Pennymac Financial Services, Inc. · NYSE:PFSI
Pennymac Financial Services — Q1 2024 Earnings Presentation
33 slides from Pennymac Financial Services's earnings presentation, Apr 24, 2024
Slide 1: 1Q24 Earnings Report
1Q24 EARNINGS REPORT PennyMac Financial Services, Inc. April 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, fu
Slide 3: First Quarter Highlights
FIRST QUARTER HIGHLIGHTS Strong operating performance partially offset by net fair value declines on hedged mortgage servicing rights 1Q24 Results Total loan acquisitions PFSI Consumer Broker direct PRODUCTION Pretax income and originations(2) correspondent lock volume lock volume direct lock volume
Slide 4: Origination Market Expectations Reflect Growth
ORIGINATION MARKET EXPECTATIONS REFLECT GROWTH U.S. Mortgage Origination Market(1) Mortgage Rates Remain High ($ in trillions) 8.0% $2.3 7.0% $2.2 $1.8 6.0% $0.7 $0.6 $1.5 $0.4 5.0% $0.2 4.0% $1.6 $1.4 $1.6 $1.2 3.0% 2.0% 2022 2023 2024E 2025E Purchase Refinance (2) Average 30-year fixed rate mortga
Slide 5: Building on Double Digit Operating Returns in 2024
BUILDING ON DOUBLE DIGIT OPERATING RETURNS IN 2024 Annualized Operating ROE(1) Mortgage Banking Operating Pretax Income ($ in millions) $184 15% 15% $161 13% $145 10% $75 $99 $144 7% $125 $120 $75 $94 $25 $39 $36 $24 -$20 1Q23 2Q23 3Q23 4Q23 1Q24 1Q23 2Q23 3Q23 4Q23 1Q24 (1) Production Servicing net
Slide 6: Technology Innovation to Unlock Additional Stakeholder Value
TECHNOLOGY INNOVATION TO UNLOCK ADDITIONAL STAKEHOLDER VALUE With our SSE technology free and clear of any restrictions on use or development, we are actively exploring a continuum of potential opportunities with benefits for our many stakeholders Proven, low-cost servicing system with Drive efficie
Slide 7: Servicing Provides Growing Cash Flow and Scale Benefits
SERVICING PROVIDES GROWING CASH FLOW AND SCALE BENEFITS Revenue From Servicing & Placement Fees Operating Expenses ($ in millions) (bps of average servicing portfolio UPB) $1,941 $1,833 10.5 9.5 9.2 9.0 8.3 $1,351 7.2 6.9 $1,057 $1,100 $1,022 $772 (1) (1) 2018 2019 2020 2021 2022 2023 1Q24LTM 2018 2
Slide 8: Future Recapture Opportunities Enhanced by Recent Production
FUTURE RECAPTURE OPPORTUNITIES ENHANCED BY RECENT PRODUCTION Total Servicing Portfolio With Note Rates of 5% or Greater(1) (UPB in billions) $153 $135 $111 $89 $78 $92 25% $67 $57 of total $38 servicing $24 portfolio $51 $55 $57 $60 $43 1Q23 2Q23 3Q23 4Q23 1Q24 Note Rate of 5.00% up to 6.00% Note Ra
Slide 9: 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) 21.0% 20.6% 4.3% 4.4% 4.1% 4.1% 17.7% 3.7% 16.7% 15.0% 2020 2021 2022 2023 1Q24LTM 12/31/20 12/31/21 12/31/22 12/31/23 3/31/24 Broker Direct Market Share(1) Consumer Direct
Slide 10: 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) $23.9 $2.2 $21.7 $3.4 $2.2 $23.6 $19.6 $2.8 $20.2 $2.5 $2.6 $1.6 $18.1 $2.2 $2.1 $1.4 $6.6 $1.8 $1.5 $1.1 $0.9 $21.1 $16.4 $13.5 1Q23 4Q23 1Q24 1Q23 4Q2
Slide 11: Drivers of Production Segment Results
DRIVERS OF PRODUCTION SEGMENT RESULTS 1Q23 4Q23 1Q24 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 12: 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 13: Servicing Segment Highlights
SERVICING SEGMENT HIGHLIGHTS • Servicing portfolio totaled $617.4 billion in UPB at March 31, Loan Servicing Portfolio Composition 2024, up 2% Q/Q and 9% Y/Y (UPB in billions) $617.4 $607.2 $564.5 • Production volumes more than offset prepayment activity, leading to continued portfolio growth • 60+
Slide 14: Servicing Profitability Excluding Valuation-Related Changes
SERVICING PROFITABILITY EXCLUDING VALUATION-RELATED CHANGES 1Q23 4Q23 1Q24 basis basis basis (1) (1) (1) $ in millions points $ in millions points $ in millions points Loan servicing fees $ 338.1 24.2 $ 402.5 26.9 $ 424.2 27.7 Earnings on custodial balances and deposits and other income 65.9 4.7 89.
Slide 15: 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 MSR fair value change before realization of cash flows on the fair value of its MSR asset through a comprehensive Hedging and rel
Slide 16: Investment Management Segment Highlights
INVESTMENT MANAGEMENT SEGMENT HIGHLIGHTS • Net AUM as of March 31, 2024 were $2.0 billion, essentially unchanged from December 31, 2023 and March 31, 2023 • Investment Management segment revenues were $9.4 million, down 3% from 4Q23 and up 1% from 1Q23 Investment Management AUM Investment Management
Slide 17: Appendix
APPENDIX ™ PENNYMAC’
Slide 18: Established Leader with Substantial Long-Term Growth Potential
ESTABLISHED LEADER WITH SUBSTANTIAL LONG-TERM GROWTH POTENTIAL $2.0 billion in assets under management 14-year track record #2 PMT IS A LEADING $617 billion outstanding #5 $98 billion in LTM 1Q24 IN PRODUCTION(1) RESIDENTIAL MORTGAGE • CORRESPONDENT REIT 2.5 million customers PRODUCTION • BROKER DIR
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: Top Lender with Comprehensive and Efficient Multi-Channel Platform
TOP LENDER WITH COMPREHENSIVE AND EFFICIENT MULTI-CHANNEL PLATFORM 2 Significant and ongoing investments in mortgage-banking # producer of residential mortgage loans in 2023(1) technology provide an exceptional loan Scalable technology platform providing our consumers, brokers and correspondent orig
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) 61% Proven ability to 26% 29% generate attractive 19% 20% 22% 22% Average: 20% 11% 13% 14% 4% 4% ROEs… (1) (2) 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 1Q
Slide 23: 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 3.2x 2.9x • Targeted debt-to-equity ratio near or below 3.5x with 2.4x fluctuations largely driven by the origination environment 2.0x or other market opportunities 0.6x 0.9x 1.1x 1.3x 1.4x • Low non-funding deb
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) 6.79% 4.20% 6.61% 3.88% 8.0% 5.0% 7.0% 4.0% 6.0% 3.0% 5.0% 2.0% 4.0% 3.0% 1.0% 2.0% 0.0% Macroeconomic Metrics(3) Footnotes 3/31/23 6/30/23 9/30/23 12/31/23 3/31/24 (1) Freddie M
Slide 25: MSR Asset Valuation
MSR ASSET VALUATION March 31, 2024 Mortgage Unaudited ($ in millions) Servicing Rights Pool UPB(1) $381,471 Weighted average coupon 4.2% Weighted average servicing fee/spread 0.38% Weighted average prepayment speed assumption (CPR) 7.9% Fair value $7,483 As a multiple of servicing fee 5.11 (1) Exclu
Slide 26: Delinquency Trends and Servicing Advances Outstanding
DELINQUENCY TRENDS AND SERVICING ADVANCES OUTSTANDING Historical Trends in Delinquency and Foreclosure Rates(1) 15.4% 14.0% 12.0% 9.5% 8.0% 7.2% 6.7% 5.8% 6.1% 5.9% 5.5% 5.4% 5.6% 5.7% 5.0% 5.0% 5.1% 3/31/20 6/30/20 9/30/20 12/31/20 3/31/21 6/30/21 9/30/21 12/31/21 3/31/22 6/30/22 9/30/22 12/31/22 3
Slide 27: PFSI's Owned MSR Portfolio Characteristics
PFSI’S OWNED MSR PORTFOLIO CHARACTERISTICS As of March 31, 2024 Loan Remaining FICO credit 60+ UPB % of Note Seasoning Loan size Original Current Segment count maturity score at Delinquency ($ in billions)(4) Total UPB rate (months) ($ in thousands) LTV LTV (in thousands) (months) origination (by UP
Slide 28: Acquisitions and Originations by Product
ACQUISITIONS AND ORIGINATIONS BY PRODUCT Unaudited ($ in millions) 1Q23 2Q23 3Q23 4Q23 1Q24 Correspondent Acquisitions Conventional Conforming - for PMT $ 6,629 $ 3,029 $ 2,759 $ 2,477 $ 1,769 Conventional Conforming - for PFSI 4,063 7,018 9,933 10,129 8,190 Government - for PFSI 9,461 11,139 8,848
Slide 29: Interest Rate Locks by Product
INTEREST RATE LOCKS BY PRODUCT Unaudited ($ in millions) 1Q23 2Q23 3Q23 4Q23 1Q24 Correspondent Locks Conventional Conforming - for PMT $ 7,588 $ 3,322 $ 3,493 $ 2,737 $ 2,472 Conventional Conforming - for PFSI 3,781 7,523 10,333 9,977 8,614 Government - for PFSI 10,341 10,735 10,063 11,197 8,467 Ju
Slide 30: Credit Characteristics by Acquisition/Origination Period
CREDIT CHARACTERISTICS BY ACQUISITION/ORIGINATION PERIOD Correspondent Weighted Average FICO Weighted Average DTI 1Q23 2Q23 3Q23 4Q23 1Q24 1Q23 2Q23 3Q23 4Q23 1Q24 Government-insured 709 715 712 714 719 Government-insured 45 45 45 46 44 Conventional 757 762 762 762 765 Conventional 39 38 38 39 38 Br
Slide 31: Adjusted EBITDA Reconciled to Net Income
ADJUSTED EBITDA RECONCILED TO NET INCOME ($ in millions) 1Q23 4Q23 1Q24 Net income (loss) $ 30.4 $ (36.8) $ 39.3 Provision for (benefit from) income taxes 7.8 (17.4) 4.6 Income (loss) before provision for (benefit from) income taxes 38.1 (54.2) 43.9 Depreciation and amortization 12.7 14.1 14.2 Decre
Slide 32: Reconciliation of Non-GAAP Items
RECONCILATION OF NON-GAAP ITEMS ($ in millions) 1Q23 2Q23 3Q23 4Q23 1Q24 Net income (loss) $ 30.4 $ 58.3 $ 92.9 $ (36.8) $ 39.3 Decrease (increase) in fair value of MSRs and MSLs due to changes in 90.3 (118.9) (398.9) 370.7 (170.0) valuation inputs used in the valuation model Hedging (gains) losses
Slide 33: PennyMac Financial Services
™ PENNYMAC’ FINANCIAL SERVICES,
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