Pennymac Financial Services, Inc. · NYSE:PFSI
Pennymac Financial Services — Q2 2023 Earnings Presentation
32 slides from Pennymac Financial Services's earnings presentation, Jul 27, 2023
Slide 1: 2Q23 Earnings Report
2Q23 EARNINGS REPORT PennyMac Financial Services, Inc. July 2023
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: Second Quarter Highlights
SECOND QUARTER HIGHLIGHTS 2Q23 Results Total loan acquisitions PFSI Consumer Net Diluted PRODUCTION Pretax income and originations(2) correspondent lock volume Broker direct lock volume direct lock volume income EPS (1) $24mm $24.9bn $18.3bn $2.8bn $2.2bn $58mm $1.11 MSR fair value Pretax income Ret
Slide 4: Origination Market Has Declined Meaningfully
ORIGINATION MARKET HAS DECLINED MEANINGFULLY U.S. Mortgage Origination Market(1) Mortgage Rates Remain High ($ in trillions) 7.0% $4.4 6.0% 5.0% $2.6 4.0% $2.3 $2.0 3.0% $0.7 $1.7 $0.5 2.0% $0.3 $1.8 $1.6 $1.5 1.0% $1.4 0.0% 2021 2022 2023E 2024E Purchase Refinance (2) (3) Average 30-year fixed rate
Slide 5: Comprehensive and Efficient Multi-Channel Platform Has Established PennyMac as a Leader in Mortgage Production
COMPREHENSIVE AND EFFICIENT MULTI-CHANNEL PLATFORM HAS ESTABLISHED PENNYMAC AS A LEADER IN MORTGAGE PRODUCTION 1 Significant and ongoing investments in mortgage-banking # producer of residential mortgage loans in 1Q23(1) technology provide an exceptional loan Scalable technology platform providing o
Slide 6: 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 • $1.3 billion in revenue from servicing and sub-servicing fees in 2Q23 LTM Cash Flows • Large deposit balances drive placement fee income in higher rate environment SERVICING PORTFOLIO Proprietary • Cloud-b
Slide 7: Future Recapture Opportunities Enhanced by Recent Production at Higher Rates
FUTURE RECAPTURE OPPORTUNITIES ENHANCED BY RECENT PRODUCTION AT HIGHER RATES Pennymac’s Total Servicing Portfolio(1) (UPB in billions) $564 $576 $539 $552 $527 $14 $29 $47 $67 $89 15% $513 $510 $504 $497 $488 2Q22 3Q22 4Q22 1Q23 2Q23 Note Rate of 4.99% and Below Note Rate of 5.00% and Above • Pennym
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) 18.9% 4.3% 4.1% 4.1% 17.7% 16.7% 3.7% 15.3% 15.0% 3.3% 2019 2020 2021 2022 2Q23LTM 12/31/19 12/31/20 12/31/21 12/31/22 6/30/23 Broker Direct Market Share(1) Consumer Direct
Slide 9: Production Segment Highlights – Volume by Channel
PRODUCTION SEGMENT HIGHLIGHTS – VOLUME BY CHANNEL Correspondent Broker Direct Consumer Direct (UPB in billions) (UPB in billions) (UPB in billions) $22.4 $21.7 $21.6 $4.3 $21.0 $20.2 $21.2 $2.8 $2.2 $2.6 $3.0 $3.7 $6.6 $2.1 $10.3 $2.2 $2.2 $2.0 $1.5 $18.2 $1.0 $1.6 $13.5 $10.6 2Q22 1Q23 2Q23 2Q22 1Q
Slide 10: Drivers of Production Segment Results
DRIVERS OF PRODUCTION SEGMENT RESULTS 2Q22 1Q23 2Q23 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 Broker Direct Consumer Direct • Pennymac
Slide 12: Servicing Segment Highlights
SERVICING SEGMENT HIGHLIGHTS • Servicing portfolio totaled $576.5 billion in UPB at June 30, Loan Servicing Portfolio Composition 2023, up 2% Q/Q and 9% Y/Y (UPB in billions) $564.5 $576.5 • Production volumes more than offset prepayment activity, $527.3 leading to continued portfolio growth • Sligh
Slide 13: Servicing Profitability Excluding Valuation-Related Changes
SERVICING PROFITABILITY EXCLUDING VALUATION-RELATED CHANGES 2Q22 1Q23 2Q23 basis basis basis $ in millions points(1) $ in millions points(1) $ in millions points(1) Loan servicing fees $ 302.4 23.1 $ 338.1 24.2 $ 356.5 25.0 Earnings on custodial balances and deposits and other income 13.1 1.0 65.9 4
Slide 14: Hedging Approach Moderates the Volatility of PFSI's Results
HEDGING APPROACH MODERATES THE VOLATILITY OF PFSI’S RESULTS 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 realization of cash flows hedge strategy
Slide 15: Investment Management Segment Highlights
INVESTMENT MANAGEMENT SEGMENT HIGHLIGHTS • Net AUM as of June 30, 2023 were $1.9 billion, down 2% from March 31, 2023 and 7% from June 30, 2022 • Investment Management segment revenues were $9.5 million, up 2% from 1Q23 and down 2% from 2Q22 Investment Management AUM Investment Management Revenues (
Slide 16: Appendix
APPENDIX ™ PENNYMAC"
Slide 17: PFSI Is Well in Excess of Prospective Regulatory Capital and Liquidity Requirements
PFSI IS WELL IN EXCESS OF PROSPECTIVE REGULATORY CAPITAL AND LIQUIDITY REQUIREMENTS In August 2022, the Federal Housing Finance Agency (FHFA) and Ginnie Mae released updated eligibility standards for non-bank seller/servicers with a proposed effective date for most requirements of September 30, 2023
Slide 18: 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 $1.9 billion in assets under management 14-year track record #2 PMT IS A LEADING $576 billion outstanding $97 billion in LTM 2Q23 IN PRODUCTION(1) RESIDENTIAL • CORRESPONDENT PRODUCTION MORTGAGE
Slide 19: 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 20: 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 2nd largest in the U.S.(1) 5th largest in the U.S.(2) • Diversified business through correspondent, • Recurring fee income business captured over the broker direct and con
Slide 21: PFSI's Track Record Across Various Market Environments Is Unique
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% generate attractive Average: 24% 11% 13% 14% ROEs… 5% (1) 2013 2014 2015 2016 2017 201
Slide 22: PFSI's Strong Balance Sheet and Diverse Capital Structures
PFSI’S STRONG BALANCE SHEET AND DIVERSE CAPITAL STRUCTURES Low Debt-to-Equity Ratio 3.6x 3.0x 3.2x 2.5x • Targeted debt-to-equity ratio near or below 3.5x with 2.0x fluctuations largely driven by the origination environment or other market opportunities 0.7x 0.9x 1.1x 1.2x • Low non-funding debt-to-
Slide 23: PennyMac Has Developed in a Sustainable Manner for Long-Term Success
PENNYMAC HAS DEVELOPED IN A SUSTAINABLE MANNER FOR LONG-TERM SUCCESS 2019 2020 2021 2022 2023 Achieved position as the Record production volumes PFSI issued an additional PFSI produced double digit Achieved position as largest correspondent across all channels; nearly $1.15 billion of ROE despite a
Slide 24: Current Market Environment and Macroeconomic Trends
CURRENT MARKET ENVIRONMENT AND MACROECONOMIC TRENDS Average 30-year fixed rate mortgage(1) 10-year Treasury Bond Yield(2) 6.32% 6.71% 7.0% 5.0% 3.84% 3.47% 6.0% 4.0% 5.0% 3.0% 4.0% 2.0% 3.0% 1.0% 2.0% 0.0% Macroeconomic Metrics (3) Footnotes (1) Freddie Mac Primary Mortgage Market Survey. 6.78% as o
Slide 25: MSR Asset Valuation
MSR ASSET VALUATION June 30, 2023 Mortgage Unaudited ($ in millions) Servicing Rights Pool UPB(1) $337,695 Weighted average coupon 3.7% Weighted average servicing fee/spread 0.38% Weighted average prepayment speed assumption (CPR) 7.7% Fair value $6,510.6 As a multiple of servicing fee 5.08 (1) Excl
Slide 26: Delinquency Trends and Servicing Advances Outstanding
DELINQUENCY TRENDS AND SERVICING ADVANCES OUTSTANDING Historical Trends in Delinquency and Foreclosure Rates (1) 15.4% 14.0% 12.0% 9.5% 8.0% 7.2% 6.7% 5.8% 6.1% 5.5% 5.4% 5.6% 5.0% 5.0% 3/31/20 6/30/20 9/30/20 12/31/20 3/31/21 6/30/21 9/30/21 12/31/21 3/31/22 6/30/22 9/30/22 12/31/22 3/31/23 6/30/23
Slide 27: PFSI's Owned MSR Portfolio Characteristics
PFSI’S OWNED MSR PORTFOLIO CHARACTERISTICS Loan Remaining FICO credit 60+ UPB % of Note Seasoning Loan size Original Current Segment count maturity score at Delinquency ($ in billions)(3) Total UPB rate (months) ($ in thousands) LTV LTV (in thousands) (months) origination (by UPB) Government(1) FHA
Slide 28: Acquisitions and Originations by Product
ACQUISITIONS AND ORIGINATIONS BY PRODUCT Acquisitions/Originations Unaudited ($ in millions) 2Q22 3Q22 4Q22 1Q23 2Q23 Correspondent Acquisitions Conventional Conforming - for PMT $ 10,320 $ 10,225 $ 6,771 $ 6,629 $ 3,029 Conventional Conforming - for PFSI - - 3,912 4,063 7,018 Government 10,649 12,1
Slide 29: Interest Rate Locks by Product
INTEREST RATE LOCKS BY PRODUCT Interest Rate Lock Commitments Unaudited ($ in millions) 2Q22 3Q22 4Q22 1Q23 2Q23 Correspondent Locks Conventional Conforming - for PMT $ 11,080 $ 10,647 $ 7,507 $ 7,588 $ 3,322 Conventional Conforming - for PFSI - - 4,747 3,781 7,523 Government 11,326 12,351 10,681 10
Slide 30: Credit Characteristics by Acquisition/Origination Period
CREDIT CHARACTERISTICS BY ACQUISITION/ORIGINATION PERIOD Correspondent Weighted Average FICO Weighted Average DTI 2Q22 3Q22 4Q22 1Q23 2Q23 2Q22 3Q22 4Q22 1Q23 2Q23 Government-insured 682 680 690 709 715 Government-insured 43 45 46 45 45 Conventional 753 758 756 757 762 Conventional 37 38 39 39 38 Br
Slide 31: Adjusted EBITDA Reconciled to Net Income
ADJUSTED EBITDA RECONCILED TO NET INCOME ($ in millions) 2Q22 1Q23 2Q23 Net income $ 129.2 $ 30.4 $ 58.3 Provision for income taxes 48.4 7.8 14.7 Income before provisions for income taxes 177.5 38.1 72.9 Depreciation and amortization 7.4 12.7 13.2 (Increase) decrease in fair value of MSRs and MSLs d
Slide 32: PennyMac Financial Services
™ PENNYMAC’ FINANCIAL SERVICES
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