Pennymac Financial Services, Inc. · NYSE:PFSI
Pennymac Financial Services — Q3 2021 Earnings Presentation
26 slides from Pennymac Financial Services's earnings presentation, Nov 4, 2021
Slide 1: 3Q21 Earnings Report
PENNYMAC FINANCIAL SERVICES, INC. 3Q21 EARNINGS REPORT November 2021
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: Third Quarter Highlights
THIRD QUARTER HIGHLIGHTS • Net income was $249.3 million, or diluted earnings per share (EPS) of $3.80; annualized return on average common stockholders’ equity (ROE) of 29% – Earnings reflect higher income from production against a normalizing origination market and strong core servicing results, p
Slide 4: Third Quarter Highlights (Continued)
THIRD QUARTER HIGHLIGHTS (CONTINUED) • Servicing segment pretax income was $8.0 million, down from $30.9 million in 2Q21 and from $111.7 million in 3Q20 – Pretax income excluding valuation-related items was $148.4 million(1), down 15% from 2Q21 driven by decreased income from loss mitigation activit
Slide 5: Origination Market Remains Historically Large
ORIGINATION MARKET REMAINS HISTORICALLY LARGE U.S. Mortgage Origination Market(1) Mortgage Rates Remain Historically Low ($ in trillions) 5.0% $4.1 $4.2 4.0% $3.0 $2.4 3.0% $2.3 $2.6 $1.1 $1.1 2.0% $1.8 $2.0 1.0% $1.3 $1.5 0.0% 2019 2020 2021E 2022E (3) (2) Purchase Refinance Average 30-year fixed r
Slide 6: Direct Lending and Servicing Are Driving PFSI's Profitability
DIRECT LENDING AND SERVICING ARE DRIVING PFSI’S PROFITABILITY Production Pretax Income Servicing Pretax Income ($ in millions) ($ in millions) $180 $174 $148 $613 $112 $331 $244 $25 $31 $179 $8 ($18) 3Q19 3Q20 2Q21 3Q21 3Q19 3Q20 2Q21 3Q21 (1) Estimated contribution from direct lending (Consumer and
Slide 7: PennyMac Continues to Grow Market Share Across Its Businesses
PENNYMAC CONTINUES TO GROW MARKET SHARE ACROSS ITS BUSINESSES Correspondent Market Share(1) Loan Servicing Market Share(1) 17.7% 17.7% 4.1% 14.9% 3.7% 3.4% 11.8% 2.8% 10.5% 2.3% 2017 2018 2019 2020 9M21 12/31/17 12/31/18 12/31/19 12/31/20 9/30/21 Consumer Direct Market Share(1) Broker Direct Market
Slide 8: 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 $5.5 $4.9 $54.5 $14.1 $4.5 $44.3 $46.7 $46.0 $44.0 $45.6 $4.0 $4.0 $10.9 $11.1 $3.5 $10.7 $27.4 $30.5 $28.6 $5.0 $6.3 $6.2 $3.2 $3.1 $2.7 $3.1 $17
Slide 9: Drivers of Production Segment Profitability
DRIVERS OF PRODUCTION SEGMENT PROFITABILITY 3Q20 2Q21 3Q21 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 10: 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 11: Servicing Segment Highlights
SERVICING SEGMENT HIGHLIGHTS • Servicing portfolio totaled $495.4 billion in UPB at Loan Servicing Portfolio Composition September 30, 2021, up 5% Q/Q and 23% Y/Y (UPB in billions) $495.4 $473.2 • Strong production volumes led to continued portfolio $401.9 growth despite elevated prepayment activity
Slide 12: Servicing Profitability Excluding Valuation-Related Changes
SERVICING PROFITABILITY EXCLUDING VALUATION-RELATED CHANGES 3Q20 2Q21 3Q21 basis basis basis $ in millions points(1) $ in millions points(1) $ in millions points(1) Operating revenue $ 261.4 26.4 $ 264.7 22.9 $ 272.1 22.5 Realization of MSR cash flows (90.2) (9.1) (85.7) (7.4) (82.2) (6.8) EBO loan-
Slide 13: 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 • PFSI seeks to moderate the impact of interest rate ($ in millions) changes on the fair value of its MSR asset through a comprehensive hedge strategy that also considers MSR fair value change bef
Slide 14: 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 257,000 borrowers have been enrolled in a forbearance plan 15.1% related to COVID-19 since the enactment of the CARES Act 14.1%
Slide 15: Investment Management Segment Highlights
INVESTMENT MANAGEMENT SEGMENT HIGHLIGHTS • Net AUM as of September 30, 2021 were $2.5 billion, up 6% from June 30, 2021, and up 9% from September 30, 2020 ‒ Increase in AUM due to PMT’s sale of $250 million in preferred shares • Investment Management segment revenues were $9.8 million, down 28% from
Slide 16: Appendix
PénnyMac’ APPENDIX »»>
Slide 17: 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 $2.5 billion in assets under management 12-year track record $197 billion in 2020 #2 PMT IS A LEADING $495 billion outstanding $187 billion in 9M21 IN PRODUCTION(1) #6 RESIDENTIAL • CORRESPONDENT MORTGAGE
Slide 18: 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 originated loans from third-party sellers subservicing for MSRs owned by PMT in mortgage-related ass
Slide 19: 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 generate attractive 26% 32% Average: 25% 19% 20% 22% 22% ROEs… 11% 13% (1) 2013 2014 2015 2016 2017 2018 2019
Slide 20: 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% 4.5% 4.0% 3.02% 1.49% 4.0% 1.47% 3.01% 3.0% 3.5% 2.0% 3.0% 2.5% 1.0% 2.0% 0.0% Macroeconomic Metrics(3) Footnotes 9/30/20 12/31/20 3/31/21 6/30/21 9/30/21 (1) Freddie Mac Pr
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 2nd largest in the U.S.(1) 6th largest in the U.S.(1) • Diversified business through correspondent, • Recurring fee income business captured over consumer direct and broke
Slide 22: 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 PFSI issued an backed term notes direct lending channel largest correspondent volumes across all additional $1.15 billion of
Slide 23: MSR Asset Valuation
MSR ASSET VALUATION September 30, 2021 Mortgage Unaudited ($ in millions) Servicing Rights Pool UPB $259,221 (1) Coupon 3.2% (1) Servicing fee/spread 0.34% (1) Prepayment speed assumption (CPR) 10.3% Fair value $3,611.1 As a multiple of servicing fee 4.12 (1) Weighted average 23
Slide 24: Acquisitions and Originations by Product
ACQUISITIONS AND ORIGINATIONS BY PRODUCT First Lien Acquisitions/Originations Unaudited ($ in millions) 3Q20 4Q20 1Q21 2Q21 3Q21 Correspondent Acquisitions Conventional Conforming $ 27,351 $ 37,986 $ 33,762 $ 30,479 $ 28,605 Government 16,977 18,923 17,440 16,175 15,375 Total $ 44,328 $ 56,908 $ 51,
Slide 25: Interest Rate Locks by Product
INTEREST RATE LOCKS BY PRODUCT First Lien Locks Unaudited ($ in millions) 3Q20 4Q20 1Q21 2Q21 3Q21 Correspondent Locks Conventional Conforming $ 34,363 $ 39,451 $ 33,998 $ 30,332 $ 29,411 Government 20,167 19,728 17,064 15,657 16,230 Total $ 54,531 $ 59,179 $ 51,062 $ 45,990 $ 45,641 Consumer Direct
Slide 26: Credit Characteristics by Acquisition/Origination Period
CREDIT CHARACTERISTICS BY ACQUISITION/ORIGINATION PERIOD Correspondent Weighted Average FICO Weighted Average DTI 3Q20 4Q20 1Q21 2Q21 3Q21 3Q20 4Q20 1Q21 2Q21 3Q21 Government-insured 715 714 707 702 700 Government-insured 37 36 37 42 42 Conventional 772 768 761 757 755 Conventional 32 33 34 34 35 Co
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