Pennymac Financial Services, Inc. · NYSE:PFSI
Pennymac Financial Services — Q3 2024 Earnings Presentation
33 slides from Pennymac Financial Services's earnings presentation, Oct 22, 2024
Slide 1: 3Q24 Earnings Report
3Q24 EARNINGS REPORT PennyMac Financial Services, Inc. October 2024
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, fut
Slide 3: Third Quarter Highlights
THIRD QUARTER HIGHLIGHTS Strong operating results partially offset by net fair value declines on hedged mortgage servicing rights 3Q24 Results Total loan PFSI Consumer acquisitions and correspondent Broker direct direct lock PRODUCTION Pretax income originations⁽²⁾ lock volume lock volume volume Net
Slide 4: Origination Market Expectations Reflect Growth
ORIGINATION MARKET EXPECTATIONS REFLECT GROWTH U.S. Mortgage Origination Market(1) Mortgage Rates Have Declined ($ in trillions) Purchase Refinance Average 30-year fixed rate mortgage(2) • Current third-party estimates for industry originations average $1.7 trillion in 2024 and $2.3 trillion in 2025,
Slide 5: Building on Double Digit Operating Returns in 2024
BUILDING ON DOUBLE DIGIT OPERATING RETURNS IN 2024 Annualized Operating ROE(1) Mortgage Banking Operating Pretax Income ($ in millions) Production Servicing net of valuation related changes and non-recurring items(1) • Continued increase in operating return on equity in recent periods as the mortgag
Slide 6: Earnings Growth to Be Driven by Refinance Recapture Opportunity
EARNINGS GROWTH TO BE DRIVEN BY REFINANCE RECAPTURE OPPORTUNITY Gov’t. Loans: Note Rates >5% Gov’t. Loan Refinance Recapture Rates (UPB in billions) Refinance recapture(2) Refinance recapture (inc. CES)(3) • Large opportunity as > 7.00% borrowers with loans 6.50 - 6.99% originated at higher note 6.00 -
Slide 7: Servicing Provides Growing Cash Flow and Scale Benefits
SERVICING PROVIDES GROWING CASH FLOW AND SCALE BENEFITS Revenue From Servicing & Placement Fees Operating Expenses ($ in millions) (bps of average servicing portfolio UPB) (1) (1) Loan servicing, ancillary, and other fees Earnings on custodial balances and deposits and other income • Increasing reve
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) Broker Direct Market Share(1) Consumer Direct Market Share(1) Note: All figures are for PFSI and include volume fulfilled or subserviced for PMT (1) Historical market share:
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) Conv. Acquisitions - for PFSI(1) Originations Originations Gov’t. Acquisitions - for PFSI(1) Locks Locks Conv. and Jumbo Acquisitions - for PMT(2) Total
Slide 10: Drivers of Production Segment Results
DRIVERS OF PRODUCTION SEGMENT RESULTS 3Q23 2Q24 3Q24 Revenue Revenue Revenue Fallout Margin / Contribution % of Fallout Margin / Contribution % of Fallout Margin / Contribution % of ($ in millions) Adjusted Fulfillment (net of Loan Production Adjusted Fulfillment (net of Loan Production Adjusted Fulfil
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 re
Slide 12: Servicing Segment Highlights
SERVICING SEGMENT HIGHLIGHTS Loan Servicing Portfolio Composition • Servicing portfolio totaled $648.1 billion in UPB at September (UPB in billions) 30, 2024, up 2% Q/Q and 10% Y/Y • Production volumes more than offset prepayment activity, leading to continued portfolio growth • 60+ day delinquency
Slide 13: Servicing Profitability Excluding Valuation-Related Changes
SERVICING PROFITABILITY EXCLUDING VALUATION-RELATED CHANGES 3Q23 2Q24 3Q24 basis basis basis $ in millions points⁽¹⁾ $ in millions points⁽¹⁾ $ in millions points⁽¹⁾ Loan servicing fees $ 387.9 26.7 $ 440.7 28.2 $ 462.0 28.9 Earnings on custodial balances and deposits and other income 99.4 6.8 111.6
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 MSR fair value change before realization of cash flows comprehensive hedging strategy
Slide 15: Investment Management Segment Highlights
INVESTMENT MANAGEMENT SEGMENT HIGHLIGHTS ● Net AUM as of September 30, 2024 were $1.9 billion, essentially unchanged from June 30, 2024 and September 30, 2023 ● Investment Management segment revenues were $9.4 million, essentially unchanged from 2Q24 and up 7% from 3Q23 Investment Management AUM Inv
Slide 16: Appendix
APPENDIX ™ PENNYMAC
Slide 17: Established Leader with Substantial Long-Term Growth Potential
ESTABLISHED LEADER WITH SUBSTANTIAL LONG-TERM GROWTH POTENTIAL $1.9 billion in assets under management 15-year track record $107 billion in LTM 3Q24 #2 IN PRODUCTION (1) PMT IS A LEADING RESIDENTIAL $648 billion outstanding #6 MORTGAGE • CORRESPONDENT REIT 2.6 million customers PRODUCTION • BROKER D
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 2 largest in the U.S.(1) nd 6 largest in the U.S.(1) th • Diversified business through correspondent, • Recurring fee income business captured over the broker direct and co
Slide 20: Top Lender with Comprehensive and Efficient Multi-Channel Platform
TOP LENDER WITH COMPREHENSIVE AND EFFICIENT MULTI-CHANNEL PLATFORM #2 Significant and ongoing investments producer of residential in mortgage-banking mortgage loans in LTM 2Q24⁽¹⁾ technology provide an exceptional loan Scalable technology platform providing our consumers, brokers and correspondent or
Slide 21: Technology Innovation to Unlock Additional Stakeholder Value
TECHNOLOGY INNOVATION TO UNLOCK ADDITIONAL STAKEHOLDER VALUE With our SSE technology free and clear of any restrictions on use or development, we are actively exploring a continuum of potential opportunities with benefits for our many stakeholders Proven, low-cost servicing system with Drive efficienc
Slide 22: Track Record of Strong Performance Across Market Environments
TRACK RECORD OF STRONG PERFORMANCE ACROSS MARKET ENVIRONMENTS PFSI's Annualized Return on Average Common Stockholders' Equity (ROE) Proven ability to generate attractive Average: 21% ROEs… U.S. Origination Market(3) 10-Year Treasury Yield(4) (in trillions) …across different market environments… PFSI
Slide 23: PFSI's Strong Balance Sheet and Diverse Capital Structures
PFSI’S STRONG BALANCE SHEET AND DIVERSE CAPITAL STRUCTURES Low Debt-to-Equity (D/E) Ratio • Targeted debt-to-equity ratio near or below 3.5x with fluctuations largely driven by the origination environment or other market opportunities • Targeted non-funding debt-to-equity ratio below 1.5x Non-funding
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) 6.86% 6.08% 4.40% 3.78% Macroeconomic Metrics(3) Footnotes 9/30/23 12/31/23 3/31/24 6/30/24 9/30/24 (1) Freddie Mac Primary Mortgage Market Survey. 6.44% as of 10/17/24 (2) U.S. D
Slide 25: MSR Asset Valuation
MSR ASSET VALUATION September 30, 2024 Mortgage Unaudited ($ in millions) Servicing Rights Pool UPB(1) $410,031 Weighted average coupon 4.4% Weighted average servicing fee/spread 0.38% Weighted average prepayment speed assumption (CPR) 9.1% Fair value $7,752 As a multiple of servicing fee 4.9 25 (1)
Slide 26: Delinquency Trends and Servicing Advances Outstanding
DELINQUENCY TRENDS AND SERVICING ADVANCES OUTSTANDING Historical Trends in Delinquency and Foreclosure Rates(1) 30-60 Day 60-90 Day 90+ Day In foreclosure ● Overall mortgage delinquency rates increased from the prior quarter but remain within expected levels for a predominately government-insured or
Slide 27: PFSI's Owned MSR Portfolio Characteristics
PFSI’S OWNED MSR PORTFOLIO CHARACTERISTICS As of September 30, 2024 Loan Remaining Loan size FICO credit 60+ UPB % of Note Seasoning Original Current Segment count maturity ($ in score at Delinquency ($ in billions)⁽⁴⁾ Total UPB rate (months) LTV LTV (in thousands) (months) thousands) origination (b
Slide 28: Acquisitions and Originations by Product
ACQUISITIONS AND ORIGINATIONS BY PRODUCT Unaudited ($ in millions) 3Q23 4Q23 1Q24 2Q24 3Q24 Correspondent Acquisitions Conventional Conforming - for PMT $ 2,759 $ 2,477 $ 1,769 $ 2,195 $ 5,851 Conventional Conforming - for PFSI 9,933 10,129 8,190 10,007 8,092 Government - for PFSI 8,848 11,011 8,167
Slide 29: Interest Rate Locks by Product
INTEREST RATE LOCKS BY PRODUCT Unaudited ($ in millions) 3Q23 4Q23 1Q24 2Q24 3Q24 Correspondent Locks Conventional Conforming - for PMT $ 3,493 $ 2,737 $ 2,472 $ 2,602 $ 7,373 Conventional Conforming - for PFSI 10,333 9,977 8,614 9,914 8,229 Government - for PFSI 10,063 11,197 8,467 11,100 12,448 Ju
Slide 30: Credit Characteristics by Acquisition/Origination Period
CREDIT CHARACTERISTICS BY ACQUISITION/ORIGINATION PERIOD Correspondent Weighted Average FICO Weighted Average DTI 3Q23 4Q23 1Q24 2Q24 3Q24 3Q23 4Q23 1Q24 2Q24 3Q24 Government-insured 712 714 719 715 715 Government-insured 45 46 44 44 44 Conventional 762 762 765 765 770 Conventional 38 39 38 38 38 Br
Slide 31: Reconciliation of GAAP Net Income to Adjusted EBITDA
RECONCILIATION OF GAAP NET INCOME TO ADJUSTED EBITDA ($ in millions) 3Q23 2Q24 3Q24 Net income $ 92.9 $ 98.3 $ 69.4 Provision for income taxes 33.9 35.6 24.6 Income before provision for income taxes 126.8 133.9 93.9 Depreciation and amortization 13.2 14.2 13.8 Decrease (increase) in the fair value o
Slide 32: Reconciliation of GAAP Items to Non-GAAP Items
RECONCILIATION OF GAAP ITEMS TO NON-GAAP ITEMS Reconciliation of GAAP net income (loss) to operating net income and annualized operating return on equity ($ in millions) 2Q23 3Q23 4Q23 1Q24 2Q24 3Q24 Net income (loss) $ 58.3 $ 92.9 $ (36.8) $ 39.3 $ 98.3 $ 69.4 Decrease (increase) in the fair value
Slide 33: PennyMac Financial Services
™ PENNYMAC FINANCIAL SERVICES,
PennyMac Financial Services — Q3 2024 Earnings Presentation on 6ix