Pennymac Financial Services, Inc. · NYSE:PFSI
Pennymac Financial Services — Q1 2022 Earnings Presentation
29 slides from Pennymac Financial Services's earnings presentation, May 5, 2022
Slide 1: 1Q22 Earnings Report
1Q22 EARNINGS REPORT PennyMac Financial Services, Inc. May 2022
Slide 2: Forward-Looking Statements
FORWARD-LOOKING STATEMENTS 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, our financial results, fu
Slide 3: First Quarter Highlights
FIRST QUARTER HIGHLIGHTS 1Q22 Results Consumer Government Total loan acquisitions direct lock Broker direct Diluted PRODUCTION Pretax income volume lock volume correspondent lock volume and originations(2) Net income EPS(1) $9mm $9.1bn $3.5bn $12.5bn $33.3bn $174mm $2.94 MSR fair value Pretax income
Slide 4: Origination Market Has Declined Meaningfully
ORIGINATION MARKET HAS DECLINED MEANINGFULLY U.S. Mortgage Origination Market(1) Mortgage Rates Have Rapidly Increased ($ in trillions) 5.0% $4.4 $4.1 4.0% $2.7 $2.8 3.0% $2.6 $2.5 $0.9 $0.6 2.0% $1.8 $1.9 $1.9 1.0% $1.5 0.0% 2020 2021 2022E 2023E Purchase Refinance (2) (3) Average 30-year fixed rat
Slide 5: Benefits and Potential Value from PennyMac's Large and Growing Servicing Portfolio
BENEFITS AND POTENTIAL VALUE FROM PENNYMAC’S LARGE AND GROWING SERVICING PORTFOLIO Recurring • $1.1 billion in revenue from servicing and sub-servicing fees in 2021 Cash Flows • Higher short-term rates expected to drive increased interest income SERVICING PORTFOLIO Proprietary • Cloud-based servicin
Slide 6: Strong Balance Sheet, Capital Management and Book Value Growth
STRONG BALANCE SHEET, CAPITAL MANAGEMENT AND BOOK VALUE GROWTH Return on Equity (ROE) • Balanced business model with leadership positions in production 61% and servicing drive profitability across different market environments 29% • Actively aligning expenses with lower levels of activity, while 22%
Slide 7: Robust Risk Management Disciplines Aligned with Recent FHFA Proposals
PENNYMAC FINANCIAL’S ROBUST RISK MANAGEMENT DISCIPLINES ARE ALIGNED WITH RECENT FHFA PROPOSALS The FHFA re-proposed eligibility standards for PFSI is well-positioned to meet these non-bank, Agency seller/servicers requirements given its long-standing commitment to enterprise risk management • Tighte
Slide 8: PennyMac's Market Share Over Time Across Its Businesses
PENNYMAC’S MARKET SHARE OVER TIME ACROSS ITS BUSINESSES Correspondent Production Market Share(1) Loan Servicing Market Share(1) 17.7% 4.1% 4.1% 16.7% 3.7% 15.3% 15.8% 3.4% 11.8% 2.8% 2018 2019 2020 2021 1Q22 LTM 12/31/18 12/31/19 12/31/20 12/31/21 3/31/22 Consumer Direct Market Share(1) Broker Direc
Slide 9: Production Segment Highlights – Volume by Channel
PRODUCTION SEGMENT HIGHLIGHTS – VOLUME BY CHANNEL Correspondent Consumer Direct Broker Direct (UPB in billions) (UPB in billions) (UPB in billions) $51.1 $14.2 $5.7 $13.4 $5.1 $51.2 $3.9 $10.7 $10.6 $9.1 $30.3 $3.7 $8.2 $3.5 $32.8 $22.7 $4.6 $33.8 $6.3 $4.0 $2.5 $22.5 $4.6 $17.2 $2.8 $9.8 $2.0 $6.0
Slide 10: Drivers of Production Segment Results
DRIVERS OF PRODUCTION SEGMENT RESULTS 1Q21 4Q21 1Q22 Revenue Revenue Revenue Fallout Margin / Contribution % of Fallout Margin / Contribution % of Fallout Margin / Contribution % of Adjusted Fulfillment (net of Loan Production Adjusted Fulfillment (net of Loan Production Adjusted Fulfillment (net of
Slide 11: Production Segment Highlights – Business Trends by Channel
PRODUCTION SEGMENT HIGHLIGHTS – BUSINESS TRENDS BY CHANNEL Multi-channel approach provides flexibility and has proven to be a competitive advantage, supporting profitability and pricing discipline while driving growth of the servicing portfolio CORRESPONDENT CONSUMER DIRECT BROKER DIRECT • Pennymac
Slide 12: Servicing Segment Highlights
SERVICING SEGMENT HIGHLIGHTS • Servicing portfolio totaled $518.8 billion in UPB at March 31, Loan Servicing Portfolio Composition 2022, up 2% Q/Q and 16% Y/Y (UPB in billions) • Production volumes more than offset prepayment activity, $509.7 $518.8 leading to continued portfolio growth $448.8 • Dec
Slide 13: Servicing Profitability Excluding Valuation-Related Changes
SERVICING PROFITABILITY EXCLUDING VALUATION-RELATED CHANGES 1Q21 4Q21 1Q22 basis basis basis $ in millions points(1) $ in millions points(1) $ in millions points(1) Operating revenue $ 266.7 24.4 $ 296.6 23.6 $ 296.1 23.0 Realization of MSR cash flows (82.7) (7.6) (97.0) (7.7) (111.2) (8.6) EBO loan
Slide 14: Hedging Approach Moderates Volatility of PFSI's Results Over Time
HEDGING APPROACH MODERATES THE VOLATILITY OF PFSI’S RESULTS OVER TIME MSR Valuation Changes and Offsets ($ in millions) • PFSI seeks to moderate the impact of interest rate changes on the fair value of its MSR asset through a comprehensive MSR fair value change before recognition of realization of c
Slide 15: Investment Management Segment Highlights
INVESTMENT MANAGEMENT SEGMENT HIGHLIGHTS • Net AUM as of March 31, 2022 were $2.2 billion, down 6% from December 31, 2021 and 6% from March 31, 2021 ‒ Decrease in AUM primarily due to PMT’s net loss in 1Q22 • Investment Management segment revenues were $10.1 million, down 3% from 4Q21 and up 6% from
Slide 16: Appendix
APPENDIX ™\ PENNYMAC
Slide 17: PennyMac Is an Established Leader in the U.S. Mortgage Market
PENNYMAC IS AN ESTABLISHED LEADER IN THE U.S. MORTGAGE MARKET WITH SUBSTANTIAL LONG-TERM GROWTH POTENTIAL $2.2 billion in assets under management 12-year track record #3 PMT IS A LEADING $519 billion outstanding #6 $201 billion LTM 1Q22 IN PRODUCTION(1) RESIDENTIAL MORTGAGE • CORRESPONDENT REIT 2+ m
Slide 18: Overview of PennyMac Financial's Businesses
OVERVIEW OF PENNYMAC FINANCIAL’S BUSINESSES LOAN PRODUCTION LOAN SERVICING INVESTMENT MANAGEMENT Correspondent aggregation of newly Servicing for owned MSRs and External manager of PMT, which invests in originated loans from third-party sellers subservicing for MSRs owned by PMT mortgage-related ass
Slide 19: PFSI's Balanced Business Model Is a Flywheel
PFSI’S BALANCED BUSINESS MODEL IS A FLYWHEEL Large volumes of production grow servicing portfolio Loan Production Loan Servicing 3rd largest in the U.S.(1) 6th largest in the U.S.(2) • Diversified business through correspondent, • Recurring fee income business captured over the consumer direct and b
Slide 20: PFSI's Track Record Across Various Market Environments
PFSI’S TRACK RECORD ACROSS VARIOUS MARKET ENVIRONMENTS IS UNIQUE AMONG INDEPENDENT MORTGAGE BANKS PFSI's Annualized Return on Average Common Stockholders' Equity (ROE) 61% Proven ability to 26% 29% 19% 20% 22% 22% 20% generate attractive Average: 25% 11% 13% ROEs… (1) 2013 2014 2015 2016 2017 2018 2
Slide 21: PennyMac Has Developed in a Sustainable Manner for Long-Term Success
PENNYMAC HAS DEVELOPED IN A SUSTAINABLE MANNER FOR LONG-TERM SUCCESS 2018 2019 2020 2021 2022 PFSI launched broker- Achieved position as the Record production volumes PFSI issued an additional Launched “Greatness Lives direct lending channel largest correspondent across all channels; nearly $1.15 bi
Slide 22: Current Market Environment and Macroeconomic Trends
CURRENT MARKET ENVIRONMENT AND MACROECONOMIC TRENDS Average 30-year fixed rate mortgage(1) 4.67% 10-year Treasury Bond Yield(2) 5.0% 4.0% 2.34% 4.5% 3.0% 4.0% 3.11% 1.51% 3.5% 2.0% 3.0% 1.0% 2.5% 2.0% 0.0% Macroeconomic Metrics(3) Footnotes (1) Freddie Mac Primary Mortgage Market Survey. 5.10% as of
Slide 23: MSR Asset Valuation
MSR ASSET VALUATION March 31, 2022 Mortgage Unaudited ($ in millions) Servicing Rights Pool UPB $290,760 Coupon(1) 3.2% Servicing fee/spread(1) 0.35% Prepayment speed assumption (CPR)(1) 8.9% Fair value $4,707.0 As a multiple of servicing fee 4.68 (1) Weighted average 23
Slide 24: Trends in Delinquencies, Forbearance and Loss Mitigation
TRENDS IN DELINQUENCIES, FORBEARANCE AND LOSS MITIGATION 30+ Day Delinquency Rate and Forbearance Trend(1) • Overall mortgage delinquency rates have returned to pre-pandemic levels; 15.1% however, delinquency rates of seriously delinquent loans (90+ days) 14.1% remain elevated 12.4% 12.6% 10.1% 10.2
Slide 25: Acquisitions and Originations by Product
ACQUISITIONS AND ORIGINATIONS BY PRODUCT First Lien Acquisitions/Originations Unaudited ($ in millions) 1Q21 2Q21 3Q21 4Q21 1Q22 Correspondent Acquisitions Conventional Conforming $ 33,762 $ 30,479 $ 28,605 $ 17,157 $ 9,769 Government 17,440 16,175 15,375 15,651 12,730 Total $ 51,202 $ 46,654 $ 43,9
Slide 26: Interest Rate Locks by Product
INTEREST RATE LOCKS BY PRODUCT First Lien Locks Unaudited ($ in millions) 1Q21 2Q21 3Q21 4Q21 1Q22 Correspondent Locks Conventional Conforming $ 33,998 $ 30,332 $ 29,411 $ 14,717 $ 10,194 Government 17,064 15,657 16,230 15,544 12,487 Total $ 51,062 $ 45,990 $ 45,641 $ 30,261 $ 22,682 Consumer Direct
Slide 27: Credit Characteristics by Acquisition/Origination Period
CREDIT CHARACTERISTICS BY ACQUISITION/ORIGINATION PERIOD Correspondent Weighted Average FICO Weighted Average DTI 1Q21 2Q21 3Q21 4Q21 1Q22 1Q21 2Q21 3Q21 4Q21 1Q22 Government-insured 707 702 700 693 691 Government-insured 37 42 42 42 43 Conventional 761 757 755 750 750 Conventional 34 34 35 36 36 Co
Slide 28: Adjusted EBITDA
ADJUSTED EBITDA ($ in millions) 1Q21 4Q21 1Q22 Net income $ 376.9 $ 173.1 $ 173.6 Provision for income taxes 129.1 61.0 60.9 Income before provisions for income taxes 506.0 234.1 234.5 Depreciation and amortization 7.6 6.9 7.0 (Increase) decrease in fair value of MSRs and MSLs due to changes in (306
Slide 29: mS CERN NS
mS CERN NS
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