Pennymac Financial Services, Inc. · NYSE:PFSI
Pennymac Financial Services — Q2 2021 Earnings Presentation
28 slides from Pennymac Financial Services's earnings presentation, Aug 5, 2021
Slide 1: PennyMac Financial Services, Inc. 2Q21 Earnings Report
PENNYMAC FINANCIAL SERVICES, INC. 2Q21 EARNINGS REPORT August 2021
Slide 2: 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 results, future operatio
Slide 3: Second Quarter Highlights
3 • Net income was $ 204.2 million, or diluted earnings per share (EPS) of $ 2.94 ; annualized return on average common stockholders’ equity of 23% – Earnings reflect continued strong production and core servicing results partially offset by net MSR fair value declines – Repurchased 2.6 million shar
Slide 4: Servicing segment highlights
4 • Servicing segment pretax income was $30.9 million, down from $141.7 million in 1Q21 and up from a pretax loss of $62.4 million in 2Q20 – Pretax income excluding valuation - related items was $174.4 million (1) , down 33% from 1Q21 driven by decreased income from loss mitigation activity related
Slide 5: Origination Market Remains Historically Strong
5 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% Average 30-year fixed rate mortgage Primary/secondary spread ORIGINATION MARKET REMAINS HISTORICALLY STRONG • Economic forecasts for 2021 total originations range from $3.6 to $4.2 trillion driven by the continuation of low mortgage rates ‒ Purchase originations are e
Slide 6: Direct Lending and Servicing Are Driving PFSI's Profitability
6 DIRECT LENDING AND SERVICING ARE DRIVING PFSI’S PROFITABILITY ($ in millions) ($ in millions) (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 losses on active loans consider
Slide 7: PennyMac Continues to Drive Towards Its Medium-Term Goals
7 0.3% 1.1% 2.2% 2.5% 2017 2018 2019 2020 1H21 N/A 2.3% 2.8% 3.4% 3.7% 4.0% 12/31/17 12/31/18 12/31/19 12/31/20 6/30/21 PENNYMAC CONTINUES TO DRIVE TOWARDS ITS MEDIUM - TERM GOALS Note: All figures are for PFSI and include volume fulfilled or subserviced for PMT (1) Historical market share estimates
Slide 8: Production Segment Highlights – Volume by Channel
8 $11.0 $17.4 $16.2 $18.9 $33.8 $30.5 $29.9 $51.2 $46.7 $37.7 $51.1 $46.0 2Q20 1Q21 2Q21 Government loans Conventional loans for PMT Total locks PRODUCTION SEGMENT HIGHLIGHTS – VOLUME BY CHANNEL (1) (2) (3) Note: Figures may not sum due to rounding ( 1 ) For government - insured loans, PFSI earns in
Slide 9: Production Segment Highlights – Business Trends by Channel
9 PRODUCTION SEGMENT HIGHLIGHTS – BUSINESS TRENDS BY CHANNEL • PennyMac remains the largest correspondent aggregator in the U.S. • Drives servicing portfolio growth while generating additional leads for consumer direct • Profitability driven by low cost structure and operational excellence • Role of
Slide 10: Drivers of Production Segment Profitability
10 DRIVERS OF PRODUCTION SEGMENT PROFITABILITY (1) Expected revenue net of direct origination costs at time of lock (2) Reflects hedging, pricing and execution changes, timing of revenue recognition, and other items (3) Costs are fully allocated Production expenses net of Loan origination expense •
Slide 11: Servicing portfolio and operational metrics
11 1Q21 2Q21 Loans serviced (in thousands) 1,998 2,058 60+ day delinquency rate - owned portfolio (1) 8.6% 6.7% 60+ day delinquency rate - sub-serviced portfolio (2) 2.1% 1.6% Actual CPR - owned portfolio (1) 32.6% 28.3% Actual CPR - sub-serviced (2) 35.1% 24.7% UPB of completed modifications ($ in
Slide 12: Early Buyout Enhancements
12 ENHANCEMENTS • Buyout volume increased to $6.8 billion in UPB in 2Q21 versus $4.2 billion in 1Q21 • The UPB of government - insured EBOs serviced for third - party investors totaled $6.1 billion at June 30, up from $3.2 billion at March 31, 2021 • Provides meaningful savings over the life of the
Slide 13: Servicing Profitability Excluding Valuation-Related Changes
13 (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,
Slide 14: Hedging Approach Continues to Moderate Volatility of Results
14 ($108.4) $306.1 ($250.6) ($15.1) ($443.2) $91.1 $538.0 $362.9 $244.4 2Q20 1Q21 2Q21 MSR fair value change before recognition of realization of cash flows Hedging and related gains (declines) Production pretax income HEDGING APPROACH CONTINUES TO MODERATE THE VOLATILITY OF PFSI’S RESULTS • PFSI se
Slide 15: Trends in Delinquencies, Forbearance and Loss Mitigation
15 Beginning period forbearance TRENDS IN DELINQUENCIES, FORBEARANCE AND LOSS MITIGATION • In PFSI’s predominately government MSR portfolio, approximately 249,000 borrowers have been enrolled in a forbearance plan related to COVID - 19 since the enactment of the CARES Act – Through June 30, approxim
Slide 16: Investment Management Segment Highlights
16 INVESTMENT MANAGEMENT SEGMENT HIGHLIGHTS • Net AUM as of June 30, 2021 were $2.3 billion, down slightly from March 31, 2021, and up 5% from June 30, 2020 • Investment M anagement segment revenues were $ 13.5 million, up 41% from 1Q21 and 28% from 2Q20 ‒ PMT’s strong performance over the last four
Slide 17: Appendix
PénnyMac’ APPENDIX »
Slide 18: PennyMac Is an Established Leader in the U.S. Mortgage Market
18 $197 billion in 2020 $ 473 billion outstanding IN SER VIC ING (1) YEARS FOR PFSI AS A PUBLIC COMPANY 8 14 YEARS OF OPERATIONS PMT # 2 • CORRESPONDENT PRODUCTION • CONSUMER DIRECT • BROKER DIRECT IN PRODUCTION (1) IS A LEADING RESIDENTIAL MORTGAGE REIT PENNYMAC IS AN ESTABLISHED LEADER IN THE U.S.
Slide 19: Overview of PennyMac Financial's Businesses
19 OVERVIEW OF PENNYMAC FINANCIAL’S BUSINESSES LOAN PRODUCTION 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 origi
Slide 20: PFSI's Track Record Across Various Market Environments
20 $1.8 $1.3 $1.7 $2.1 $1.8 $1.6 $2.3 $4.1 $3.9 2013 2014 2015 2016 2017 2018 2019 2020 2021E U.S. Origination Market (in trillions) 0.0% 1.0% 2.0% 3.0% 4.0% 10-Year Treasury Yield 11% 19% 20% 22% 26% 13% 22% 61% 33% 2013 2014 2015 2016 2017 2018 2019 2020 1H21 PFSI's Annualized Return on Average Co
Slide 21: Current Market Environment and Macroeconomic Trends
21 2.0% 2.5% 3.0% 3.5% 4.0% 4.5% 5.0% 0.0% 1.0% 2.0% 3.0% 4.0% CURRENT MARKET ENVIRONMENT AND MACROECONOMIC TRENDS (1) Freddie Mac Primary Mortgage Market Survey. 2.80% as of 7/29/21 (2) U.S. Department of the Treasury. 1.22% as of 7/30/21 (3) 10 - year Treasury bond yield and 2/10 year Treasury yie
Slide 22: PFSI's Balanced Business Model Is a Flywheel
22 PFSI’s BALANCED BUSINESS MODEL IS A FLYWHEEL • 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 origina
Slide 23: Significant Technology Investments Drive Growth, Efficiency and Scale
23 SIGNIFICANT TECHNOLOGY INVESTMENTS DRIVE GROWTH, EFFICIENCY AND SCALE Investments in technology, processes, and data management to - date have resulted in PennyMac’s integrated and scalable platform Invested $165 MILLION in transformational technology initiatives from 2018 through 2020; plan to i
Slide 24: PennyMac Has Developed in a Sustainable Manner for Long-Term Growth
24 PENNYMAC HAS DEVELOPED IN A SUSTAINABLE MANNER FOR LONG - TERM GROWTH 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Operations launched; de novo build of legacy - free mortgage servicer Raised $500 million of capital in private opportunity funds PMT formed in an initial pu
Slide 25: MSR Asset Valuation
25 Pool UPB $252,475 Coupon 3.3% Servicing fee/spread 0.34% Prepayment speed assumption (CPR) 10.5% Fair value $3,412.6 As a multiple of servicing fee 3.97 June 30, 2021 Unaudited ($ in millions) MSR ASSET VALUATION Mortgage Servicing Rights
Slide 26: Acquisitions and Originations by Product
26 ACQUISITIONS AND ORIGINATIONS BY PRODUCT First Lien Acquisitions/Originations Note: Figures may not sum exactly due to rounding Unaudited ($ in millions) 2Q20 3Q20 4Q20 1Q21 2Q21 Correspondent Acquisitions Conventional Conforming 18,900$ 27,351$ 37,986$ 33,762$ 30,479$ Government 10,991 16,977 18
Slide 27: Interest Rate Locks by Product
27 INTEREST RATE LOCKS BY PRODUCT First Lien Locks Note: Figures may not sum exactly due to rounding Unaudited ($ in millions) 2Q20 3Q20 4Q20 1Q21 2Q21 Correspondent Locks Conventional Conforming 24,804$ 34,363$ 39,451$ 33,998$ 30,332$ Government 12,920 20,167 19,728 17,064 15,657 Total 37,725$ 54,5
Slide 28: Credit Characteristics by Acquisition/Origination Period
28 CREDIT CHARACTERISTICS BY ACQUISITION/ORIGINATION PERIOD Correspondent Consumer Direct Broker Direct 2Q20 3Q20 4Q20 1Q21 2Q21 2Q20 3Q20 4Q20 1Q21 2Q21 Government-insured 719 715 714 707 702 Government-insured 37 37 36 37 42 Conventional 769 772 768 761 757 Conventional 32 32 33 34 34 2Q20 3Q20 4Q
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