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WESTLAKE VILLAGE, Calif.--(BUSINESS WIRE)--PennyMac Financial Services, Inc. (NYSE: PFSI) today reported net income of $535.2 million for the third quarter of 2020, or $7.03 per share on a diluted basis, on revenue of $1.1 billion. Book value per share increased to $41.67 from $34.26 at June 30, 2020. PFSIs Board of Directors declared a third quarter cash dividend of $0.15 per share, payable on November 25, 2020, to common stockholders of record as of November 16, 2020. Third Quarter 2020 Highlights PennyMac Financial again delivered record earnings in the third quarter, driven by increases in income from both our production and servicing segments, said President and CEO David Spector. Record production income resulted from outstanding performance across all channels and continued growth in our higher-margin consumer and broker direct lending channels. We continue to add capacity for further growth and now have more than 6,000 PennyMac employees throughout our operations across the country. Our servicing portfolio grew to over $400 billion in UPB thanks to our record production volumes which more than offset elevated prepayment speeds, and servicing made a significant contribution to the company's earnings driven by COVID-related loss mitigation activities. The following table presents the contributions of PennyMac Financials segments to pretax income: $ 700,830 $ 154,439 $ 855,269 $ - $ 855,269 75,572 - 75,572 - 75,572 54,839 - 54,839 - 54,839 - 132,807 132,807 - 132,807 - - - 8,508 8,508 26,050 26,902 52,952 - 52,952 18,325 44,850 63,175 4 63,179 7,725 (17,948 ) (10,223 ) (4 ) (10,227 ) 132 1,802 1,934 1,290 3,224 839,098 271,100 1,110,198 9,794 1,119,992 225,817 159,407 385,224 6,477 391,701 $ 613,281 $ 111,693 $ 724,974 $ 3,317 $ 728,291 Production Segment The Production segment includes the correspondent acquisition of newly originated government-insured mortgage loans for PennyMac Financials 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 Financials loan production activity for the quarter totaled $54.2 billion in UPB, $26.8 billion of which was for its own account, and $27.4 billion of which was fee-based fulfillment activity for PMT. Correspondent government and direct lending IRLCs totaled $36.6 billion in UPB, up 41 percent from the prior quarter and 63 percent from the third quarter of 2019. Production segment pretax income was $613.3 million, up 14 percent from the prior quarter and 242 percent from the third quarter of 2019. Production revenue totaled $839.1 million, up 14 percent from the prior quarter and 166 percent from the third quarter of 2019. The quarter-over-quarter increase was driven by an $81.1 million increase in net gains on loans held for sale as a result of volume growth in all production channels, somewhat offset by decreases in margins from peak levels in the prior quarter, and a $16.6 million increase in loan origination fees driven by record volumes. The components of net gains on loans held for sale are detailed in the following table: $ 245,946 $ 225,534 $ 227,256 (9,776 ) (5,662 ) (1,896 ) (2,746 ) (2,919 ) (1,333 ) 533,292 275,473 (108,408 ) 88,553 189,747 120,113 $ 855,269 $ 682,173 $ 235,732 $ 700,830 $ 619,728 $ 216,132 $ 154,439 $ 62,445 $ 19,600 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 $54.8 million in the third quarter, up 4 percent from the prior quarter and up 21 percent from the third quarter of 2019. The quarter-over-quarter increase in fulfillment fee revenue was driven primarily by a 45 percent increase in acquisition volumes by PMT offset by a decrease in the weighted average fulfillment fee rate to 20 basis points from 28 basis points in the prior quarter. The fulfillment fee rate decrease was related to the implementation of updated intercompany agreements between PFSI and PMT in the third quarter. Net interest income totaled $7.7 million, up from $6.6 million in the prior quarter and $4.0 million in the third quarter of 2019. Production segment expenses were $225.8 million, up 13 percent from the prior quarter and 66 percent from the third quarter of 2019, as a result of the increase in volumes across all channels. Servicing Segment The Servicing segment includes income from owned MSRs, subservicing and special servicing activities. Servicing segment pretax income was $111.7 million, versus a pretax loss of $62.4 million in the prior quarter and a pretax loss of $18.1 million in the third quarter of 2019. Servicing segment net revenues totaled $271.1 million, up 273 percent from the prior quarter and 148 percent from the third quarter of 2019, driven by increases in net loan servicing fees and net gains on loans held for sale at fair value. Revenue from net loan servicing fees totaled $132.8 million, up from $22.3 million in the prior quarter, as a result of lower net valuation related losses. Revenue from net loan servicing fees included $250.4 million in servicing fees, reduced by $90.2 million from the realization of MSR cash flows. Net valuation-related losses totaled $27.4 million, and included MSR fair value losses of $37.0 million, and hedging and other gains of $9.7 million. The following table presents a breakdown of net loan servicing fees: $ 250,368 $ 243,254 $ 224,949 (90,187 ) (97,435 ) (117,220 ) (37,030 ) (108,354 ) (295,510 ) 3,135 636 3,864 6,521 (15,764 ) 250,146 (117,561 ) (220,917 ) (158,720 ) $ 132,807 $ 22,337 $ 66,229 Servicing segment revenue included $154.4 million in net gains on loans held for sale related to reperforming government-insured and guaranteed loans, up significantly from $62.4 million in the prior quarter and $19.6 million in the third quarter of 2019, as a result of 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 Financials 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 $17.9 million, versus net interest expense of $12.4 million in the prior quarter and net interest income of $23.1 million in the third quarter of 2019. Interest income was $26.9 million, down from $28.1 million in the prior quarter, driven by lower income related to custodial deposit balances as earnings rates decreased. Interest expense was $44.9 million, up from $40.6 million in the prior quarter driven by the financing of increased balances of loans purchased out of Ginnie Mae securitizations. Servicing segment expenses totaled $159.4 million, up 18 percent from the prior quarter driven by higher operational expenses and provisions for credit losses due to COVID-related delinquencies. The total servicing portfolio grew to $401.9 billion in UPB at September 30, 2020, an increase of 4 percent from June 30, 2020 and 15 percent from September 30, 2019. PennyMac Financial subservices and conducts special servicing for $156.5 billion in UPB, an increase of 6 percent from June 30, 2020 and 30 percent from September 30, 2019. PennyMac Financials owned MSR portfolio grew to $245.4 billion in UPB, an increase of 2 percent from June 30, 2020 and 8 percent from September 30, 2019. The table below details PennyMac Financials servicing portfolio UPB: $ 187,134,080 $ 180,277,670 $ 157,437,101 47,716,917 53,530,059 63,778,892 234,850,997 233,807,729 221,215,993 1,799,562 2,130,520 2,327,687 8,749,673 4,672,171 4,323,252 245,400,232 240,610,420 227,866,932 156,425,439 147,612,389 120,460,120 401,825,671 388,222,809 348,327,052 71,129 83,066 147,956 $ 401,896,800 $ 388,305,875 $ 348,475,008 $ 234,850,997 $ 233,807,729 $ 221,215,993 1,799,562 2,130,520 2,327,687 8,749,673 4,672,171 4,323,252 245,400,232 240,610,420 227,866,932 156,496,568 147,695,455 120,608,076 $ 401,896,800 $ 388,305,875 $ 348,475,008 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 September 30, 2020, up 2 percent from June 30, 2020, due to an increase in PMTs book value primarily driven by strong results in its Correspondent Production segment and income from its government-sponsored enterprise credit risk transfer investments. Pretax income for the Investment Management segment was $3.3 million, down from $4.7 million in the prior quarter and $5.0 million in the third quarter of 2019. Management fees, which include base management and performance incentive fees from PMT were $8.5 million, up from $8.3 million in the prior quarter and down from $10.1 million in the third quarter of 2019. Base management fees were $8.5 million, up from $8.3 million in the prior quarter and $7.9 million in the third quarter of 2019, as a result of higher AUM. Performance-based incentive fees were not earned in the third quarter and are not expected to be earned for some time due to the impact of PMTs loss in the first quarter of 2020. The following table presents a breakdown of management fees: $ 8,508 $ 8,288 $ 7,914 - - 2,184 $ 8,508 $ 8,288 $ 10,098 $ 2,281,266 $ 2,235,277 $ 2,219,611 Investment Management segment expenses totaled $6.5 million, up 11 percent from the prior quarter and down 5 percent from the third quarter of 2019. Consolidated Expenses Total expenses were $391.7 million, up 15 percent from the prior quarter and 45 percent from the third 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. Mr. Spector concluded, PennyMac Financial has a long track record of consistent profitability and value creation throughout its history, including more than seven years as a public company. Our leading loan production business, historically oriented to the purchase market, and our servicing portfolio of nearly 1.9 million customers position the company to succeed across different market environments. The expected growth in direct lending and continued loss mitigation activities in our servicing business are positive trends driving PFSIs success. So while the macroeconomic outlook remains uncertain, we expect PennyMac Financials exceptional financial performance to persist through 2021. Managements slide presentation will be available in the Investor Relations section of the Companys website at ir.pennymacfinancial.com beginning at 1:30 p.m. (Pacific Time) on Thursday, November 5, 2020. 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 September 30, 2020, PennyMac Financials production of newly originated loans totaled $170 billion in unpaid principal balance, making it the third largest mortgage lender in the nation. As of September 30, 2020, PennyMac Financial serviced loans totaling $401.9 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. This press release contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, regarding managements beliefs, estimates, projections, the recently completed corporate reorganization, the expected benefits and market and financial impact of the reorganization and assumptions with respect to, among other things, the Companys financial results, future operations, business plans and investment strategies, as well as industry and market conditions, all of which are subject to change. Words like believe, expect, anticipate, promise, plan, and other expressions or words of similar meanings, as well as future or conditional verbs such as will, would, should, could, or may are generally intended to identify forward-looking statements. Actual results and operations for any future period may vary materially from those projected herein and from past results discussed herein. Factors which could cause actual results to differ materially from historical results or those anticipated include, but are not limited to: 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; the continually changing federal, state and local laws and regulations applicable to the highly regulated industry in which we operate; lawsuits or governmental actions that may result from any noncompliance with the laws and regulations applicable to our businesses; the mortgage lending and servicing-related regulations promulgated by the Consumer Financial Protection Bureau and its enforcement of these regulations; our dependence on U.S. governmentsponsored entities and changes in their current roles or their guarantees or guidelines; changes to government mortgage modification programs; the licensing and operational requirements of states and other jurisdictions applicable to the Companys 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; 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 thirdparty purchasers or repurchase loans if loans that we originate, acquire, service or assist in the fulfillment of, fail to meet certain criteria or characteristics or under other circumstances; our obligation to indemnify PMT if its services fail to meet certain criteria or characteristics or under other circumstances; decreases in the returns on the assets that we select and manage for our clients, and our resulting management and incentive fees; the extensive amount of regulation applicable to our investment management segment; conflicts of interest in allocating our services and investment opportunities among us and our advised entities; the effect of public opinion on our reputation; our recent growth; our ability to effectively identify, manage, monitor and mitigate financial risks; our initiation of new business activities or investment strategies or expansion of existing business activities or investment strategies; our ability to detect misconduct and fraud; our ability to mitigate cybersecurity risks and cyber incidents; our 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 Companys 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. PENNYMAC FINANCIAL SERVICES, INC. CONSOLIDATED BALANCE SHEETS (UNAUDITED) $ 529,166 $ 910,257 $ 201,268 102,136 7,746 90,663 9,126,172 4,918,253 4,522,971 86,958 90,101 107,678 578,254 400,302 232,948 393,654 282,285 271,501 991 1,310 1,667 2,333,821 2,213,539 2,556,253 72,133 73,571 53,384 122,478 44,329 39,744 17,183,873 13,762,157 892,631 651,229 522,625 332,491 $ 31,180,865 $ 23,226,475 $ 9,303,199 $ 7,259,188 $ 3,759,315 $ 3,538,889 535,063 536,395 514,625 1,295,143 1,294,949 1,293,625 492,358 - - 13,957 16,749 23,881 142,990 151,206 183,141 24,537 21,154 14,035 92,005 93,605 72,160 31,698 29,858 34,294 278,403 216,399 215,379 77,136 56,558 61,862 35,784 46,158 46,537 673,149 736,870 480,559 17,183,873 13,762,157 892,631 28,504 25,909 19,968 28,163,788 20,747,282 7,391,586 7 7 8 1,116,428 1,113,412 1,328,166 1,900,642 1,365,774 583,439 3,017,077 2,479,193 1,911,613 $ 31,180,865 $ 23,226,475 $ 9,303,199 PENNYMAC FINANCIAL SERVICES, INC. CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) $ 855,269 $ 682,173 $ 235,732 75,572 58,948 49,434 54,839 52,815 45,149 250,368 243,254 224,949 (124,082 ) (205,153 ) (408,866 ) 6,521 (15,764 ) 250,146 132,807 22,337 66,229 52,952 47,318 83,452 63,179 53,207 56,380 (10,227 ) (5,889 ) 27,072 8,508 8,288 10,098 (288 ) 543 66 1,214 296 188 2,298 2,123 2,379 1,119,992 821,634 436,347 202,440 179,886 141,132 71,110 56,503 47,909 53,752 50,921 34,851 28,964 21,905 20,385 18,307 12,500 9,682 8,491 8,293 7,257 8,637 11,264 8,934 391,701 341,272 270,150 728,291 480,362 166,197 193,131 127,685 44,724 $ 535,160 $ 352,677 $ 121,473 $ 7.39 $ 4.53 $ 1.55 $ 7.03 $ 4.39 $ 1.51 72,439 77,790 78,361 76,138 80,424 80,382 $ 0.15 $ 0.12 $ -

Answer: PennyMac Financial Services, Inc. Reports Record Third Quarter 2020 Results