Pennymac Financial Services, Inc. · NYSE:PFSI
Pennymac Financial Services — Q4 2021 Earnings Presentation
29 slides from Pennymac Financial Services's earnings presentation, Feb 3, 2022
Slide 1: 4Q21 Earnings Report
4Q21 EARNINGS REPORT PennyMac Financial Services, Inc. February 2022
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 4Q21 Results Consumer Government Total loan acquisitions Diluted PRODUCTION Pretax income direct lock volume Broker direct lock volume correspondent lock volume and originations(2) Net income EPS (1) $107mm $14.2bn $3.9bn $15.5bn $47.1bn $173mm $2.79 MSR fair value Pretax i
Slide 4: 2021 Accomplishments Demonstrate Best-in-Class Management
2021 ACCOMPLISHMENTS DEMONSTRATE BEST-IN-CLASS MANAGEMENT Record operational results… …drove exceptional financial performance... Total production(1) $234bn Servicing portfolio(1) $510bn Net income $1.0bn Diluted EPS $14.87 Consumer direct originations $43bn Return on equity 29% >$1bn Total capital
Slide 5: Origination Market Remains Historically Large
ORIGINATION MARKET REMAINS HISTORICALLY LARGE U.S. Mortgage Origination Market(1) Mortgage Rates Remain Low on a Historical Basis ($ in trillions) 5.0% $4.8 $4.1 4.0% $2.8 $3.1 3.0% $2.3 $2.6 $1.1 2.0% $1.1 $2.0 $2.0 1.0% $1.3 $1.5 0.0% 2019 2020 2021 2022E (2) (3) Purchase Refinance Average 30-year
Slide 6: Balanced Business Model Is a Key Strategic Advantage
BALANCED BUSINESS MODEL IS A KEY STRATEGIC ADVANTAGE Production Pretax Income Servicing Pretax Income ($ in millions) $1,964 ($ in millions) $800 $543 $1,044 $307 $262 $528 $172 $147 $147 $87 ($15) 2018 2019 2020 2021 2018 2019 2020 2021 (1) Estimated contribution from direct lending (consumer and b
Slide 7: Transformative Brand and Technology Investments Support Next Stage of Growth
TRANSFORMATIVE BRAND AND TECHNOLOGY INVESTMENTS SUPPORT THE NEXT STAGE OF PENNYMAC’S GROWTH Technology Marketing • Technology rollouts for our direct-lending • Launched a new evolution of Pennymac’s brand businesses expected in the near term in January ‒ Streamlined processes ‒ Reflects Pennymac’s c
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) 4.1% 17.7% 3.7% 16.8% 3.4% 14.9% 2.8% 11.8% 10.5% 2.3% 2017 2018 2019 2020 2021 12/31/17 12/31/18 12/31/19 12/31/20 12/31/21 Consumer Direct Market Share(1) Broker Direct M
Slide 9: Production Segment Highlights – Volume by Channel
PRODUCTION SEGMENT HIGHLIGHTS – VOLUME BY CHANNEL Correspondent Consumer Direct Broker Direct (UPB in billions) (UPB in billions) $16.3 (UPB in billions) $59.2 $14.2 $5.7 $56.9 $12.8 $4.9 $45.6 $11.1 $4.5 $3.9 $10.6 $4.0 $44.0 $3.7 $8.0 $38.0 $32.8 $6.2 $30.3 $6.3 $3.5 $28.6 $3.7 $3.1 $17.2 $2.8 $18
Slide 10: Drivers of Production Segment Profitability
DRIVERS OF PRODUCTION SEGMENT PROFITABILITY 4Q20 3Q21 4Q21 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 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 CONSUMER DIRECT BROKER DIRECT • Pennymac
Slide 12: Servicing Segment Highlights
SERVICING SEGMENT HIGHLIGHTS • Servicing portfolio totaled $509.7 billion in UPB at December 31, 2021, Loan Servicing Portfolio Composition up 3% Q/Q and 19% Y/Y (UPB in billions) • Strong production volumes led to continued portfolio growth despite $495.4 $509.7 elevated prepayment activity $426.8
Slide 13: Servicing Profitability Excluding Valuation-Related Changes
SERVICING PROFITABILITY EXCLUDING VALUATION-RELATED CHANGES 4Q20 3Q21 4Q21 basis basis basis $ in millions points(1) $ in millions points(1) $ in millions points(1) Operating revenue $ 272.2 26.3 $ 272.1 22.5 $ 296.6 23.6 Realization of MSR cash flows (89.6) (8.7) (82.2) (6.8) (97.0) (7.7) EBO loan-
Slide 14: Hedging Approach Moderates the Volatility of PFSI's Results
HEDGING APPROACH MODERATES THE VOLATILITY OF PFSI’S RESULTS OVER TIME 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 hedge strategy that also considers production-related MSR fa
Slide 15: Trends in Delinquencies, Forbearance and Loss Mitigation
TRENDS IN DELINQUENCIES, FORBEARANCE AND LOSS MITIGATION 30+ Day Delinquency Rate and Forbearance Trend(1) • Overall mortgage delinquency rates have returned to pre-pandemic levels; however, delinquency rates of seriously delinquent loans (90+ days) 15.1% 14.1% remain elevated 12.4% 12.6% 10.1% 10.2
Slide 16: Investment Management Segment Highlights
INVESTMENT MANAGEMENT SEGMENT HIGHLIGHTS • Net AUM as of December 31, 2021 were $2.4 billion, down 5% from September 30, 2021, and up 3% from December 31, 2020 ‒ Decrease in AUM primarily due to PMT’s net loss in 4Q21 • Investment Management segment revenues were $10.5 million, up 7% from 3Q21 and u
Slide 17: Appendix
APPENDIX ™ PENNYMAC”
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 GROWTH POTENTIAL $2.4 billion in assets under management 12-year track record $197 billion in 2020 #2 PMT IS A LEADING $510 billion outstanding #6 $234 billion in 2021 IN PRODUCTION(1) RESIDENTIAL • CORRESPONDENT 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 Track Record Across Various Market Environments
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: 25% 11% 13% ROEs… (1) 2013 2014 2015 2016 2017 2018 2019
Slide 21: 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) 5.0% 4.0% 4.5% 3.0% 4.0% 3.11% 1.49% 1.51% 3.01% 3.5% 2.0% 3.0% 1.0% 2.5% 2.0% 0.0% Macroeconomic Metrics (3) Footnotes 12/31/20 3/31/21 6/30/21 9/30/21 12/31/21 (1) Freddie Mac
Slide 22: 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) 6th largest in the U.S.(1) • Diversified business through correspondent, • Recurring fee income business captured over the consumer direct and b
Slide 23: Servicing Profitability Excluding Valuation-Related Changes
SERVICING PROFITABILITY EXCLUDING VALUATION-RELATED CHANGES 2018 2019 2020 2021 basis basis basis basis $ in millions points(1) $ in millions points(1) $ in millions points(1) $ in millions points(1) Operating revenue $ 771.5 28.6 $ 1,022.6 30.6 $ 1,057.4 26.9 $ 1,100.2 23.3 Realization of MSR cash
Slide 24: PennyMac Has Developed in a Sustainable Manner for Long-Term Growth
PENNYMAC HAS DEVELOPED IN A SUSTAINABLE MANNER FOR LONG-TERM GROWTH 2017 2018 2019 2020 2021 PFSI issued MSR- PFSI launched broker- Achieved position as the Record production volumes PFSI issued an additional backed term notes direct lending channel largest correspondent across all channels; nearly
Slide 25: MSR Asset Valuation
MSR ASSET VALUATION December 31, 2021 Mortgage Unaudited ($ in millions) Servicing Rights Pool UPB $278,325 Coupon(1) 3.2% Servicing fee/spread(1) 0.34% Prepayment speed assumption (CPR)(1) 10.7% Fair value $3,878.1 As a multiple of servicing fee 4.14 (1) Weighted average 25
Slide 26: Acquisitions and Originations by Product
ACQUISITIONS AND ORIGINATIONS BY PRODUCT First Lien Acquisitions/Originations Unaudited ($ in millions) 4Q20 1Q21 2Q21 3Q21 4Q21 Correspondent Acquisitions Conventional Conforming $ 37,986 $ 33,762 $ 30,479 $ 28,605 $ 17,157 Government 18,923 17,440 16,175 15,375 15,651 Total $ 56,908 $ 51,202 $ 46,
Slide 27: Interest Rate Locks by Product
INTEREST RATE LOCKS BY PRODUCT First Lien Locks Unaudited ($ in millions) 4Q20 1Q21 2Q21 3Q21 4Q21 Correspondent Locks Conventional Conforming $ 39,451 $ 33,998 $ 30,332 $ 29,411 $ 14,717 Government 19,728 17,064 15,657 16,230 15,544 Total $ 59,179 $ 51,062 $ 45,990 $ 45,641 $ 30,261 Consumer Direct
Slide 28: Credit Characteristics by Acquisition/Origination Period
CREDIT CHARACTERISTICS BY ACQUISITION/ORIGINATION PERIOD Correspondent Weighted Average FICO Weighted Average DTI 4Q20 1Q21 2Q21 3Q21 4Q21 4Q20 1Q21 2Q21 3Q21 4Q21 Government-insured 714 707 702 700 693 Government-insured 36 37 42 42 42 Conventional 768 761 757 755 750 Conventional 33 34 34 35 36 Co
Slide 29: PennyMac Financial Services
™ PENNYMAC™ FINANCIAL SERVICES
PennyMac Financial Services — Q4 2021 Earnings Presentation on 6ix