Pennymac Financial Services, Inc. · NYSE:PFSI
Pennymac Financial Services — Q4 2022 Earnings Presentation
34 slides from Pennymac Financial Services's earnings presentation, Feb 2, 2023
Slide 1: 4Q22 Earnings Report
4Q22 EARNINGS REPORT PennyMac Financial Services, Inc. February 2023
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: Fourth Quarter Highlights
FOURTH QUARTER HIGHLIGHTS Strong servicing results were partially offset by reduced profitability in Consumer Direct and non-recurring tax items(1) 4Q22 Results Total loan acquisitions Consumer PFSI Net Diluted PRODUCTION Pretax income and originations(2) direct lock volume Broker direct lock volume
Slide 4: PFSI 2022 Highlights and Accomplishments
PFSI 2022 HIGHLIGHTS AND ACCOMPLISHMENTS Operating discipline to right size capacity and reduce expenses drove strong financial performance in the challenging mortgage environment of 2022 Operational Highlights Financial Results Capital Activity $552bn $476mm $406mm Total Servicing Share Portfolio U
Slide 5: Origination Market Has Declined Meaningfully
ORIGINATION MARKET HAS DECLINED MEANINGFULLY U.S. Mortgage Origination Market(1) Mortgage Rates Remain High ($ in trillions) $4.4 7.0% $4.1 6.0% 5.0% $2.6 $2.6 4.0% $2.2 $1.8 3.0% $0.7 $0.4 2.0% $1.8 1.0% $1.5 $1.5 $1.4 0.0% 2020 2021 2022 2023E Purchase Refinance (2) (3) Average 30-year fixed rate
Slide 6: 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 • $1.2 billion in revenue from servicing and sub-servicing fees in 2022 Cash Flows • Higher short-term rates driving increased placement fee income SERVICING PORTFOLIO Proprietary • Cloud-based servicing sys
Slide 7: Future Recapture Opportunities Enhanced by Recent Production at Higher Rates
FUTURE RECAPTURE OPPORTUNITIES ENHANCED BY RECENT PRODUCTION AT HIGHER RATES Pennymac’s Total Production Volumes versus Average 30-year Fixed Rate Mortgage 8.0% $26.7 bn $26.0 bn 7.0% 6.4% $23.0 bn 6.0% 5.0% 4.7% Average Average Average 4.0% Note Rate: Note Rate: Note Rate: 3.0% 4.41% 5.11% 5.85% 2.
Slide 8: Meaningful Expense Savings and Capacity Reductions in 2022
MEANINGFUL EXPENSE SAVINGS AND CAPACITY REDUCTIONS IN 2022 PFSI was proactive at aligning capacity to the anticipated decline in the origination market • Fourth quarter operating expenses(1) were down $206 million from average 2021 levels, or 44% • Pennymac remains disciplined and will continue to r
Slide 9: PFSI Is Well-Positioned for Continued Execution in 2023 and Beyond
PFSI IS WELL-POSITIONED FOR CONTINUED EXECUTION IN 2023 AND BEYOND Multi-Channel Approach to Mortgage Production Return on Equity (ROE) • Flexibility to adapt to different market conditions; drives consistent, 61% organic servicing portfolio growth Large and Growing Servicing Portfolio 29% • Signifi
Slide 10: 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% 4.1% 17.7% 3.7% 16.7% 15.3% 15.3% 3.3% 2.8% 11.8% 2018 2019 2020 2021 2022 12/31/18 12/31/19 12/31/20 12/31/21 12/31/22 Consumer Direct Market Share(1) Broker Direct M
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) $3.7 $14.2 $3.9 $32.8 $10.6 $23.0 $22.9 $30.3 $22.4 $20.8 $1.9 $2.0 $17.2 $2.8 $6.3 $10.2 $10.7 $3.8 $1.3 $1.1 $1.7 $15.7 $2.3 $0.9 $12.2 $4.3 $1.1 $0.8
Slide 12: Drivers of Production Segment Results
DRIVERS OF PRODUCTION SEGMENT RESULTS 4Q21 3Q22 4Q22 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 13: 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 14: Servicing Segment Highlights
SERVICING SEGMENT HIGHLIGHTS • Servicing portfolio totaled $551.7 billion in UPB at December Loan Servicing Portfolio Composition 31, 2022, up 2% Q/Q and 8% Y/Y (UPB in billions) $539.1 $551.7 • Production volumes more than offset prepayment activity, $509.7 leading to continued portfolio growth • S
Slide 15: Servicing Profitability Excluding Valuation-Related Changes
SERVICING PROFITABILITY EXCLUDING VALUATION-RELATED CHANGES 4Q21 3Q22 4Q22 basis basis basis $ in millions points(1) $ in millions points(1) $ in millions points(1) Loan servicing fees $ 287.8 22.9 $ 313.1 23.5 $ 321.9 23.6 Earnings on custodial balances and deposits and other income 8.8 0.7 43.8 3.
Slide 16: 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 on the fair value of its MSR asset through a comprehensive MSR fair value change before recognition of realization of cash flows
Slide 17: 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% 6.1% 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 12/31/22 30-60 Days 60-90 Days 90+ Days
Slide 18: Investment Management Segment Highlights
INVESTMENT MANAGEMENT SEGMENT HIGHLIGHTS • Net AUM as of December 31, 2022 were $2.0 billion, down 3% from September 30, 2022 and 17% from December 31, 2021 ‒ Decrease in AUM primarily due to PMT’s financial performance • Investment Management segment revenues were $9.9 million, down 4% from 3Q22 an
Slide 19: Appendix
APPENDIX ™ PENNYMAC’
Slide 20: 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 2022, 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
Slide 21: 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 #3 PMT IS A LEADING $552 billion outstanding $109 billion in 2022 IN PRODUCTION(1) RESIDENTIAL • CORRESPONDENT PRODUCTION MORTGAGE RE
Slide 22: 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 23: 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 3rd largest in the U.S.(1) 6th largest in the U.S.(2) • Diversified business through correspondent, • Recurring fee income business captured over the consumer direct and b
Slide 24: 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 29% 22% 26% 22% generate attractive Average: 24% 19% 20% 11% 13% 14% ROEs… (1) 2013 2014 2015 2016 2017 2018 2
Slide 25: 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 3.0x • Targeted debt-to-equity ratio near or below 3.5x with 2.4x 2.0x fluctuations largely driven by the origination environment or other market opportunities 1.1x • Non-funding debt-to-equity has historic
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 $1.15 bi
Slide 27: Current Market Environment and Macroeconomic Trends
CURRENT MARKET ENVIRONMENT AND MACROECONOMIC TRENDS Average 30-year fixed rate mortgage(1) 10-year Treasury Bond Yield(2) 6.70% 6.42% 5.0% 3.87% 8.0% 3.83% 7.0% 4.0% 6.0% 3.0% 5.0% 2.0% 4.0% 1.0% 3.0% 2.0% 0.0% Macroeconomic Metrics (3) Footnotes 12/31/21 3/31/22 6/30/22 9/30/22 12/31/22 (1) Freddie
Slide 28: MSR Asset Valuation
MSR ASSET VALUATION December 31, 2022 Mortgage Unaudited ($ in millions) Servicing Rights Pool UPB $314,568 Coupon(1) 3.4% (1) Servicing fee/spread 0.36% Prepayment speed assumption (CPR) (1) 7.5% Fair value $5,953.6 As a multiple of servicing fee 5.20 (1) Weighted average 28
Slide 29: PFSI's Owned MSR Portfolio Characteristics
PFSI’S OWNED MSR PORTFOLIO CHARACTERISTICS As of December 31, 2022 Loan FICO Credit 60+ UPB % of Note Age Maturity Loan Size Original Current Segment Count Score at Delinquency ($ in billions) Total UPB Rate (months) (months) ($ in thousands) LTV LTV (in thousands) origination (by UPB) Government(1)
Slide 30: Acquisitions and Originations by Product
ACQUISITIONS AND ORIGINATIONS BY PRODUCT Acquisitions/Originations Unaudited ($ in millions) 4Q21 1Q22 2Q22 3Q22 4Q22 Correspondent Acquisitions Conventional Conforming - for PMT $ 17,157 $ 9,768 $ 10,320 $ 10,225 $ 6,771 Conventional Conforming - for PFSI - - - - 3,912 Government 15,651 12,730 10,6
Slide 31: Interest Rate Locks by Product
INTEREST RATE LOCKS BY PRODUCT Interest Rate Lock Commitments Unaudited ($ in millions) 4Q21 1Q22 2Q22 3Q22 4Q22 Correspondent Locks Conventional Conforming - for PMT $ 14,717 $ 10,194 $ 11,080 $ 10,647 $ 7,507 Conventional Conforming - for PFSI - - - - 4,747 Government 15,544 12,487 11,326 12,351 1
Slide 32: Credit Characteristics by Acquisition/Origination Period
CREDIT CHARACTERISTICS BY ACQUISITION/ORIGINATION PERIOD Correspondent Weighted Average FICO Weighted Average DTI 4Q21 1Q22 2Q22 3Q22 4Q22 4Q21 1Q22 2Q22 3Q22 4Q22 Government-insured 693 691 682 680 690 Government-insured 42 43 43 45 46 Conventional 750 750 753 758 756 Conventional 36 36 37 38 39 Co
Slide 33: Adjusted EBITDA Reconciled to Net Income
ADJUSTED EBITDA RECONCILED TO NET INCOME ($ in millions) 4Q21 3Q22 4Q22 Net income $ 173.1 $ 135.1 $ 37.6 Provision for income taxes 61.0 50.3 30.1 Income before provisions for income taxes 234.1 185.5 67.7 Depreciation and amortization 6.9 9.4 10.6 Decrease (increase) in fair value of MSRs and MSLs
Slide 34: ™ PENNYMAC’
™ PENNYMAC’ FINANCIAL SERVICES
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