Pennymac Financial Services, Inc. · NYSE:PFSI
Pennymac Financial Services — Q4 2020 Earnings Presentation
29 slides from Pennymac Financial Services's earnings presentation, Feb 4, 2021
Slide 1: Fourth Quarter 2020 Earnings Report
Fourth Quarter 2020 Earnings Report
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, the Company’s financial r
Slide 3: Fourth Quarter Highlights
Fourth Quarter Highlights Net income was $452.8 million; diluted earnings per share (EPS) were $5.97 – Strong earnings driven by core production and servicing results partially offset by fair value losses on mortgages servicing rights (MSRs) and associated hedging and other losses – Repurchased ap
Slide 4: Fourth Quarter Highlights (continued)
Fourth Quarter Highlights (continued) Servicing segment pretax income was $42.0 million, down from pretax income of $111.7 million in 3Q20 and up from a pretax loss of $5.1 million in 4Q19 – Pretax income excluding valuation-related items was $234.3 million, up 30% from 3Q20 and 499% from 4Q19, dr
Slide 5: 2020 Accomplishments Demonstrate Best-in-Class Management
2020 Accomplishments Demonstrate Best-in-Class Management Record Financial and Operational Results… …All While Helping Thousands of Borrowers $20.92 diluted EPS, up 328% Y/Y Granted 291,000 borrowers forbearance plans and helped or are in the process of helping 145,000 $1.6 billion in net inco
Slide 6: Profitability and Value Creation Across Various Market Environments
Profitability and Value Creation Across Various Market Environments Annualized Return on Average Common Stockholders’ Equity (ROE) 62% Proven ability to generate attractive Average: 22% 26% 22% 19% 20% ROEs… 24% 11% 13% 2013 (1) 2014 2015 2016 2017 2018 2019 2020 (2) 4.0% 10-Year Treasury Yield (3)
Slide 7: Origination Market Remains Historically Strong
Origination Market Remains Historically Strong U.S. Mortgage Origination Market(1) Rates Remain Low and Margins Remain Wide (UPB in trillions) 5.0% $4.0 4.0% $3.3 3.0% $2.3 $2.5 $1.7 2.0% $1.1 1.0% $1.5 $1.6 $1.3 0.0% 2019 2020 2021E (2) (3) Purchase Refinance Average 30-year fixed rate mortgage Pri
Slide 8: Direct Lending and Servicing Are Driving PFSI's Earnings Growth
Direct Lending and Servicing Are Driving PFSI’s Earnings Growth Production Pretax Income Servicing Pretax Income ($ in millions) ($ in millions) $1,964 $543 Estimated Contribution from Direct Lending (CDL & BDL) $262 $172 $147 $103 $528 $59 $147 $239 $87 -$15 2017 2018 2019 2020 2017 2018 2019 2020
Slide 9: PFSI Is an Established Leader With a Growing Presence Across Mortgage Banking
PFSI Is an Established Leader With a Growing Presence Across Mortgage Banking Investments in Industry-Leading Businesses Provide Stable Foundation Correspondent Production(1) Servicing Growth Drivers (market share) (market share) 17.7% Proprietary technology 15.5% 3.8% 11.9% 3.3% Low cost struct
Slide 10: Technology Initiatives In Place for Growth in Direct Lending
Technology Initiatives In Place for Growth in Direct Lending Enhance lead generation capabilities and use of data analytics Consumer Increase use of digital Direct marketing to drive non- Improves experience for the portfolio originations consumer and broker Improve ability for borrowers to
Slide 11: 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) $12.8 $59.2 $56.9 $10.9 $54.5 $5.7 $5.5 $36.0 $44.3 $8.0 $4.5 $37.2 $38.0 $5.5 $6.3 $3.5 $27.4 $3.7 $20.5 $3.8 $3.1 $1.7 $3.5 $1.2 $1.4 $2.7 $18.9 $3.2
Slide 12: Production Segment Highlights – Business Trends by Channel
Production Segment Highlights – Business Trends by Channel Correspondent Consumer Direct Broker Direct PennyMac remained the largest Continue to originate record Continued growth Q/Q in both correspondent aggregator in the volumes as a result of: lock and funding volumes as a U.S. result of th
Slide 13: Servicing Segment Highlights
Servicing Segment Highlights Servicing portfolio totaled $426.8 billion in UPB at Loan Servicing Portfolio Composition December 31, 2020, up 6% Q/Q and 16% Y/Y (UPB in billions) Record production volumes led to portfolio growth $426.8 $401.9 despite elevated prepayment activity $368.7 Modest d
Slide 14: Investment Management Segment Highlights
Investment Management Segment Highlights Net AUM as of December 31, 2020 were $2.3 billion, up 1% from September 30, 2020 primarily due to the increase in PMT’s book value – Investment management revenues were $9.7 million, down slightly from the prior quarter which included higher gains related t
Slide 15: Trends in Delinquencies, Forbearance and Loss Mitigation
Trends in Delinquencies, Forbearance and Loss Mitigation 30+ Day Delinquency Rate and Forbearance Trend(1) In PFSI’s predominately government MSR portfolio, approximately 235,000 borrowers were enrolled in a 15.1% forbearance plan in 2020 14.1% 12.4% 12.6% 1.9% 10.1% – Through December 31st, appro
Slide 16: Appendix
Appendix PennyMac inancia | Services, Inc.
Slide 17: Overview of PennyMac Financial's Businesses
Overview of PennyMac Financial’s Businesses Loan Production Loan Servicing Investment Management Correspondent aggregation of Servicing for owned MSRs External manager of PMT, newly originated loans from and subservicing for PMT which invests in mortgage- third-party sellers Major loan servi
Slide 18: PFSI's Mortgage Banking Franchise Has Substantial Long-Term Value
PFSI’s Mortgage Banking Franchise Has Substantial Long-Term Value Large volumes of production create “flywheel” to grow servicing portfolio Loan Production Loan Servicing 3rd largest in the U.S.(1) 7th largest in the U.S.(2) ($197 billion in UPB in the last 12 months) ($427 billion in UPB)(3) Subs
Slide 19: Hedging Approach Continues to Moderate the Volatility of PFSI's Results
Hedging Approach Continues to Moderate the Volatility of PFSI’s Results MSR Valuation Changes and Offsets PFSI seeks to moderate the impact of interest rate changes on the fair value of its ($ in millions) MSR asset through a comprehensive hedge MSR fair value change before recognition of realizat
Slide 20: Drivers of Production Segment Profitability
Drivers of Production Segment Profitability 4Q19 3Q20 4Q20 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 (
Slide 21: Servicing Profitability Excluding Valuation-Related Changes
Servicing Profitability Excluding Valuation-Related Changes 4Q19 3Q20 4Q20 basis basis basis $ in millions points(1) $ in millions points(1) $ in millions points(1) Operating revenue $ 273.0 30.4 $ 261.4 26.4 $ 272.2 26.3 Realization of MSR cash flows (113.1) (12.6) (90.2) (9.1) (89.6) (8.7) EBO loa
Slide 22: Servicing Profitability Excluding Valuation-Related Changes
Servicing Profitability Excluding Valuation-Related Changes 2017 2018 2019 2020 basis basis basis basis $ in millions points (1) $ in millions (1) points $ in millions points (1) $ in millions points (1) Operating revenue $ 621.7 28.1 $ 771.5 28.6 $ 1,022.6 30.6 $ 1,057.4 26.9 Realization of MSR cas
Slide 23: PFSI Has Developed in a Sustainable Manner for Long-Term Growth
PFSI Has Developed in a Sustainable Manner for Long-Term Growth Disciplined growth to address the demands of the GSEs, Agencies, regulators and our financing partners 2020 - Since inception, PennyMac has focused on building and Issued $650 million of Senior 2019 Unsecured Notes testing processes
Slide 24: Potential Opportunity in MSR Acquisitions
Potential Opportunity in MSR Acquisitions Why Are MSR Which MSR Transactions How Do MSRs Come to Market? Sales Occurring? Are Attractive? Large servicers may sell MSRs Intermittent large bulk portfolio sales GSE and Ginnie Mae servicing in due to operational pressures, ($10+ billion in UPB) wh
Slide 25: PFSI's Mortgage Servicing Rights Investments in Partnership with PMT
PFSI’s Mortgage Servicing Rights Investments in Partnership with PMT PMT has co-invested in Agency MSRs acquired from third-party sellers by PFSI; presently only related to certain Ginnie Mae MSRs PMT acquires the right to receive the ESS cash flows over the life of the underlying loans PFSI o
Slide 26: MSR Asset Valuation
MSR Asset Valuation December 31, 2020 Not subject to Subject to excess Total Unaudited ($ in millions) excess servicing servicing spread Pool UPB $223,088 $15,323 $238,411 Coupon(1) 3.57% 4.18% 3.61% Servicing fee/spread 0.35% 0.34% 0.35% Prepayment speed assumption (CPR) 13.9% 11.7% 13.7% Fair valu
Slide 27: Acquisitions and Originations by Product
Acquisitions and Originations by Product First Lien Acquisitions/Originations Unaudited ($ in millions) 4Q19 1Q20 2Q20 3Q20 4Q20 Correspondent Acquisitions Conventional Conforming $ 20,510 $ 16,153 $ 18,900 $ 27,351 $ 37,986 Government 16,653 13,616 10,991 16,977 18,923 (1) Non-Agency - - - - - Tota
Slide 28: Interest Rate Locks by Product
Interest Rate Locks by Product First Lien Locks Unaudited ($ in millions) 4Q19 1Q20 2Q20 3Q20 4Q20 Correspondent Locks Conventional Conforming $ 19,736 $ 19,109 $ 24,804 $ 34,358 $ 39,451 Government 16,225 14,871 12,920 20,164 19,728 (1) Non-Agency - - - - - Total $ 35,961 $ 33,980 $ 37,725 $ 54,523
Slide 29: Credit Characteristics by Acquisition / Origination Period
Credit Characteristics by Acquisition / Origination Period Correspondent Weighted Average FICO Weighted Average DTI 4Q19 1Q20 2Q20 3Q20 4Q20 4Q19 1Q20 2Q20 3Q20 4Q20 Government-insured 703 700 719 715 714 Government-insured 42 42 37 37 36 Conventional 762 763 769 772 768 Conventional 35 34 32 32 33
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