Pennymac Financial Services, Inc. · NYSE:PFSI
Pennymac Financial Services — Q3 2022 Earnings Presentation
35 slides from Pennymac Financial Services's earnings presentation, Oct 27, 2022
Slide 1: 3Q22 Earnings Report
3Q22 EARNINGS REPORT PennyMac Financial Services, Inc. October 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, our financial results, fu
Slide 3: Third Quarter Highlights
THIRD QUARTER HIGHLIGHTS 3Q22 Results Total loan acquisitions Consumer Government direct lock Broker direct Net Diluted PRODUCTION Pretax income and originations(2) volume lock volume correspondent lock volume income EPS(1) $39mm $26.0bn $3.8bn $1.9bn $12.4bn $135mm $2.46 MSR fair value Pretax incom
Slide 4: Origination Market Has Declined Meaningfully
ORIGINATION MARKET HAS DECLINED MEANINGFULLY U.S. Mortgage Origination Market(1) Mortgage Rates Have Rapidly Increased ($ in trillions) 7.0% $4.4 6.0% $4.1 5.0% $2.7 4.0% $2.6 $2.4 $1.9 3.0% $0.7 $0.4 2.0% $1.5 $1.8 $1.7 $1.5 1.0% 0.0% 2020 2021 2022E 2023E (3) (2) Purchase Refinance Average 30-year
Slide 5: Impact of Current Market Environment on PFSI's Businesses
IMPACT OF CURRENT MARKET ENVIRONMENT ON PFSI’S BUSINESSES Investment Production Servicing Management • Purchase activity expected to • Reduced EBO-related income • Fair value declines on PMT’s be impacted by affordability largely offset by increasing credit investments in recent challenges due to si
Slide 6: Long Track Record of Value Creation as a Publicly Traded Company
LONG TRACK RECORD OF VALUE CREATION AS A PUBLICLY TRADED COMPANY • Balanced business model with leadership positions Return on Equity (ROE) in production and servicing combined with robust 61% risk management disciplines drive profitability in different market environments 29% • Strong returns on eq
Slide 7: Expense Management Continues to Be a Priority for PFSI
EXPENSE MANAGEMENT CONTINUES TO BE A PRIORITY FOR PFSI PFSI implemented meaningful expense savings and capacity reductions as shifts in the market were developing • Third quarter operating expenses(1) were down $171 million from average 2021 levels, or 37% ‒ Additional actions have been taken in the
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) 17.7% 16.7% 15.3% 4.1% 4.1% 14.1% 3.7% 3.4% 11.8% 2.8% 2018 2019 2020 2021 3Q22LTM 12/31/18 12/31/19 12/31/20 12/31/21 9/30/22 Consumer Direct Market Share(1) Broker Direct
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) (UPB in billions) $16.3 $45.6 $4.9 $4.0 $44.0 $11.1 $23.0 $2.2 $22.4 $6.2 $1.9 $28.6 $22.4 $4.3 $3.1 $2.0 $21.0 $3.7 $3.8 $1.3 $10.3 $10.2 $1.6 $4.9 $2.2 $2.3 $0.9 $15.4
Slide 10: Drivers of Production Segment Results
DRIVERS OF PRODUCTION SEGMENT RESULTS 3Q21 2Q22 3Q22 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 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 $539.1 billion in UPB at September Loan Servicing Portfolio Composition 30, 2022, up 2% Q/Q and 9% Y/Y (UPB in billions) $527.3 $539.1 • Production volumes more than offset prepayment activity, $495.4 leading to continued portfolio growth •
Slide 13: Servicing Profitability Excluding Valuation-Related Changes
SERVICING PROFITABILITY EXCLUDING VALUATION-RELATED CHANGES 3Q21 2Q22 3Q22 basis basis basis $ in millions points(1) $ in millions points(1) $ in millions points(1) Loan servicing fees $ 267.5 22.1 $ 302.4 23.1 $ 313.1 23.5 Earnings on custodial balances and deposits 4.6 0.4 13.1 1.0 43.8 3.3 Realiz
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 MSR fair value change before recognition of realization of cash flows on the fair value of its MSR asset through a comprehensive
Slide 15: Projected Needs for Servicing Advances in Adverse Scenarios
PROJECTED NEEDS FOR SERVICING ADVANCES IN ADVERSE SCENARIOS Projected Scenarios • In the event of a prolonged economic downturn with (Next 12 Months) increasing delinquencies, mortgage servicers are required to ($ in millions) advance fund for delinquent property taxes and insurance and default-rela
Slide 16: Investment Management Segment Highlights
INVESTMENT MANAGEMENT SEGMENT HIGHLIGHTS • Net AUM as of September 30, 2022 were $2.0 billion, down 3% from June 30, 2022 and 19% from September 30, 2021 ‒ Decrease in AUM primarily due to PMT’s financial performance • Investment Management segment revenues were $10.4 million, up 7% from 2Q22 and 6%
Slide 17: PFSI Is Well in Excess of Prospective Regulatory Capital and Liquidity Requirements
PFSI IS WELL IN EXCESS OF PROSPECTIVE REGULATORY CAPITAL AND LIQUIDITY REQUIREMENTS In August, the Federal Housing Finance Agency (FHFA) and Ginnie Mae released updated eligibility standards for non- bank seller/servicers with a proposed effective date for most requirements of September 30, 2023 • P
Slide 18: Appendix
APPENDIX ™\ PENNYMAC
Slide 19: Pennymac Is an Established Leader in the U.S. Mortgage Market
PENNYMAC IS AN ESTABLISHED LEADER IN THE U.S. MORTGAGE MARKET WITH SUBSTANTIAL LONG-TERM GROWTH POTENTIAL $2.0 billion in assets under management 13-year track record #4 PMT IS A LEADING $539 billion outstanding #7 $133 billion LTM 3Q22 IN PRODUCTION(1) RESIDENTIAL MORTGAGE • CORRESPONDENT REIT 2.2+
Slide 20: 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 21: 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 4th largest in the U.S.(1) 7th largest in the U.S.(2) • Diversified business through correspondent, • Recurring fee income business captured over the consumer direct and b
Slide 22: 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% 17% generate attractive Average: 24% 11% 13% ROEs… (1) 2013 2014 2015 2016 2017 2018 2
Slide 23: Benefits and Potential Value from Pennymac's Large and Growing Servicing Portfolio
BENEFITS AND POTENTIAL VALUE FROM PENNYMAC’S LARGE AND GROWING SERVICING PORTFOLIO Recurring • $1.1 billion in revenue from servicing and sub-servicing fees in 2021 Cash Flows • Higher short-term rates expected to drive increased placement fee income SERVICING PORTFOLIO Proprietary • Cloud-based ser
Slide 24: 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 • Targeted debt-to-equity ratio near or below 3.5x with 3.0x 3.2x 2.4x 2.1x fluctuations largely driven by the origination environment or other market opportunities 1.0x • Non-funding debt-to-equity has historic
Slide 25: Robust Liquidity Risk Management Discipline
ROBUST LIQUIDITY RISK MANAGEMENT DISCIPLINE $2.8 billion in available liquidity at September 30, 2022(1), significantly in excess of minimum requirements and internally established reserve levels Reserves maintained for: • Financing covenants and other requirements of counterparties, regulators and
Slide 26: Pennymac Has Developed in a Sustainable Manner for Long-Term Success
PENNYMAC HAS DEVELOPED IN A SUSTAINABLE MANNER FOR LONG-TERM SUCCESS 2018 2019 2020 2021 2022 PFSI launched broker- Achieved position as the Record production volumes PFSI issued an additional Launched “Greatness Lives direct lending channel largest correspondent across all channels; nearly $1.15 bi
Slide 27: Current Market Environment and Macroeconomic Trends
CURRENT MARKET ENVIRONMENT AND MACROECONOMIC TRENDS Average 30-year fixed rate mortgage(1) 6.70% 10-year Treasury Bond Yield(2) 3.83% 7.0% 5.70% 5.0% 6.5% 3.01% 6.0% 4.0% 5.5% 5.0% 3.0% 4.5% 4.0% 2.0% 3.5% 3.0% 1.0% 2.5% 2.0% 0.0% Macroeconomic Metrics(3) Footnotes (1) Freddie Mac Primary Mortgage M
Slide 28: MSR Asset Valuation
MSR ASSET VALUATION September 30, 2022 Mortgage Unaudited ($ in millions) Servicing Rights Pool UPB $303,800 Coupon(1) 3.3% Servicing fee/spread(1) 0.36% Prepayment speed assumption (CPR)(1) 7.6% Fair value $5,661.7 As a multiple of servicing fee 5.19 (1) Weighted average 28
Slide 29: PFSI's Owned MSR Portfolio Characteristics
PFSI’S OWNED MSR PORTFOLIO CHARACTERISTICS Loan FICO Credit 60+ UPB % of Note Age Maturity Loan Size Original Current Segment Count Score at Delinquency ($ in billions) Total UPB Rate (months) (months) ($ in thousands) LTV LTV (in thousands) origination (by UPB) Government(1) FHA $114.2 37.6% 601 3.
Slide 30: Historical Trends in Delinquencies and Advances
HISTORICAL TRENDS IN DELINQUENCIES AND ADVANCES Historical Trends in Delinquency and Foreclosure Rates(1) 15.4% 14.0% 12.0% 9.5% 8.0% 7.2% 6.7% 5.8% 5.5% 5.0% 5.0% 3/31/20 6/30/20 9/30/20 12/31/20 3/31/21 6/30/21 9/30/21 12/31/21 3/31/22 6/30/22 9/30/22 30-60 Days 60-90 Days 90+ Days In Foreclosure
Slide 31: Acquisitions and Originations by Product
ACQUISITIONS AND ORIGINATIONS BY PRODUCT Acquisitions/Originations Unaudited ($ in millions) 3Q21 4Q21 1Q22 2Q22 3Q22 Correspondent Acquisitions Conventional Conforming $ 28,605 $ 17,157 $ 9,768 $ 10,320 $ 10,225 Government 15,375 15,651 12,730 10,649 12,161 Jumbo - - 1 3 2 Total $ 43,980 $ 32,808 $
Slide 32: Interest Rate Locks by Product
INTEREST RATE LOCKS BY PRODUCT Interest Rate Lock Commitments Unaudited ($ in millions) 3Q21 4Q21 1Q22 2Q22 3Q22 Correspondent Locks Conventional Conforming $ 29,411 $ 14,717 $ 10,194 $ 11,080 $ 10,647 Government 16,230 15,544 12,487 11,326 12,351 Jumbo - - - 3 2 Total $ 45,641 $ 30,261 $ 22,682 $ 2
Slide 33: Credit Characteristics by Acquisition/Origination Period
CREDIT CHARACTERISTICS BY ACQUISITION/ORIGINATION PERIOD Correspondent Weighted Average FICO Weighted Average DTI 3Q21 4Q21 1Q22 2Q22 3Q22 3Q21 4Q21 1Q22 2Q22 3Q22 Government-insured 700 693 691 682 680 Government-insured 42 42 43 43 45 Conventional 755 750 750 753 758 Conventional 35 36 36 37 38 Co
Slide 34: Adjusted EBITDA Reconciled to Net Income
ADJUSTED EBITDA RECONCILED TO NET INCOME ($ in millions) 3Q21 2Q22 3Q22 Net income $ 249.3 $ 129.2 $ 135.1 Provision for income taxes 90.2 48.4 50.3 Income before provisions for income taxes 339.5 177.5 185.5 Depreciation and amortization 6.8 7.4 9.4 Decrease (increase) in fair value of MSRs and MSL
Slide 35: SN CERN Ne
SN CERN Ne
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