Pennymac Financial Services, Inc. · NYSE:PFSI

Pennymac Financial Services — Q3 2020 Earnings Presentation

31 slides from Pennymac Financial Services's earnings presentation, Nov 5, 2020

  1. Slide 1: Third Quarter 2020 Earnings Report

    Third Quarter 2020 Earnings Report

  2. 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

  3. Slide 3: Third Quarter Highlights

    Third Quarter Highlights  Net income was $535.2 million; diluted earnings per share (EPS) were $7.03 – Increase from a record second quarter, driven by higher income in both production and servicing – Issued $500 million of 5.375% Senior Unsecured Notes; issued an additional $150 million after quar

  4. Slide 4: Third Quarter Highlights (continued)

    Third Quarter Highlights (continued)  Servicing segment pretax income was $111.7 million, up from a pretax loss of $62.4 million in 2Q20 and a pretax loss of $18.1 million in 3Q19 – Pretax income excluding valuation-related items was $179.5 million, up 107% from 2Q20 and 612% from 3Q19, driven by l

  5. Slide 5: PennyMac Financial Is Unique Among Mortgage Specialists

    PennyMac Financial Is Unique Among Mortgage Specialists Industry-leading platform built organically – not Distinctive expertise and full range of through acquisitions capabilities across mortgage banking and investment management  Disciplined, sustainable growth for more than 12 years  Loan produc

  6. Slide 6: 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) 8th largest in the U.S.(2) ($170 billion in UPB in the last 12 months) ($402 billion in UPB)(3)  Subs

  7. Slide 7: Consistent Track Record of Profitability and Value Creation

    Consistent Track Record of Profitability and Value Creation Net Income(1) ($ in millions) $1,194 Over 7+ years $337 $393 since PFSI’s $312 $196 $248 $244 $172 IPO, book value 2013 2014 2015 2016 2017 2018 2019 9M20 per share has Annualized Return on Average Common Stockholders’ Equity grown from $7.

  8. Slide 8: Direct Lending and Servicing Scale Are Driving PFSI's Earnings Growth

    Direct Lending and Servicing Scale Are Driving PFSI’s Earnings Growth Production Pretax Income Servicing Pretax Income ($ in millions) ($ in millions) Estimated Contribution from Direct Lending (CDL & BDL) $309 $1,391 $220 $172 $147 $103 $59 $147 $528 $239 -$15 $87 2017 2018 2019 9M20 (1) 2017 2018

  9. Slide 9: Purchase Orientation Has Driven PFSI's Production Volumes Across Cycles

    Purchase Orientation Has Driven PFSI’s Production Volumes Across Cycles PFSI Purchase Mix Industry Purchase Mix 75% 80% 73% 71% 58% 64% 61% 63% 63% 53% 54% Purchase 48% 40% 49% 42% 38% Mix(1) 2013 2014 2015 2016 2017 2018 2019 9M20 $127 $118 PFSI $70 $68 $68 Production $48 Volume $32 $29 (UPB in bil

  10. Slide 10: Origination Market Remains Historically Strong

    Origination Market Remains Historically Strong U.S. Mortgage Origination Market(1) Average 30-year fixed rate mortgage(2) (UPB in trillions) 5.0% $3.6 4.5% $2.6 $2.3 4.0% $2.2 $1.1 3.13% $1.1 3.5% 2.90% $1.5 3.0% $1.3 $1.4 2.5% 2019 2020E 2021E Purchase Refinance  Economic forecasts for 2020 total

  11. Slide 11: Strong Track Record of Market Share Growth Across the Business

    Strong Track Record of Market Share Growth Across the Business Correspondent Production(1) Loan Servicing(1) 16.9% 15.5% 3.6% 3.3% 11.9% 2.7% 10.5% 2.3% 2017 2018 2019 9M20 12/31/17 12/31/18 12/31/19 9/30/20 Consumer Direct Production(1) Broker Direct Production(1) 2.0% 0.9% 0.7% 0.5% 0.5% 1.1% 0.3%

  12. Slide 12: Infrastructure Has Enabled PFSI's Rapid Growth in Mortgage Banking

    Infrastructure Has Enabled PFSI’s Rapid Growth in Mortgage Banking Scalable Infrastructure in Place PennyMac Employees(1)  Centralized Consumer Broker 6,019 Correspondent mortgage fulfillment Direct Direct 4,215 organization 3,460 performs loan Mortgage Fulfillment Division processing and (MFD) und

  13. Slide 13: Technology Investments Drive Continued Growth

    Technology Investments Drive Continued Growth Focus on Direct Lending Enhancements Consumer Direct  Enhance lead generation capabilities and use of data analytics  Increase use of digital marketing to drive non-portfolio originations  Improves experience for the  Improve ability for borrowers to

  14. Slide 14: Liquidity and Capital Update

    Liquidity and Capital Update  PFSI further strengthened its balance sheet with the issuance of $650 million of 5-year, senior unsecured corporate debt in September and October; net new liquidity was approximately $500 million after retiring a $150 million revolving credit facility ‒ Milestone in lo

  15. Slide 15: 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) $10.9 $54.5 $5.5 $8.9 $44.3 $37.7 $4.1 $35.4 $3.5 $6.3 $31.0 $29.9 $27.4 $5.1 $2.6 $4.6 $3.1 $1.9 $16.6 $18.9 $2.5 $2.7 $2.7 $1.2 $2.1 $1.0 $14.3 $17.0

  16. Slide 16: Production Segment Highlights – Business Trends by Channel

    Production Segment Highlights – Business Trends by Channel Correspondent Consumer Direct Broker Direct  PennyMac remained the largest  Record volumes achieved as a  Continued growth Q/Q in both correspondent aggregator in the result of: lock and funding volumes as a U.S. result of the increase in

  17. Slide 17: Servicing Segment Highlights

    Servicing Segment Highlights  Servicing portfolio totaled $401.9 billion in UPB at Loan Servicing Portfolio Composition September 30, 2020, up 4% Q/Q and 15% Y/Y (UPB in billions)  Record production volumes led to portfolio growth $388.3 $401.9 despite elevated prepayment activity $348.5  Modest

  18. Slide 18: Investment Management Segment Highlights

    Investment Management Segment Highlights  Net AUM as of September 30, 2020 were $2.3 billion, up 2% from June 30, 2020 primarily due to the increase in PMT’s book value – Investment management revenues were $9.8 million, down slightly from the prior quarter which included gains related PMT shares o

  19. 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

  20. Slide 20: Drivers of Production Segment Profitability

    Drivers of Production Segment Profitability 3Q19 2Q20 3Q20 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 (

  21. Slide 21: Servicing Profitability Excluding Valuation-Related Changes

    Servicing Profitability Excluding Valuation-Related Changes 3Q19 2Q20 3Q20 basis basis basis $ in millions (1) points $ in millions points (1) $ in millions (1) points Operating revenue $ 270.8 31.7 $ 257.2 26.1 $ 261.4 26.4 Realization of MSR cash flows (117.2) (13.7) (97.4) (9.9) (90.2) (9.1) EBO

  22. Slide 22: Trends in Delinquencies, Forbearance and Loss Mitigation

    Trends in Delinquencies, Forbearance and Loss Mitigation  Servicing advances outstanding were approximately $346 30+ Day Delinquency Rate and Forbearance Trend(1) million at September 30, 2020 versus $237 million at June 15.1% 30 14.1% 12.4% – Advances are expected to continue increasing over the n

  23. Slide 23: Appendix

    Appendix PennyMac inancia | Services, Inc.

  24. Slide 24: 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

  25. Slide 25: 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

  26. Slide 26: 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

  27. Slide 27: 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

  28. Slide 28: MSR Asset Valuation

    MSR Asset Valuation Not subject to Subject to excess September 30, 2020 excess servicing servicing spread Total Unaudited ($ in millions) spread liability liability Pool UPB $218,161 $16,690 $234,851 Weighted average note rate 3.73% 4.19% 3.76% Servicing fee/spread 0.35% 0.34% 0.35% Prepayment speed

  29. Slide 29: Acquisitions and Originations by Product

    Acquisitions and Originations by Product First Lien Acquisitions/Originations Unaudited ($ in millions) 3Q19 4Q19 1Q20 2Q20 3Q20 Correspondent Acquisitions Conventional Conforming $ 16,644 $ 20,510 $ 16,153 $ 18,900 $ 27,351 Government 14,346 16,653 13,616 10,991 16,977 (1) Non-Agency 3 - - - - Tota

  30. Slide 30: Interest Rate Locks by Product

    Interest Rate Locks by Product First Lien Locks Unaudited ($ in millions) 3Q19 4Q19 1Q20 2Q20 3Q20 Correspondent Locks Conventional Conforming $ 19,461 $ 19,736 $ 19,109 $ 24,804 $ 34,358 Government 15,933 16,225 14,871 12,920 20,164 (1) Non-Agency 1 - - - - Total $ 35,395 $ 35,961 $ 33,980 $ 37,725

  31. Slide 31: Credit Characteristics by Acquisition / Origination Period

    Credit Characteristics by Acquisition / Origination Period Correspondent Weighted Average FICO Weighted Average DTI 3Q19 4Q19 1Q20 2Q20 3Q20 3Q19 4Q19 1Q20 2Q20 3Q20 Government-insured 701 703 700 719 715 Government-insured 42 42 42 37 37 Conventional 760 762 763 769 772 Conventional 35 35 34 32 32

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