 | $ | 617,226 |
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 $69.4 billion in UPB, $31.4 billion of which was for its own account, and $38.0 billion of which was fee-based fulfillment activity for PMT. Correspondent government and direct lending IRLCs totaled $38.3 billion in UPB, up 5 percent from the prior quarter and 64 percent from the fourth quarter of 2019.
Production segment pretax income was $572.6 million, down 7 percent from the prior quarter and up 182 percent from the fourth quarter of 2019. Production revenue totaled $824.9 million, down 2 percent from the prior quarter and up 134 percent from the fourth quarter of 2019. The quarter-over-quarter decrease was primarily driven by a $40.9 million decrease in net gains on loans held for sale. The decrease was driven by lower production margins and was offset by a $17.9 million increase in loan origination fees and a $17.8 million increase in fulfillment fees, driven by record volumes across all channels.
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The components of net gains on loans held for sale are detailed in the following table:
| Quarter ended | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| December 31,<br><br> 2020 | September 30,<br><br> 2020 | December 31,<br><br> 2019 | |||||||
| (in thousands) | |||||||||
| Receipt of MSRs and recognition of MSLs in loan sale transactions | $ | 367,501 | $ | 245,946 | $ | 328,182 | |||
| Mortgage servicing rights recapture payable to PennyMac Mortgage Investment Trust | (11,868 | ) | (9,776 | ) | (2,624 | ) | |||
| Provision of liability for representations and warranties, net | (4,667 | ) | (2,746 | ) | (1,583 | ) | |||
| Cash gain ^(1)^ | 459,887 | 533,292 | 4,694 | ||||||
| Fair value changes of pipeline,<br> inventory and hedges | 48,208 | 88,553 | (71,182 | ) | |||||
| Net gains on mortgage loans held for sale | $ | 859,061 | $ | 855,269 | $ | 257,487 | |||
| Net gains on mortgage loans held for sale by segment: | |||||||||
| Production | $ | 659,915 | $ | 700,830 | $ | 227,751 | |||
| Servicing | $ | 199,146 | $ | 154,439 | $ | 29,736 | |||
| ^(1)^ Net of cash hedging results |
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 $72.6 million in the fourth quarter, up 32 percent from the prior quarter and up 25 percent from the fourth quarter of 2019. The quarter-over-quarter increase in fulfillment fee revenue was driven primarily by a 39 percent increase in acquisition volumes by PMT slightly offset by a decrease in the weighted average fulfillment fee rate to 19 basis points from 20 basis points in the prior quarter.
Net interest expense totaled $1.3 million, down from net interest income of $7.7 million in the prior quarter and net interest income of $2.9 million in the fourth quarter of 2019.
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Production segment expenses were $252.3 million, up 12 percent from the prior quarter and 68 percent from the fourth quarter of 2019, as a result of record volumes across all channels.
Servicing Segment
The Servicing segment includes income from owned MSRs, subservicing and special servicing activities. Servicing segment pretax income was $42.0 million, versus pretax income of $111.7 million in the prior quarter and a pretax loss of $5.1 million in the fourth quarter of 2019. Servicing segment net revenues totaled $207.6 million, down 23 percent from the prior quarter and up 65 percent from the fourth quarter of 2019. The quarter-over-quarter decrease was driven by lower net loan servicing fees.
Revenue from net loan servicing fees totaled $26.5 million, down from $132.8 million in the prior quarter, as a result of higher net valuation related losses. Revenue from net loan servicing fees included $262.7 million in servicing fees, reduced by $89.6 million from the realization of MSR cash flows. Net valuation-related losses totaled $146.6 million, and included MSR fair value losses of $44.2 million, and hedging and other losses of $102.5 million.
The following table presents a breakdown of net loan servicing fees:
| Quarter<br> ended | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| December 31,<br> 2020 | September 30,<br> 2020 | December 31,<br> 2019 | |||||||
| (in thousands) | |||||||||
| Loan servicing fees ^(1)^ | $ | 262,740 | $ | 250,368 | $ | 234,871 | |||
| Changes in fair value of MSRs and MSLs resulting from: | |||||||||
| Realization of cash flows | (89,611 | ) | (90,187 | ) | (113,102 | ) | |||
| Change in fair value inputs | (44,163 | ) | (37,030 | ) | 160,611 | ||||
| Change in fair value of excess servicing spread financing | 6,677 | 3,135 | (2,263 | ) | |||||
| Hedging (losses) gains | (109,147 | ) | 6,521 | (192,386 | ) | ||||
| Net change in fair value of MSRs and MSLs | (236,244 | ) | (117,561 | ) | (147,140 | ) | |||
| Net loan servicing fees | $ | 26,496 | $ | 132,807 | $ | 87,731 |
^(1)^ Includes contractually-specified servicing fees
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Servicing segment revenue included $199.1 million in net gains on loans held for sale related to reperforming government-insured and guaranteed loans, up significantly from $154.4 million in the prior quarter and $29.7 million in the fourth quarter of 2019, as a result of increased loss mitigation activity on loans emerging from forbearance. These previously delinquent loans were purchased out of Ginnie Mae securitizations and 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 $18.2 million, versus net interest expense of $17.9 million in the prior quarter and net interest income of $8.0 million in the fourth quarter of 2019. Interest income was $44.4 million, up from $26.9 million in the prior quarter, driven by the increase in interest received on loans bought out in prior periods. Interest expense was $62.6 million, up from $44.9 million in the prior quarter driven by the financing of increased balances of loans purchased out of Ginnie Mae securitizations.
Servicing segment expenses totaled $165.6 million, up 4 percent from the prior quarter driven by portfolio growth.
The total servicing portfolio grew to $426.8 billion in UPB at December 31, 2020, an increase of 6 percent from September 30, 2020 and 16 percent from December 31, 2019. PennyMac Financial subservices and conducts special servicing for $174.4 billion in UPB, an increase of 11 percent from September 30, 2020 and 29 percent from December 31, 2019. PennyMac Financial’s owned MSR portfolio grew to $252.3 billion in UPB, an increase of 3 percent from September 30, 2020 and 8 percent from December 31, 2019.
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The table below details PennyMac Financial’s servicing portfolio UPB:
| December 31, 2020 | September 30, <br> 2020 | December 31, <br> 2019 | ||||
|---|---|---|---|---|---|---|
| (in thousands) | ||||||
| Prime servicing: | ||||||
| Owned | ||||||
| Mortgage servicing rights | ||||||
| Originated | $ | 196,873,590 | $ | 187,134,080 | $ | 166,188,825 |
| Acquisitions | 41,537,219 | 47,716,917 | 59,598,279 | |||
| 238,410,809 | 234,850,997 | 225,787,104 | ||||
| Mortgage servicing liabilities | 2,857,492 | 1,799,562 | 2,758,454 | |||
| Loans held for sale | 11,063,938 | 8,749,673 | 4,724,006 | |||
| 252,332,239 | 245,400,232 | 233,269,564 | ||||
| Subserviced for PMT | 174,360,317 | 156,425,439 | 135,288,944 | |||
| Total prime servicing | 426,692,556 | 401,825,671 | 368,558,508 | |||
| Special servicing - subserviced for PMT | 58,274 | 71,129 | 125,724 | |||
| Total loans serviced | $ | 426,750,830 | $ | 401,896,800 | $ | 368,684,232 |
| Loans serviced: | ||||||
| Owned | ||||||
| Mortgage servicing rights | $ | 238,410,809 | $ | 234,850,997 | $ | 225,787,104 |
| Mortgage servicing liabilities | 2,857,492 | 1,799,562 | 2,758,454 | |||
| Loans held for sale | 11,063,938 | 8,749,673 | 4,724,006 | |||
| 252,332,239 | 245,400,232 | 233,269,564 | ||||
| Subserviced | 174,418,591 | 156,496,568 | 135,414,668 | |||
| Total loans serviced | $ | 426,750,830 | $ | 401,896,800 | $ | 368,684,232 |
Investment Management Segment
PennyMac Financial manages PMT for which it earns base management fees and may earn incentive compensation. Net AUM were $2.3 billion as of December 31, 2020, up 1 percent from September 30, 2020, due to an increase in PMT’s book value primarily driven by the continued recovery in the fair value of its government sponsored enterprise credit risk transfer investments and strong correspondent segment results.
Pretax income for the Investment Management segment was $2.6 million, down from $3.3 million in the prior quarter and $5.2 million in the fourth quarter of 2019. Management fees, which include base management and performance incentive fees from PMT were $8.7 million, up from $8.5 million in the prior quarter and $10.3 million in the fourth quarter of 2019. Base management fees were $8.7 million, up from $8.5 million in the prior quarter and $8.4 million in the fourth quarter of 2019. Performance-based incentive fees were not earned in the fourth quarter and are not expected to be earned in the near-term due to the impact of PMT’s loss in the first quarter of 2020.
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The following table presents a breakdown of management fees:
| Quarter ended | ||||||
|---|---|---|---|---|---|---|
| December 31,<br><br> 2020 | September 30,<br><br> 2020 | December 31,<br><br> 2019 | ||||
| (in thousands) | ||||||
| Management fees: | ||||||
| PennyMac Mortgage Investment Trust | ||||||
| Base | $ | 8,687 | $ | 8,508 | $ | 8,441 |
| Performance incentive | - | - | 1,873 | |||
| Total management fees | $ | 8,687 | $ | 8,508 | $ | 10,314 |
| Net assets of PennyMac Mortgage Investment Trust | $ | 2,296,859 | $ | 2,281,266 | $ | 2,450,916 |
Investment Management segment expenses totaled $7.1 million, up 10 percent from the prior quarter and 8 percent from the fourth quarter of 2019.
Consolidated Expenses
Total expenses were $424.9 million, up 8 percent from the prior quarter and 48 percent from the fourth quarter of 2019, driven by higher volumes of activity in the production segment and higher delinquency-related activity and provisions for credit losses in the servicing segment.
***
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, February 4, 2021.
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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.
Founded in 2008, the company is recognized as a leader in the U.S. residential mortgage industry. For the twelve months ended December 31, 2020, PennyMac Financial’s production of newly originated loans totaled $197 billion in unpaid principal balance, making it the third largest mortgage lender in the nation. As of December 31, 2020, PennyMac Financial serviced loans totaling $427 billion in unpaid principal balance, making it a top ten servicer of loans in the nation.
Additional information about PennyMac Financial Services, Inc. is available at ir.pennymacfinancial.com.
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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; 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; changes in prevailing interest rates; 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.
This press release contains financial information calculated other than in accordance with U.S. generally accepted accounting principles (“GAAP”), such as pretax income excluding valuation 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)
| September 30, 2020 | December 31, 2019 | ||||
|---|---|---|---|---|---|
| ASSETS | |||||
| Cash | 532,716 | $ | 529,166 | $ | 188,291 |
| Short-term investments at fair value | 15,217 | 102,136 | 74,611 | ||
| Loans held for sale at fair value | 11,616,400 | 9,126,172 | 4,912,953 | ||
| Assets purchased from PennyMac Mortgage Investment Trust under agreements to resell pledged to creditors | 80,862 | 86,958 | 107,512 | ||
| Derivative assets | 711,238 | 578,254 | 159,686 | ||
| Servicing advances, net | 579,528 | 393,654 | 331,169 | ||
| Mortgage servicing rights | 2,581,174 | 2,333,821 | 2,926,790 | ||
| Operating lease right-of-use assets | 74,934 | 72,133 | 73,090 | ||
| Investment in PennyMac Mortgage Investment Trust at fair value | 1,105 | 991 | 1,672 | ||
| Receivable from PennyMac Mortgage Investment Trust | 87,005 | 122,478 | 48,159 | ||
| Loans eligible for repurchase | 14,625,447 | 17,183,873 | 1,046,527 | ||
| Other | 692,169 | 651,229 | 333,557 | ||
| Total assets | 31,597,795 | $ | 31,180,865 | $ | 10,204,017 |
| LIABILITIES | |||||
| Assets sold under agreements to repurchase | 9,654,797 | $ | 7,259,188 | $ | 4,141,053 |
| Mortgage loan participation and sale agreements | 521,477 | 535,063 | 497,948 | ||
| Obligations under capital lease | 11,864 | 13,957 | 20,810 | ||
| Notes payable secured by mortgage servicing assets | 1,295,840 | 1,295,143 | 1,294,070 | ||
| Unsecured senior notes | 645,820 | 492,358 | - | ||
| Excess servicing spread financing payable to PennyMac Mortgage Investment Trust at fair value | 131,750 | 142,990 | 178,586 | ||
| Derivative liabilities | 42,638 | 24,537 | 22,330 | ||
| Mortgage servicing liabilities at fair value | 45,324 | 31,698 | 29,140 | ||
| Operating lease liabilities | 94,193 | 92,005 | 91,320 | ||
| Accounts payable and accrued expenses | 308,398 | 278,403 | 175,273 | ||
| Payable to PennyMac Mortgage Investment Trust | 140,306 | 77,136 | 73,280 | ||
| Payable to exchanged Private National Mortgage Acceptance Company, LLC unitholders under tax receivable agreement | 35,165 | 35,784 | 46,158 | ||
| Income taxes payable | 622,700 | 673,149 | 504,569 | ||
| Liability for loans eligible for repurchase | 14,625,447 | 17,183,873 | 1,046,527 | ||
| Liability for losses under representations and warranties | 32,688 | 28,504 | 21,446 | ||
| Total liabilities | 28,208,407 | 28,163,788 | 8,142,510 | ||
| STOCKHOLDERS' EQUITY | |||||
| Common stock¾authorized<br> 200,000,000 shares of 0.0001 par value; issued and outstanding 70,905,532, 72,400,490, and 78,515,047 shares,<br> respectively | 7 | 7 | 8 | ||
| Additional paid-in capital | 1,047,052 | 1,116,428 | 1,335,107 | ||
| Retained earnings | 2,342,329 | 1,900,642 | 726,392 | ||
| Total stockholders' equity | 3,389,388 | 3,017,077 | 2,061,507 | ||
| Total liabilities and stockholders’ equity | 31,597,795 | $ | 31,180,865 | $ | 10,204,017 |
All values are in US Dollars.
13
PENNYMAC FINANCIAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
| **** | Quarter ended | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| **** | **** | December 31, | **** | September 30, | **** | December 31, | **** | |||
| **** | **** | 2020 | **** | 2020 | **** | 2019 | **** | |||
| **** | **** | (in thousands, except earnings per share) | **** | |||||||
| Revenue | ||||||||||
| Net gains on loans held for sale at fair value | $ | 859,061 | $ | 855,269 | $ | 257,487 | ||||
| Loan origination fees | 93,460 | 75,572 | 63,868 | |||||||
| Fulfillment fees from PennyMac Mortgage Investment Trust | 72,606 | 54,839 | 58,297 | |||||||
| Net loan servicing fees: | ||||||||||
| Loan servicing fees | 262,740 | 250,368 | 234,871 | |||||||
| Change in fair value of mortgage servicing<br> rights, mortgage servicing liabilities and excess servicing spread financing | (127,097 | ) | (124,082 | ) | 45,246 | |||||
| Hedging results | (109,147 | ) | 6,521 | (192,386 | ) | |||||
| Net loan servicing fees | 26,496 | 132,807 | 87,731 | |||||||
| Net interest (expense) income: | ||||||||||
| Interest income | 74,192 | 52,952 | 76,015 | |||||||
| Interest expense | 93,653 | 63,179 | 65,132 | |||||||
| (19,461 | ) | (10,227 | ) | 10,883 | ||||||
| Management fees from PennyMac Mortgage Investment Trust | 8,687 | 8,508 | 10,314 | |||||||
| Change in fair value of investment in and<br> dividends received from PennyMac Mortgage Investment Trust | 149 | (288 | ) | 39 | ||||||
| Results of real estate acquired in settlement of loans | 233 | 1,214 | (648 | ) | ||||||
| Revaluation of payable to exchange Private National Mortgage<br> Acceptance Company, LLC unitholders under tax receivable agreement | 280 | - | 379 | |||||||
| Other | 635 | 2,298 | 2,025 | |||||||
| Total net revenue | 1,042,146 | 1,119,992 | 490,375 | |||||||
| Expenses | ||||||||||
| Compensation | 187,807 | 202,440 | 141,009 | |||||||
| Servicing | 87,155 | 71,110 | 57,487 | |||||||
| Loan origination | 69,069 | 53,752 | 44,919 | |||||||
| Technology | 42,594 | 28,964 | 15,515 | |||||||
| Professional services | 19,853 | 18,307 | 10,983 | |||||||
| Occupancy and equipment | 8,535 | 8,491 | 7,841 | |||||||
| Other | 9,907 | 8,637 | 9,255 | |||||||
| Total expenses | 424,920 | 391,701 | 287,009 | |||||||
| Income before provision for income taxes | 617,226 | 728,291 | 203,366 | |||||||
| Provision for income taxes | 164,422 | 193,131 | 50,705 | |||||||
| Net income | $ | 452,804 | $ | 535,160 | $ | 152,661 | ||||
| Earnings per share | ||||||||||
| Basic | $ | 6.31 | $ | 7.39 | $ | 1.95 | ||||
| Diluted | $ | 5.97 | $ | 7.03 | $ | 1.88 | ||||
| Weighted-average common shares outstanding | ||||||||||
| Basic | 71,793 | 72,439 | 78,466 | |||||||
| Diluted | 75,898 | 76,138 | 81,076 | |||||||
| Dividend declared per share | $ | 0.15 | $ | 0.15 | $ | - |
14
PENNYMAC FINANCIAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
| Year ended December 31, | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| 2020 | 2019 | 2018 | |||||||
| (in thousands, except earnings per share) | |||||||||
| Revenue | |||||||||
| Net gains on loans held for sale at fair value | $ | 2,740,785 | $ | 725,528 | $ | 249,022 | |||
| Loan origination fees | 285,551 | 174,156 | 101,641 | ||||||
| Fulfillment fees from PennyMac Mortgage Investment Trust | 222,200 | 160,610 | 81,350 | ||||||
| Net loan servicing fees: | |||||||||
| Loan servicing fees: | |||||||||
| From non-affiliates | 814,646 | 730,165 | 585,101 | ||||||
| From PennyMac Mortgage Investment Trust | 67,181 | 48,797 | 42,045 | ||||||
| Investment funds | - | - | 3 | ||||||
| Other fees | 116,464 | 98,564 | 64,133 | ||||||
| 998,291 | 877,526 | 691,282 | |||||||
| Change in fair value of mortgage servicing rights, mortgage servicing liabilities and excess servicing spread financing | (1,477,023 | ) | (979,358 | ) | (124,844 | ) | |||
| Hedging results | 918,180 | 395,497 | (121,045 | ) | |||||
| Net loan servicing fees | 439,448 | 293,665 | 445,393 | ||||||
| Net interest (expense) income: | |||||||||
| Interest income | 247,026 | 288,700 | 216,416 | ||||||
| Interest expense | 271,551 | 211,979 | 144,597 | ||||||
| (24,525 | ) | 76,721 | 71,819 | ||||||
| Management fees, net: | |||||||||
| From PennyMac Mortgage Investment Trust | 34,538 | 36,492 | 24,465 | ||||||
| From Investment Funds | - | - | 4 | ||||||
| 34,538 | 36,492 | 24,469 | |||||||
| Carried Interest from Investment Funds | - | - | (365 | ) | |||||
| Change in fair value of investment in and dividends received from PennyMac Mortgage Investment Trust | (453 | ) | 416 | 332 | |||||
| Results of real estate acquired in settlement of loans | 1,036 | 557 | 589 | ||||||
| Revaluation of payable to exchange Private National Mortgage Acceptance Company, LLC unitholders under tax receivable agreement | 280 | 379 | 1,126 | ||||||
| Other | 6,737 | 8,880 | 9,253 | ||||||
| Total net revenue | 3,705,597 | 1,477,404 | 984,629 | ||||||
| Expenses | |||||||||
| Compensation | 738,569 | 503,458 | 403,270 | ||||||
| Servicing | 256,934 | 164,697 | 137,104 | ||||||
| Loan origination | 219,746 | 117,338 | 27,398 | ||||||
| Technology | 112,570 | 67,946 | 60,103 | ||||||
| Professional services | 64,064 | 32,859 | 27,615 | ||||||
| Occupancy and equipment | 33,357 | 28,916 | 27,152 | ||||||
| Other | 39,748 | 32,746 | 34,290 | ||||||
| Total expenses | 1,464,988 | 947,960 | 716,932 | ||||||
| Income before provision for income taxes | 2,240,609 | 529,444 | 267,697 | ||||||
| Provision for income taxes | 593,725 | 136,479 | 23,254 | ||||||
| Net income | 1,646,884 | 392,965 | 244,443 | ||||||
| Less: Net income attributable to noncontrolling interest | - | - | 156,749 | ||||||
| Net income attributable to PennyMac Financial Services, Inc. common stockholders | $ | 1,646,884 | $ | 392,965 | $ | 87,694 | |||
| Earnings per share | |||||||||
| Basic | $ | 21.91 | $ | 5.02 | $ | 2.62 | |||
| Diluted | $ | 20.92 | $ | 4.89 | $ | 2.59 | |||
| Weighted average shares outstanding | |||||||||
| Basic | 75,161 | 78,466 | 33,524 | ||||||
| Diluted | 78,728 | 81,076 | 35,322 |
15
Exhibit 99.2
Fourth Quarter 2020 Earnings Report
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 res ult s, future operations, business plans and investment strategies, as well as industry and market conditions, all of which are subject to change. Words like “b eli eve,” “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 var y materially from those projected herein and from past results discussed herein. These forward - looking statements include, but are not limited to, statements rega rding the future impact of COVID - 19 on our business and financial operations, future loan delinquencies and forbearances, projected servicing advances requ irements and other business and financial expectations. Factors which could cause actual results to differ materially from historical results or those an tic ipated 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 disas ters, climate change and pandemics such as COVID - 19; failure to modify, resell or refinance early buyout loans; the continually changing federal, state a nd local laws and regulations applicable to the highly regulated industry in which we operate; lawsuits or governmental actions that may result from any no nco mpliance with the laws and regulations applicable to our businesses; the mortgage lending and servicing - related regulations promulgated by the Consumer Fin ancial 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 jurisdic tio ns applicable to the Company’s businesses, to which our bank competitors are not subject; foreclosure delays and changes in foreclosure practices; ch anges 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; changes in pre vailing interest rates; our substantial amount of indebtedness; expected discontinuation of LIBOR; increases in loan delinquencies and defaults; our reli anc e on PennyMac Mortgage Investment Trust (NYSE: PMT) as a significant source of financing for, and revenue related to, our mortgage banking business; ma intaining sufficient capital and liquidity to support business growth including compliance with financial covenants;; our obligation to indemnify third - party pur chasers or repurchase loans if loans that we originate, acquire, service or assist in the fulfillment of, fail to meet certain criteria or characteristics or unde r o ther circumstances; our obligation to indemnify PMT if our services fail to meet certain criteria or characteristics or under other circumstances; decreases in the re turns 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 ou r investment management segment; conflicts of interest in allocating our services and investment opportunities among us and our advised entities; the ef fect of public opinion on our reputation; our recent growth; our ability to effectively identify, manage, monitor and mitigate financial risks; our initiat ion or expansion of new business activities or strategies; our ability to detect misconduct and fraud; our ability to mitigate cybersecurity risks and cyber incidents; o ur ability to pay dividends to our stockholders; and our organizational structure and certain requirements in our charter documents. You should not place undue rel iance on any forward - looking statement and should consider all of the uncertainties and risks described above, as well as those more fully discussed in re por ts and other documents filed by the Company with the Securities and Exchange Commission from time to time. The Company undertakes no obligation to publicly u pda te 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. This presentation contains financial information calculated other than in accordance with U.S. generally accepted accounting pri nciples (“GAAP”), such as pretax income excluding valuation items that provide a meaningful perspective on the Company’s business results since the Company ut ili zes this information to evaluate and manage the business. Non - GAAP disclosure has limitations as an analytical tool and should not be viewed as a subst itute for financial information determined in accordance with GAAP.
Fourth Quarter Highlights 3 ▪ Net income was $452.8 million; diluted earnings per share (EPS) were $5.97 – Strong earnings driven by core production and servicing results partially offset by fair value losses on mortgages servicing rights (MSRs) and associated hedging and other losses – Repurchased approximately 1.6 million shares of PFSI’s common stock for an approximate cost of $89.3 million – Book value per share increased 15% to $47.80 from $41.67 at September 30, 2020 – PFSI’s Board of Directors declared a fourth quarter cash dividend of $0.20 per share, a 33 percent increase from the prior quarter, payable on February 25, 2021, to common stockholders of record as of February 12, 2021 ▪ Production segment pretax income of $572.6 million, down 7% from 3Q20 and up 182% from 4Q19, driven by strong performance across all channels – Direct lending locks were a record $18.6 billion in unpaid principal balance (UPB), up 13% from 3Q20 and 158% from 4Q19 o $ 12.8 billion in UPB of locks in the consumer direct channel; $5.7 billion in UPB of locks in the broker direct channel – Government correspondent lock volume totaled $19.7 billion in UPB, down 2% from 3Q20 and up 22% from 4Q19 – Total loan acquisitions and originations were a record $69.4 billion in UPB, up 28% from 3Q20 and 64% from 4Q19 – Correspondent acquisitions of conventional loans fulfilled for PennyMac Mortgage Investment Trust (NYSE: PMT) were a record $38.0 billion in UPB, up 39% from 3Q20 and 85% from 4Q19
4 ▪ Servicing segment pretax income was $42.0 million, down from pretax income of $111.7 million in 3Q20 and up from a pretax loss of $5.1 million in 4Q19 – Pretax income excluding valuation - related items was $234.3 million, up 30% from 3Q20 and 499% from 4Q19, driven by continued loss mitigation activities related to COVID - 19 (1) – $44.2 million in MSR fair value losses driven by faster - than - expected prepayment speeds and $102.5 million in hedging and other losses ▪ Net impact on pretax income was $(146.6) million and on EPS was $(1.42) – Servicing portfolio grew to $426.8 billion in UPB, up 6% from September 30, 2020 and 16% from December 31, 2019, driven by record production volumes which offset elevated prepayment activity ▪ Investment Management segment pretax income was $2.6 million, down from $3.3 million in 3Q20 and $5.2 million in 4Q19 – Net assets under management (AUM) were $2.3 billion, up 1% from September 30, 2020 Activity after quarter - end ▪ Repurchased an additional approximately 1.1 million shares of PFSI’s common stock for an approximate cost of $66 million through February 3, 2021 ▪ PFSI’s Board of Directors approved an increase to its stock repurchase authorization from $500 million to $1.0 billion of outstanding common stock Fourth Quarter Highlights (continued) (1) Excludes $44.2 million in MSR fair value losses, $102.5 million in hedging and other gains and a $45.6 million provision for cr edit losses on active loans. See slide 21 for additional details.
5 2020 Accomplishments Demonstrate Best - in - Class Management Record Financial and Operational Results… ▪ $20.92 diluted EPS, up 328% Y/Y ▪ $1.6 billion in net income, up 319% Y/Y ▪ $197 billion in UPB of total production, up 67% Y/Y ‒ $36 billion in UPB of originations in the direct lending channels, up 163% Y/Y ▪ Servicing portfolio of $427 billion in UPB at 12/31/20, up 16% since 12/31/19 despite elevated prepayment activity …All While Helping Thousands of Borrowers ▪ Granted 291,000 borrowers forbearance plans and helped or are in the process of helping 145,000 borrowers successfully emerge from forbearance ▪ Over 90% of forbearance enrollments via automated channels ▪ SSE, our proprietary servicing system, enhanced associates’ ability to successfully help borrowers enroll in forbearance plans and emerge from them Effective Capital and Liquidity Management… ▪ Hedging and other gains of $943 million significantly offset MSR fair value losses of $1.1 billion ▪ Issued $650 million of senior unsecured notes ▪ Increased funding capacity by over $7 billion and established facilities with 3 new global banks ▪ Enhanced Ginnie Mae MSR financing structure to include servicing advances ▪ Effective investment management of PMT’s assets ▪ Approximately $ 1.4 billion in available liquidity (1) …Enabled Efficient Capital Deployment ▪ Extensive investments in PFSI’s technology & operations ▪ Deployed significant capital to support increased volumes of loan production and EBO activity ▪ Repurchased approximately 8.9 million shares at an average price of approximately $38 per share (2) ‒ Includes 7 million from The BlackRock Foundation ▪ We continue to evaluate other uses of excess liquidity such as common share repurchases on an ongoing basis (1) As of December 31, 2020. $216 million of this liquidity is required by Ginnie Mae to be retained at all times. (2) In 2021 through February 3 rd , repurchased an additional approximately 1.1 million shares
48% 75% 64% 61% 73% 80% 63% 40% 40% 58% 53% 49% 63% 71% 54% 36% 2013 2014 2015 2016 2017 2018 2019 2020 PFSI Purchase Mix Industry Purchase Mix 11% 19% 20% 22% 26% 13% 22% 62% 2013 2014 2015 2016 2017 2018 2019 2020 Annualized Return on Average Common Stockholders’ Equity (ROE) 6 (1) Represents partial year. Initial Public Offering was May 8, 2013. (2) Bloomberg (3) Inside Mortgage Finance and company estimates (4) Compounded annual growth rate Profitability and Value Creation Across Various Market Environments Proven ability to generate attractive ROEs… …across different market environments… …with a strong orientation towards purchase money mortgages Average: 24% (1) (2) (3) $1.8 $1.3 $1.7 $2.1 $1.8 $1.6 $2.3 $4.0 2013 2014 2015 2016 2017 2018 2019 2020 U.S. Origination Market (in trillions) 0.0% 1.0% 2.0% 3.0% 4.0% 10-Year Treasury Yield (3) Over 7+ years since PFSI’s IPO, book value per share has grown from $7.27 to $47.80; a 29% CAGR (4) driven primarily by retained earnings
0.0% 1.0% 2.0% 3.0% 4.0% 5.0% Average 30-year fixed rate mortgage Primary / Secondary Spread $1.3 $1.5 $1.6 $1.1 $2.5 $1.7 $2.3 $4.0 $3.3 2019 2020 2021E Purchase Refinance 7 Origination Market Remains Historically Strong (1) Actual originations: Inside Mortgage Finance. Total originations forecast: Average of Mortgage Bankers Association (1/20/21), Fa nnie Mae (1/11/21), and Freddie Mac (1/14/21) forecasts. (2) Freddie Mac Primary Mortgage Market Survey. 2.73% as of 1/28/21 (3) Bloomberg: Difference between Freddie Mac US Mortgage Market Survey 30 Year Homeowner Commitment Rate (NMCMFUS) Index and the 30 - Year Fannie Mae or Freddie Mac Par Coupon (MTGEFNCL) Index U.S. Mortgage Origination Market (1) (UPB in trillions) Rates Remain Low and Margins Remain Wide ▪ Economic forecasts for 2021 total originations have increased to over $3.3 trillion, another robust market supported by low mortgage interest rates ‒ Mortgage rates remain near all - time lows despite the recent increase in the ten - year treasury yield ‒ The Federal Reserve is expected to hold interest rates near zero through 2023 ‒ Purchase originations in 2021 are forecasted to increase again while refinance originations are expected to be down from 2020 levels (2) (3)
$59 $172 - $15 $262 $103 $147 $147 $543 2017 2018 2019 2020 Pretax Income Pretax Income Excluding Valuation Related Changes 8 Direct Lending and Servicing Are Driving PFSI’s Earnings Growth Servicing Pretax Income Production Pretax Income ($ in millions) ($ in millions) Note: Does not include pretax income from non - segment activities which was $32.9 million in 2017 and $1.1 million in 2018, which primarily represents Repricing of payable to exchanged Private National Mortgage Acceptance Company, LLC unitholders under a tax receiv abl e agreement. $32.0 million was the result of the change in the federal income tax rate under the Tax Cuts and Jobs Act of 2017. (1) Valuation - related changes include MSR fair value changes before recognition of realization of cash flows, related hedging and o ther gains (losses), and provision for credit losses on active loans considered in the assessment of MSR fair value changes – see slide 22. (1) $239 $87 $528 $1,964 2017 2018 2019 2020 Estimated Contribution from Direct Lending (CDL & BDL) ▪ Faster growth direct lending channels (consumer and broker direct) are significant contributors to PFSI’s earnings growth ▪ Servicing income reflects growing portfolio, economies of scale and loss mitigation activities ▪ We continue to expect PFSI’s exceptional financial performance to persist through 2021
Correspondent Production (1) Consumer Direct Production (1) 9 PFSI Is an Established Leader With a Growing Presence Across Mortgage Banking (market share) (market share) (market share) Broker Direct Production (1) Servicing (market share) Growth Drivers Increasing Contribution from Higher - Margin Direct Lending Channels Investments in Industry - Leading Businesses Provide Stable Foundation Growth Drivers ▪ Technology - enabled efficiency ▪ Scaled fulfillment operation ▪ Growing customer base with servicing portfolio of almost 2 million customers ▪ Non - portfolio origination growth ▪ Proprietary technology ▪ Low cost structure ▪ Operational scale ▪ Hedging expertise ▪ Loss mitigation capabilities (1) Historical market share estimates based on Inside Mortgage Finance. Inside Mortgage Finance estimates $4.040 trillion in total origination volume. Over the same period, we estimate the correspondent channel represented 22.5% of the overall origination market; we e sti mate that retail represented 64.0% of the overall origination market; and we estimate that broker represented 13.5% of the overall origination market. N/A 10.5% 11.9% 15.5% 17.7% 2017 2018 2019 2020 0.5% 0.5% 0.7% 1.0% 2017 2018 2019 2020 0.3% 0.9% 2.2% 2017 2018 2019 2020 2.3% 2.7% 3.3% 3.8% 12/31/17 12/31/18 12/31/19 12/31/20
10 Technology Initiatives In Place for Growth in Direct Lending ▪ Enhance lead generation capabilities and use of data analytics ▪ Increase use of digital marketing to drive non - portfolio originations ▪ Improve ability for borrowers to self - service ▪ Improves experience for the consumer and broker ▪ Improves productivity in sales and operations ▪ Enables higher volumes and reduced cost to originate ▪ Further reduce loan cycle duration via portal and workflow enhancements ▪ Extend best - in - class tools and solutions to brokers ▪ Enhance brokers’ ability to self - service ▪ Further automate and improve the production and distribution of loan documents ▪ Increase use of online closings and expansion of fulfillment automation ▪ Improve access to data in real time and on demand Fulfillment Enhancements Drive Efficiencies Across All Production Platforms Consumer Direct Broker Direct
$2.6 $3.2 $4.4 $1.2 $3.1 $3.7 $3.8 $6.3 $8.0 $5.5 $10.9 $12.8 4Q19 3Q20 4Q20 Government loans Conventional loans Total locks $0.5 $0.8 $1.0 $0.9 $2.7 $3.5 $1.4 $3.5 $4.5 $1.7 $5.5 $5.7 4Q19 3Q20 4Q20 Government loans Conventional loans Total locks $16.7 $17.0 $18.9 $20.5 $27.4 $38.0 $37.2 $44.3 $56.9 $36.0 $54.5 $59.2 4Q19 3Q20 4Q20 Government loans Conventional loans for PMT Total locks 11 Production Segment Highlights – Volume by Channel (UPB in billions) Correspondent Consumer Direct Broker Direct (UPB in billions) (UPB in billions) (1) (2) (3) (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 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) Commitments to originate mortgage loans at specified terms at period end January 2021: (UPB in billions) Locks: $17.8 Acquisitions: $17.9 January 2021: (UPB in billions) Locks: $4.4 Originations: $3.1 Committed pipeline (4) : $7.9 January 2021: (UPB in billions) Locks: $2.1 Originations: $1.4 Committed pipeline (4) : $3.0
12 Production Segment Highlights – Business Trends by Channel Correspondent Consumer Direct Broker Direct ▪ PennyMac remained the largest correspondent aggregator in the U.S. ▪ Significant growth in conventional correspondent market share as a result of PennyMac’s low cost structure and operational consistency in the channel ▪ Government correspondent margins continued to trend towards more normalized levels ▪ Continue to originate record volumes as a result of: ‒ Advanced modeling and analytics ‒ Growth in sales and fulfillment capacity ‒ Efficient and low cost infrastructure ▪ Non - portfolio interest rate lock commitments in 4Q20 totaled $1.3 billion, up from $906 million in 3Q20 and $94 million in 4Q19 ▪ Margins decreased modestly in 4Q20, but remained elevated relative to historical levels ▪ Continued growth Q/Q in both lock and funding volumes as a result of the increase in approved brokers and our larger presence in the channel ‒ Approved brokers totaled 1,574 at December 31, 2020, up 11% from September 30 ‒ Approximately 12,000 brokers and non - delegated sellers active in the market ▪ Margins continue to decrease from peak levels in 2Q20 but remain high on a historical basis Record production volumes across all channels in 4Q20 enabled by PennyMac’s low - cost and efficient fulfillment process
$401.9 $426.8 ($44.5) $69.4 At 9/30/20 Runoff Additions from loan production At 12/31/20 (1) 13 Servicing Segment Highlights (1) Owned portfolio in predominantly government - insured and guaranteed loans under the FHA (52%), VA (29%), and USDA (12%) programs. Delinquency data based on loan count (i.e., not UPB). CPR = Conditional Prepayment Rate. (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 servicing released in connection with any asset sales by PMT (6) Includes consumer direct production, government correspondent acquisitions, and conventional conforming and jumbo loan acquisitions subserviced for PMT (UPB in billions) ▪ Servicing portfolio totaled $426.8 billion in UPB at December 31, 2020, up 6% Q/Q and 16% Y/Y ▪ Record production volumes led to portfolio growth despite elevated prepayment activity ▪ Modest decrease in delinquency rates as borrowers began to emerge from forbearance plans ▪ Substantial increase in modifications and EBO loan volume related to loss mitigation efforts with borrowers emerging from COVID - 19 forbearance plans Loan Servicing Portfolio Composition Net Portfolio Growth (UPB in billions) (5) (6) $368.7 $401.9 $426.8 12/31/2019 9/30/2020 12/31/2020 Prime owned Prime subserviced and other 3Q20 4Q20 Loans serviced (in thousands) 1,870 1,947 60+ day delinquency rate - owned portfolio (1) 11.4% 10.2% 60+ day delinquency rate - sub-serviced portfolio (2) 3.7% 2.7% Actual CPR - owned portfolio (1) 29.7% 32.5% Actual CPR - sub-serviced (2) 39.2% 38.9% UPB of completed modifications ($ in millions) (3) $3,975 $6,291 EBO loan volume ($ in millions) (4) $2,739 $5,014 Selected Operational Metrics
Investment Management Revenues (1) 14 Investment Management Segment Highlights Investment Management AUM ($ in billions) ▪ Net AUM as of December 31, 2020 were $2.3 billion, up 1% from September 30 , 2020 primarily due to the increase in PMT’s book value – Investment management revenues were $9.7 million, down slightly from the prior quarter which included higher gains related to PMT shares owned by PFSI – Incentive fees are not expected in the near term due to the impact of PMT’s 1Q20 loss ($ in millions) $9.9 $2.45 $2.28 $2.30 12/31/2019 9/30/2020 12/31/2020 $9.9 $9.8 $9.7 $1.9 $11.8 $9.8 $9.7 4Q19 3Q20 4Q20 Base management fees & other revenue Performance incentive
15 Trends in Delinquencie s, Forbearance and Loss Mitigation 30+ Day Delinquency Rate and Forbearance Trend (1) ▪ In PFSI’s predominately government MSR portfolio, approximately 235,000 borrowers were enrolled in a forbearance plan in 2020 – Through December 31st, approximately 115,000 borrowers exited or are in the process of exiting their forbearance plan ▪ Servicing advances outstanding increased to approximately $ 454 million at December 31 , 2020, from $346 million at September 30 primarily due to seasonal property tax payments – Advances are expected to continue increasing over the next 6 to 12 months – No P&I advances are outstanding, as prepayment activity continues to sufficiently cover remittance obligations ▪ Of the 1.8% reduction in forbearance related to re - performance – 0.8% were forbearances that remained current or went delinquent and subsequently became current – 1.0% were FHA Partial Claims or completed modifications ▪ Elevated EBO activity is expected to continue in 2021 Forbearance Outcomes (2) Beginning Period Forbearance Ending Period Forbearance 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 12/31/20, 30+ day delinquency un its amounted to 160,069, forbearance units amounted to 98,530, total portfolio units were 1,266,802, and portfolio UPB was $252 billion. (2) Forbearance outcomes based on loan count as a percentage of beginning period loans in forbearance. 1.7% 10.6% 9.0% 7.3% 4.7% 1.9% 1.1% 0.5% 6.4% 12.4% 10.1% 7.8% 7.6% 7.2% 15.1% 14.1% 12.6% Dec-19 Mar-20 Jun-20 Sep-20 Dec-20 Delinquent in Forbearance Current in Forbearance 30+ Day Delinquency Rate 7.8% 10.1% 1.8% 1.4% 0.3% 0.2% 6.4% 1.4% 9/30/20 Re- performing Active Loss Mitigation Paid- in-full 30+ DQ not in forbearance Extended New forbearances 12/31/20
Appendix
▪ 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 PMT, which invests in mortgage - related assets: – GSE credit risk transfers – MSRs and ESS – Investments in prime non - Agency MBS and asset - backed securities ▪ Synergistic partnership with PMT ▪ Correspondent aggregation of newly originated loans from third - party sellers – PFSI earns gains on delegated government - insured and non - delegated loans – Fulfillment fees for PMT’s delegated conventional loans ▪ Consumer direct origination of conventional and government - insured loans ▪ Broker direct origination launched in 2018 17 Overview of PennyMac Financial’s Businesses
18 PFSI’s Mortgage Banking Franchise Has Substantial Long - Term Value ▪ Substantially all Fannie Mae, Freddie Mac and Ginnie Mae - eligible loans ▪ 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 would increase resulting in a more valuable MSR asset ▪ These dynamics create a natural hedge to production income Drives leads for new consumer direct originations x Industry - leading operating platform with more than 6,600 PennyMac’ers across the U.S. x 1.9 million valuable, ongoing consumer relationships in the servicing business x Proprietary technology assets, including systems with capabilities well beyond leading industry vendors x Unparalleled capabilities to analyze and price large volumes of loans with real - time market updates (1) Inside Mortgage Finance for the twelve months ended December 31, 2020 (2) Inside Mortgage Finance as of September 30, 2020 (3) As of December 31, 2020 In both businesses, scale and efficiency are critical for success Large volumes of production create “flywheel” to grow servicing portfolio Loan Production 3 rd largest in the U.S. (1) ($197 billion in UPB in the last 12 months) Loan Servicing 7 th largest in the U.S. (2) ($427 billion in UPB) (3)
($44.2) ($1,109.8) ($102.5) $943.2 $572.6 $1,964.1 4Q20 FY20 MSR fair value change before recognition of realization of cash flows Hedging and other gains (losses) Production pretax income 19 MSR Valuation Changes and Offsets ($ in millions) Hedging Approach Continues to Moderate the Volatility of PFSI’s Results ▪ 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 4Q20, MSR fair value decreased modestly – Reduction driven by higher - than - expected prepayments, increased projections for short - term prepayments and elevated levels of early buyout activity ▪ For the full year 2020, MSR fair value losses totaled $1.1 billion while hedging and other gains totaled $943 million – Record production pretax income of nearly $2.0 billion
20 Drivers of Production Segment Profitability 4Q20 (1) Expected revenue net of direct origination costs at time of lock (2) Reflects hedging, pricing and execution changes, timing of revenue recognition, and other items (3) Costs are fully allocated Production expenses net of Loan origination expense ▪ Direct lending channels (consumer and broker direct) have outsized impact on Production earnings – represented 20% of fallout adjusted lock volume in 4Q20, but over 70% of segment pretax income ▪ Production revenue margins remain elevated especially in the direct lending channels – revenue per fallout adjusted lock for PFSI’s own account was 217 basis points in 4Q20, down slightly from 236 basis points in 3Q20 ▪ Costs (3) vary by channel – range from approximately 15 basis points in correspondent to 150 basis points in consumer direct; as the mix shift towards direct lending continues, production expenses as a percentage of fallout adjusted locks are expected to trend higher 3Q20 4Q19 Fallout Adjusted Locks Margin / Fulfillment Fee (bps) (1) Revenue Contribution (net of Loan origination Expense) % of Production Revenue Fallout Adjusted Locks Margin / Fulfillment Fee (bps) (1) Revenue Contribution (net of Loan origination expense) % of Production Revenue Fallout Adjusted Locks Margin / Fulfillment Fee (bps) (1) Revenue Contribution (net of Loan origination expense) % of Production Revenue Government Correspondent 15,738$ 39 61.4$ 20% 18,315$ 64 117.3$ 15% 18,180$ 51 93.5$ 12% Consumer Direct 3,881 424 164.5 53% 8,208 543 445.7 57% 8,984 533 478.8 63% Broker Direct 1,319 116 15.3 5% 4,368 268 117.1 15% 4,351 205 89.0 12% Other (2) n/a n/a 8.7 3% n/a n/a 50.4 6% n/a n/a 22.0 3% Total PFSI account revenues (net of Loan origination expense) 20,938$ 119 249.9$ 81% 30,891$ 236 730.5$ 93% 31,515$ 217 683.3$ 90% PMT Conventional Correspondent 18,749 31 58.3 19% 30,036 18 54.8 7% 36,610 20 72.6 10% Total Production revenues (net of Loan origination expense) 78 308.2$ 100% 129 785.3$ 100% 111 755.9$ 100% Production expenses (less Loan origination expense) 26 104.9$ 34% 28 172.1$ 22% 27 183.2$ 24% Production segment pretax income 51 203.3$ 66% 101 613.3$ 78% 84 572.6$ 76% 68,126$ 60,927$ 39,687$
21 (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) Consists of interest shortfall and recording and release fees (4) Changes in fair value do not include realization of MSR cash flows, which are included in amortization and realization of MSR c ash flows above (5) Includes fair value changes and provision for impairment (6) Considered in the assessment of MSR fair value changes Servicing Profitability Excluding Valuation - Related Changes 4Q20 4Q19 3Q20 ▪ Operating revenue increased $10.8 million Q/Q driven by higher fees from a growing servicing portfolio ▪ EBO loan - related revenue increased significantly to $233.3 million as a result of loss mitigation activity on loans emerging from forbearance while related expenses were modest as most of the loans bought out returned to performing status immediately ▪ Payoff - related expense from prepayments remains elevated and increased $8.3 million Q/Q ▪ Valuation - related changes include $45.6 million in provisions for credit losses on active loans driven by higher delinquencies related to COVID - 19 $ in millions basis points (1) $ in millions basis points (1) $ in millions basis points (1) Operating revenue 273.0$ 30.4 261.4$ 26.4 272.2$ 26.3 Realization of MSR cash flows (113.1) (12.6) (90.2) (9.1) (89.6) (8.7) EBO loan-related revenue (2) 40.3 4.5 170.2 17.2 233.3 22.5 Servicing expenses: Operating expenses (80.5) (9.0) (94.4) (9.5) (91.1) (8.8) Payoff-related expense (3) (23.0) (2.6) (31.2) (3.1) (39.5) (3.8) Credit losses and provisions for defaulted loans (17.2) (1.9) (13.0) (1.3) (12.6) (1.2) EBO loan transaction-related expense (18.5) (2.1) (1.2) (0.1) (5.9) (0.6) Financing expenses: Interest on ESS (2.2) (0.2) (2.1) (0.2) (2.0) (0.2) Interest to third parties (19.7) (2.2) (20.1) (2.0) (30.6) (3.0) Pretax income excluding valuation-related changes 39.1$ 4.4 179.5$ 18.1 234.3$ 22.6 Valuation-related changes (4) MSR fair value (5) 160.6 (37.0) (44.2) ESS liability fair value (2.3) 3.1 6.7 Hedging derivatives gains (losses) (192.4) 6.5 (109.1) Provision for credit losses on active loans (6) (10.2) (40.5) (45.6) Servicing segment pretax income (5.1)$ 111.7$ 42.0$ Average servicing portfolio UPB 359,022$ 396,422$ 414,351$
22 (1) Of average portfolio UPB (2) Comprised of net gains on mortgage loans held for sale at fair value and net 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, which are included in amortization and realization of MSR c ash flows above (5) Includes fair value changes and provision for impairment (6) Considered in the assessment of MSR fair value changes Servicing Profitability Excluding Valuation - Related Changes 2019 2017 2018 2020 $ in millions basis points (1) $ in millions basis points (1) $ in millions basis points (1) $ in millions basis points (1) Operating revenue 621.7$ 28.1 771.5$ 28.6 1,022.6$ 30.6 1,057.4$ 26.9 Realization of MSR cash flows (236.6) (10.7) (280.0) (10.4) (429.6) (12.9) (392.2) (10.0) EBO loan-related revenue (2) 138.7 6.3 171.4 6.4 147.1 4.4 527.3 13.4 Servicing expenses: Operating expenses (232.5) (10.5) (283.9) (10.5) (319.0) (9.5) (355.5) (9.0) Payoff-related expense (3) (22.5) (1.0) (27.3) (1.0) (41.4) (1.2) (116.7) (3.0) Credit losses and provisions for defaulted loans (52.6) (2.4) (58.5) (2.2) (75.6) (2.3) (47.8) (1.2) EBO loan transaction-related expense (33.8) (1.5) (41.2) (1.5) (59.8) (1.8) (31.9) (0.8) Financing expenses: Interest on ESS (17.0) (0.8) (15.1) (0.6) (10.3) (0.3) (8.4) (0.2) Interest to third parties (62.5) (2.8) (90.5) (3.4) (87.2) (2.6) (89.2) (2.3) Pretax income excluding valuation-related changes 103.0$ 4.6 146.5$ 5.4 146.8$ 4.4 543.0$ 13.8 Valuation-related changes (4) MSR fair value (5) (18.1) 163.7 (559.0) (1,109.8)$ ESS liability fair value 19.4 (8.5) 9.3 25.0 Hedging derivatives gains (losses) (37.9) (121.0) 395.5 918.2 Provision for credit losses on active loans (6) (7.6) (8.3) (7.3) (114.1) Servicing segment pretax income 58.7$ 172.3$ (14.8)$ 262.1$ Average servicing portfolio UPB 221,506$ 269,403$ 334,169$ 393,504$
▪ Issued $650 million of Senior Unsecured Notes 23 PFSI Has Developed in a Sustainable Manner for Long - Term Growth ▪ 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 volumes ▪ Highly experienced management team has created a robust corporate governance system centered on compliance, risk management and quality control ▪ 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 ▪ Servicing UPB reaches $100 billion ▪ Stockholders’ equity surpasses $1 billion ▪ Substantial growth in consumer direct capacity ▪ Issued MSR - backed term notes ▪ Launched broker - direct lending channel ▪ PFSI completes corporate reorganization ▪ Launched proprietary, cloud - based Servicing Systems Environment (SSE) Period End: Headcount: 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 (1) 72 128 230 435 1,008 1,373 1,816 2,523 3,099 3,248 3,460 4,215 6,632 2020 (1) Excludes outsourced full - time equivalents
24 Why Are MSR Sales Occurring? How Do MSRs Come to Market? ▪ Large servicers may sell MSRs due to operational pressures, regulatory capital constraints for banks and a re - focus on core customers/businesses ▪ Independent mortgage banks sell MSRs from time to time due to a need for capital ▪ Opportunities may arise in the current market driven by dislocation and liquidity concerns ▪ 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 Potential Opportunity in MSR Acquisitions
25 Excess Servicing Spread (e.g., 17bp) MSR Asset (e.g., 34bp 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 wholly - owned 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 MS Rs 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., 17bp) Acquired by PMT from PFSI (1) Example transaction: actual transaction details may vary materially PFSI’s Mortgage Servicing Rights Investments in Partnership with PMT
26 MSR Asset Valuation Pool UPB $223,088 $15,323 $238,411 Coupon (1) 3.57% 4.18% 3.61% Servicing fee/spread 0.35% 0.34% 0.35% Prepayment speed assumption (CPR) 13.9% 11.7% 13.7% Fair value $2,420.4 $160.8 $2,581.2 As a multiple of servicing fee 3.14 3.05 3.13 Related excess servicing spread liability - $131.8 $131.8 December 31, 2020 Unaudited ($ in millions) Total Subject to excess servicing spread Not subject to excess servicing
27 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 Unaudited ($ in millions) Correspondent Acquisitions Conventional Conforming 20,510$ 16,153$ 18,900$ 27,351$ 37,986$ Government 16,653 13,616 10,991 16,977 18,923 Non-Agency (1) - - - - - Total 37,163$ 29,768$ 29,890$ 44,328$ 56,908$ Consumer Direct Originations Conventional Conforming 1,203$ 1,670$ 2,475$ 3,091$ 3,659$ Government 2,566 2,354 2,647 3,240 4,356 Jumbo - - - - - Total 3,768$ 4,024$ 5,122$ 6,331$ 8,015$ Broker Direct Originations Conventional Conforming 940$ 1,163$ 2,136$ 2,657$ 3,527$ Government 481 403 481 845 956 Non-Agency (1) - - - - - Total 1,421$ 1,566$ 2,617$ 3,502$ 4,484$ Total acquisitions/originations 42,353$ 35,358$ 37,630$ 54,161$ 69,407$ UPB of loans fulfilled for PMT 20,510$ 16,153$ 18,900$ 27,351$ 37,986$ 4Q19 2Q20 1Q20 4Q20 3Q20 Consumer Direct Fundings HELOC 3$ 2$ 1$ 0$ 0$
28 Interest Rate Locks by Product First Lien Locks Note: Figures may not sum exactly due to rounding (1) Consists of prime jumbo and non - QM loans Unaudited ($ in millions) Correspondent Locks Conventional Conforming 19,736$ 19,109$ 24,804$ 34,358$ 39,451$ Government 16,225 14,871 12,920 20,164 19,728 Non-Agency (1) - - - - - Total 35,961$ 33,980$ 37,725$ 54,523$ 59,179$ Consumer Direct Locks Conventional Conforming 2,053$ 3,603$ 4,666$ 5,699$ 5,711$ Government 3,407 3,548 4,281 5,207 7,126 Jumbo 6 8 - - - Total 5,466$ 7,159$ 8,947$ 10,906$ 12,837$ Broker Direct Locks Conventional Conforming 1,147$ 2,163$ 3,229$ 4,236$ 4,375$ Government 566 610 868 1,256 1,341 Non-Agency (1) - - - - - Total 1,713$ 2,773$ 4,097$ 5,492$ 5,716$ Total locks 43,140$ 43,912$ 50,769$ 70,920$ 77,731$ 4Q19 2Q20 1Q20 4Q20 3Q20
29 Credit Characteristics by Acquisition / Origination Period Correspondent Consumer Direct Broker Direct 4Q19 1Q20 2Q20 3Q20 4Q20 4Q19 1Q20 2Q20 3Q20 4Q20 Government-insured 703 700 719 715 714 Government-insured 42 42 37 37 36 Conventional 762 763 769 772 768 Conventional 35 34 32 32 33 Weighted Average DTIWeighted Average FICO 4Q19 1Q20 2Q20 3Q20 4Q20 4Q19 1Q20 2Q20 3Q20 4Q20 Government-insured 711 710 719 719 720 Government-insured 42 42 41 40 39 Conventional 747 748 752 756 759 Conventional 35 35 33 32 32 Weighted Average DTIWeighted Average FICO 4Q19 1Q20 2Q20 3Q20 4Q20 4Q19 1Q20 2Q20 3Q20 4Q20 Government-insured 715 712 738 756 753 Government-insured 43 43 42 45 43 Conventional 758 761 767 770 768 Conventional 36 34 32 32 32 Weighted Average DTIWeighted Average FICO